Ontario's Long-Term Report on the Economy
Introduction

In accordance with the Fiscal Transparency and Accountability Act, 2004, Ontario’s Long-Term Report on the Economy presents a long-range assessment of Ontario’s economic and fiscal environment. This report:

  • Describes anticipated changes in the economy and in population demographics over the next 20 years;
  • Outlines the potential impact of these changes on the public sector and on Ontario’s fiscal policy during that period; and
  • Analyzes key fiscal policy issues that the Minister of Finance believes 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 makes in the next few years will prepare Ontario to deal with the opportunities and challenges of the coming decades. While the future can never be known in detail, it is useful to assess the broad trends that will shape Ontario’s economic, fiscal and social environment.

These trends include:

  • An aging and more slowly growing population, in Ontario and many parts of the world;
  • Potentially slower economic growth in many regions of the province, owing to slowing workforce growth;
  • Growth in the trade in services continuing to outpace the trade in goods;
  • The rise of non-standard forms of employment, including part-time and short-term work; and
  • Provinces and territories will face significant fiscal challenges over the long term, while the federal government’s fiscal position is projected to be more sustainable and improve over the same period.

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 more advanced production. The service sector is also capturing new markets through innovations in product design and customer service. Increasingly, many services are traded internationally. Ontario’s future prosperity hinges on more firms, producing both goods and services, continuing to seize opportunities in the global market. The Province is supporting this by helping businesses scale up to become internationally competitive and increase exports. This report considers these and other forces that will affect Ontario between 2016 and 2040, and examines their implications for Ontario’s long-term economic and fiscal prospects.

Content of Report

The report is divided into four chapters and includes an overview of the major challenges and issues that Ontario may face, as well as the actions the government is taking now to prepare the province for the future. The report does not examine issues that the Province is considering in the short term, such as housing affordability, electricity prices and the path to a balanced budget.

Chapter I: Demographic Trends and Projections

Demographic change has a significant impact on Ontario’s long-term economic and fiscal outlook. Demographic analysis and projections are important to help the government and society better prepare for population change, aging and migration at the provincial and regional levels. For example, demographic studies yield data to aid the development and location of health, education and transportation systems and facilities and estimates of funding required for seniors’ services, and to inform policies to support labour force growth, a key driver of economic growth.

Chapter I presents demographic trends unfolding in the province and discusses their potential future path and implications. It also provides population projections and discusses some of the implications of these projections.

Key trends include:

  • Population growth will continue but the pace will moderate;
  • Immigration will account for a predominant and rising share of population growth;
  • Seniors will make up a much larger share of the population;
  • Population growth will be concentrated in the Greater Toronto Area (GTA);
  • Slower growth will occur in the core working-age group; and
  • Economic growth in many regions of the province will potentially slow, owing to slowing workforce growth.

Suggested policy approaches and current government initiatives to help address the key challenges presented by these demographic trends include:

  • Supporting continued and enhanced labour force participation by seniors, youth, women, Indigenous peoples and people with disabilities through initiatives such as the Youth Job Link program and the Partnership Council on Employment Opportunities for People with Disabilities;
  • Modernizing and improving the delivery of quality health care for seniors through increased access to the Ontario Drug Benefit Program for low-income seniors and programs that support seniors in their communities and encourage aging actively;
  • Supporting seniors’ incomes by increasing retirement savings through the agreement among federal, provincial and territorial governments to enhance the Canada Pension Plan (CPP); and
  • Improving the economic conditions of all regions of the province by putting in place growth plans for the Greater Golden Horseshoe and Northern Ontario, creating regional economic development strategies and making investments through regional development funds.

Chapter II: Economic Trends and Projections

Taking a long-range perspective on Ontario’s economic future is important for assessing the impact of government policy and fiscal sustainability. The inclusion of a long-term assessment within a government’s budgetary framework is recommended by the Organisation for Economic Co-operation and Development and it has been adopted by a number of national governments. The long-term projections outlined in this chapter are based on a reasonable set of assumptions and are broadly in line with private-sector forecasts for Ontario.

Chapter II describes the broad economic trends unfolding in the province and discusses their potential future path and implications.

Key trends include:

  • Economic growth to continue but at a slower pace than in the past, similar to other advanced economies and primarily due to slower growth in the working-age population;
  • Labour productivity growth is a key driver of Ontario’s prosperity and is projected to continue to grow at its long-term historical pace;
  • The structure of the Ontario economy will continue to shift from goods-producing to service-producing sectors;
  • Ontario exporters face challenging global competition, but fast-growing emerging markets present new opportunities for growth; and
  • Transformative technologies will pose both opportunities and challenges to Ontario’s economy.

