The Fiscal Transparency and Accountability Act, 2004, mandates that the government publish a long-term report. The legislation specifies that the report must contain:

  • A description of anticipated changes in the economy and in population demographics over the next 20 years;
  • A description of the potential impact of these changes on the public sector and on Ontario’s fiscal policy during that period; and
  • An analysis of key fiscal policy issues that, in the Minister of Finance’s opinion, are likely to affect the long-term sustainability of the economy and of the public sector.

Looking beyond Ontario’s current economic and fiscal environment allows the government to focus on long-term decision-making. The decisions it will make in the next few years will prepare Ontario to deal with the opportunities and challenges of the coming decades. While the future cannot be known in any detail, it is useful to assess the broad trends that will shape Ontario’s economic and social environment. These include:

  • An aging and more slowly growing population;
  • Intensifying global competition, especially from emerging economies;
  • Rapid technological change, with profound but uncertain impacts; and
  • Expansion of global trade, bringing cheaper goods and services to consumers.

These tendencies are likely to persist in the coming two decades. Some other factors are less certain. For example, this report anticipates that:

  • Resource prices are likely to rise as the demand from global economic growth outstrips the discovery of new supplies and the development of input-saving substitutes;
  • In the global competition for talent, Ontario’s welcoming, secure communities and attractive quality of life will continue to attract many international immigrants;
  • Interest rates will rise from historic lows as economic growth improves; and
  • Pressure on the physical environment will remain a concern and a focus of public policy.

Ontario’s economy is already transforming in response to these long-term forces. Global competition has led to the restructuring of Ontario’s manufacturing industry towards higher value-added, more advanced production. The service sector is also capturing new markets through innovation in product design and customer service. Increasingly, many services are traded internationally. Ontario’s future prosperity hinges on more firms, both goods and services producing, continuing to seize opportunities in the global market.

This report considers these and other forces that will affect Ontario between 2014 and 2035, and examines their implications for Ontario’s long-term economic and fiscal prospects. The report is divided into six chapters, and includes an overview of Ontario’s long-term productivity and retirement income security.

Chapter 1: Population and Labour Force Trends and Projections

Demographic changes have a significant impact on Ontario’s long-term economic and fiscal outlook. This chapter presents population and labour force trends unfolding in the province and discusses their potential impacts. Six key trends are identified:

  • Population growth will moderate;
  • Immigration will sustain population growth;
  • Overall population will continue to age;
  • Growth in the working-age population will slow;
  • The overall labour force participation rate will decline; and
  • Population growth will be concentrated in the Greater Toronto Area.

Population aging and slower growth of the working-age group may restrain future economic growth in the absence of significant productivity improvements, and will increase pressure on government spending, particularly on health and infrastructure. As immigration becomes the main source of labour force growth, it will be crucial to help newcomers smoothly integrate into the labour market. Greater labour force participation by older workers, youth and other underrepresented groups will be important to help mitigate slowing growth in the workforce.

Chapter 2: Long-Term Ontario Economic Projection

This chapter provides a projection of Ontario’s macroeconomic growth over the 2014 to 2035 period. The chapter discusses:

  • Key factors in the global economy that affect Ontario’s economic performance, including the performance of the U.S. and global economies, commodity prices, the Canadian dollar exchange rate and interest rates;
  • Underlying contributors that determine the Ontario economy’s long-term potential to grow, such as labour supply, productivity and the availability of public and private capital;
  • Details of the long-term economic outlook for Ontario;
  • The impact of different labour productivity assumptions on the long-term outlook; and
  • Risks to the economic projection.

The projection shows an economy that will grow somewhat more slowly than in the past, primarily as a result of slower growth in the working-age population. This moderation in the growth of available workers will be a significant challenge, but can be met by enhancing the productive capacity of the labour force through innovation, enhanced management practices, skills training and increases in investment.

Chapter 3: The Changing Shape of Ontario’s Economy

This chapter examines the changing structure of Ontario’s economy, including:

  • Global economic restructuring and the shift from goods-producing industries to advanced manufacturing and services-producing industries;
  • Challenges to and opportunities for improving Ontario’s manufacturing competitiveness;
  • The government’s response to these challenges and opportunities — helping create strong economic fundamentals to support growth;
  • The economy’s ability to adapt to new economic realities and transform for future growth; and
  • Detailed industry-specific analyses for major goods- and services-producing sectors.

Ontario’s manufacturing sector has significantly restructured in recent years due to a higher Canadian dollar, increased competition from lower-cost jurisdictions, slower U.S. growth, and slower gains in productivity compared to the United States. However, many Ontario manufacturers such as aerospace and food processing firms, as well as many services firms, are successfully capturing new markets by offering innovative new products and services. The government has worked to create a strong business climate built around competitive taxes, an effective regulatory system, a skilled and healthy workforce, and modern infrastructure — which will help firms and workers adapt and seize opportunities in the challenging new global economy.

Chapter 4: Long-Term Fiscal Prospects

This chapter outlines some of the impacts that Ontario’s long-term demographic and economic growth outlook could have on future demand for public services. It discusses these impacts from three perspectives:

  • The importance of fiscal sustainability for long-term delivery and protection of public services;
  • Key drivers of demand for public services: health care, education and training, children’s and social services, other government programs, and public infrastructure; and
  • The implications of fiscal sustainability from an intergovernmental perspective — in particular, the trend of federal fiscal sustainability being achieved at the expense of provinces and territories.

Ontario’s changing demographics, along with external and internal economic challenges, are expected to put pressure on the demand for public services. The government is already taking responsible steps to improve the efficiency and effectiveness of public services to ensure they are on a long-term, sustainable footing. This includes moving forward with recommendations of the Commission on the Reform of Ontario’s Public Services, and continuing to advocate for predictable and sustainable support from the federal government.

Chapter 5: Productivity in Ontario: Challenges and Opportunities

Productivity growth is a key driver of an economy’s prosperity and living standards. However, Ontario’s labour productivity growth has slowed significantly over the past decade, and the gap with the United States has widened. This chapter:

  • Reviews Ontario’s historical productivity trends;
  • Compares Ontario’s productivity growth with other jurisdictions;
  • Examines potential causes of Ontario’s lagging productivity growth;
  • Describes current government initiatives and possible future areas of policy focus to improve productivity and competitiveness; and
  • Identifies opportunities for the business sector to strengthen productivity over the long term.

As the growth of Ontario’s labour force slows, stronger productivity gains will be increasingly important to ensure future prosperity. A key challenge will be shaping government policies to support private-sector opportunities that will raise productivity growth.

Chapter 6: Retirement Income Security

A significant portion of today’s workers could experience a decline in living standards in retirement because they are not saving enough. In the absence of change, this problem will likely worsen over time. This chapter:

  • Discusses the extent of the retirement savings problem and the factors contributing to it;
  • Identifies who is most likely to have inadequate retirement savings; and
  • Describes how increasing retirement savings would have positive economic benefits.

Inadequate retirement incomes among future retirees will occur at a time when the population is aging and labour force growth is projected to slow. Taken together, these trends could create more pressure on programs directed at seniors, and an even greater transfer of resources from the younger, working-age population. Adequate personal savings, efficient investments and better access to pension plans would enable Ontarians to be better prepared financially for their retirement future.

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While this paper is a summary of work and analysis on the major issues that face Ontario, it is not a fiscal plan or an economic prediction. It is a guide to what might happen; a considered list of what to pay attention to over the long term.

Ontario is a prosperous province. The future will present both challenges and opportunities. Through hard work, the flexibility to embrace change and adapt, and by investing wisely in people, infrastructure and business climate, this prosperity can be sustained.