The government is improving Ontario’s long-term economic prosperity and increasing business productivity by:

  • Investing in a highly educated labour force to prepare workers for tomorrow’s economic opportunities through supports for young learners, investments to expand access to postsecondary education and implementation of the Highly Skilled Workforce Strategy;
  • Encouraging innovation such as new and transformative technologies and implementing the Business Growth Initiative to help businesses take advantage of these opportunities and scale up for future growth;
  • Investing in public infrastructure to support existing jobs, create new jobs and improve the movement of people and goods;
  • Maintaining a competitive tax environment through business tax reforms that have included Corporate Income Tax rate cuts and the elimination of the Capital Tax;
  • Developing a Going Global trade strategy to help businesses expand their exports and access new workers; and
  • Investing cap-and-trade proceeds, as outlined under the Climate Change Action Plan, into incentives for business and industry to cut emissions through adoption of clean technologies and to maintain competitiveness.

Chapter III: Employment Trends

Economic pressures and trends, particularly those related to globalization and technological change, have had a major impact on the labour market and employment in Ontario. For most families, employment earnings make up the largest share of total income and are a key determinant of well-being. Employment itself is an important part of many people’s lives and contributes to their sense of identity. It is important to examine employment trends in detail to understand the changes that are happening and to identify which trends are likely to continue. This will help the government and society to better prepare for the changes and to respond where needed with policies and programs. This is especially the case for employees in non-standard jobs and other vulnerable workers who have been negatively affected by the changing nature of employment.

Chapter III describes the key economic forces and pressures that are affecting employment, and highlights the changes taking place and the challenges that have arisen.

Key trends include:

  • A divergence between economic growth, wages and measures of well-being;
  • Shifting employment from goods-producing industries, in particular manufacturing, to service-sector industries;
  • Declining shares of middle-skill and middle-paying occupations, along with increasing shares of high-skill and high-paying occupations and lower-paying, non-routine manual occupations;
  • A rise in non-standard forms of employment, such as involuntary part-time and temporary employment; and
  • Increasing diversity of the workforce.

The government is working to create the conditions and supports to address the changing nature of employment, including:

  • Examining how to modernize Ontario’s labour and employment laws to better protect workers and support business through the Changing Workplaces Review;
  • Increasing access to affordable, quality child care to help parents fully participate in the labour force;
  • Strengthening income security through existing supports, such as the Ontario Child Benefit, and moving forward with a Basic Income Pilot to test whether a basic income would provide more predictable and consistent income support in the context of today’s labour market;
  • Encouraging the federal government to review Employment Insurance to improve supports for a broader range of people who lose their jobs;
  • Investing in support for workers during periods of employment transition through Employment Ontario, the Youth Jobs Strategy, the Ontario Disability Support Program and SkillsAdvance Ontario;
  • Improving workplace safety by implementing a strategy to prevent workplace injuries, illnesses and fatalities; and
  • Employing a multi-faceted strategy to strengthen retirement security for today’s workers, which includes achieving a historic agreement among federal, provincial and territorial governments to enhance CPP.

Chapter IV: Long-Term Fiscal Prospects

Fiscal sustainability is an important long-term objective for governments. It determines their capacity to make the investments and deliver the public services that protect the quality of life of residents, now and in the future. Achieving fiscal sustainability requires continual analysis of the potential impact of demographic trends and economic projections on a government’s long-term fiscal outlook. For example, consideration must be given to the potential fiscal pressures associated with an aging population, a labour force that is growing more slowly, and infrastructure assets that are aging but also facing new demands related to a growing population and technological change.

Chapter IV describes the potential fiscal implications of the long-term demographic and economic trends affecting Ontario. As well, the chapter outlines steps being taken to support Ontario’s long-term fiscal sustainability. This includes transforming and modernizing public service delivery, ensuring the integrity of the Province’s revenue base, and working with federal–provincial–territorial partners to find forward-looking solutions to meet the challenges collectively faced by Canadians.

Key trends include:

  • Demographic and economic trends are projected to increase pressure on government expenditures and revenues;
  • An aging population will increase demand for health care, which will put added pressure on health care expenditures;
  • A slower pace of labour force growth will increase pressure to invest in education and training to build up the productive capacity of the province’s highly skilled workforce; and
  • Under current policy, provinces and territories will face increasing fiscal challenges over the long term, while the federal government’s fiscal position is projected to be more sustainable and improve over the same period.

The Province is taking steps to address the potential fiscal impact of demographic and economic trends. These include:

  • Taking a long-term approach to managing Ontario’s finances through transformation and modernization to maintain fiscal sustainability, while continuing to invest in key public services;
  • Promoting the long-term sustainability of the health care system and focusing on achieving the best possible health outcomes through the Province’s “Patients First: Action Plan for Health Care”;
  • Investing in people’s talents and skills by transforming student financial assistance and working to ensure the long-term financial sustainability of Ontario’s universities and colleges; and
  • Continuing to take a collaborative approach with federal, provincial and territorial partners to find forward-looking solutions to meet the challenges collectively faced by Canadians.