Smart Growth Ontario

Economic Outlook for Ontario

The economy of Ontario is expected to experience a modest growth due to a decrease in consumer spending. The major obstacles that businesses face include poor tax competitiveness, regulatory barriers, and labor productivity issues. Other issues that have a negative impact on growth include real estate volatility, rising household debt, and uncertain trade relations on the global level.

Statistics

The province’s share of the economy decreased from close to 41 percent in 2003 to close to 37 percent in 2014. In 2017, the economy’s share climbed to 38.6 percent but this can be explained with low commodity prices. In 2015, Ontario’s economy grew by 2.5 percent compared to 0.7 for Canada and in 2016, by 2.3 percent compared to 1.2 percent for Canada. It was only in 2015 and 2016 when the province’s economy outpaced Canada. GDP growth also varies significantly across regions and between 2003 and 2017, Northern Ontario experienced growth of just 0.2 percent compared to 0.9 percent for Southwestern Ontario, 2 percent for Eastern and Central Ontario, and 2.3 percent for the Great Toronto Area.

Sectors that experienced growth include administrative and professional, education, health, and public administration, and rental, leasing, and real estate. Other sectors that grew faster are insurance and finance and retail and wholesale trade. Manufacturing posted negative growth of 1 percent.

Challenges and Prospects

The obstacles to economic growth are mainly associated with underinvestment, government and household debt, labor force underperformance, and administrative regulations that businesses face which prevent them from expanding their operations. Workforce underperformance is mainly related to population aging, resulting in slower economic growth. The main driving force of population growth is immigration. The number of seniors in Ontario is expected to double during the next 20 years, which will put a strain on the capacity of the provincial government, especially when it comes to services for seniors, infrastructure, and healthcare.

The fact that the U.S. tax reform greatly reduced the province’s tax competitiveness is also a source of concern. The marginal effective tax rate in the U.S. was 45 percent higher than in Ontario before the tax reform south of the border. The industries with the lowest tax rates were forestry (48 percent) and communication services (53 percent). After the reform, the tax rate for manufacturing in the U.S. is lower than in Ontario. Other industries with lower tax rates include construction (19 percent vs. 21.7 percent) and storage and transportation (13.1 percent vs. 15.8 percent).

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According to a report by the Royal Bank of Canada, households are also expected to tighten up their budgets, and the reason is that Ontarians are with some of the highest levels of debt in Canada. This means that households are likely to shrink their budgets and cut down on expenses. High household debt can be explained with low interest rates during the past couple of years. In 2010, for example, the average household debt was $119,000, compared to $154,000 in 2016. Low interest rates resulted in more real estate purchases, higher consumer spending, and economic growth but also resulted in growing debt. According to experts, interest rates are expected to increase by 1 percent by 2021 resulting in higher debt payments. The share of income that goes toward repayment will increase from close to 14 percent to 15.3 percent in 2021. Low-income families will be the ones most affected by interest rate hikes as they already spend about 30 percent of their income on debt repayment. Higher interest rates mean that more people will be vulnerable to emergency financial situations, and spending will shrink, which will have a negative impact on the economy.

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Why Is Conservative Government Better for Ontario?

Many people believe that a conservative government is better for Ontario as the Premier promised to keep caps on school class size, keep full-day schooling for preschool-age children, create two-tiered healthcare system, and not to privatize healthcare. The government also promised to increase spending on highways, GO service, and subways, provide funding for mental health, and reduce electricity prices. The conservative government pledged to reduce the small business tax rate and to cut red tape to stimulate economic growth and job creation.

Different reforms have been implemented in the fields of healthcare, education, French-language services, and social assistance services. Here is what the new government has done so far which also illustrates why a conservative government is better for Ontario.

One of the main goals of the conservative government is to achieve fiscal sustainability and eliminate a huge deficit of $13.5 billion. The government kept its promise when it comes to hydro rates, climate change policy, and government spending.

Gas Emissions

The Premier replaced cap-and-trade with the Ontario Carbon Trust plan under which emitters of gases will be paid to reduce greenhouse gas emissions. The targets set out in the Paris Climate-Change Agreement are expected to be met by 2030. The new plan also aims to reduce gas prices. Different incentive programs have also been implemented in order to reduce gas emissions.

Healthcare

In the field of healthcare, the government announced plans to merge a number of specialized agencies such as Health Shared Services Ontario, Trillium Gift of Life Network, Health Quality Ontario, and Cancer Care Ontario. Ontario Health Teams are envisaged to be created under the plan, integrating mental health and community services and services offered by hospitals and physicians. Health teams will be offered tools for patient and provider identification, tools for caregiver, family, and patient engagement, and financial and population analytics. The latter includes information on referral patterns, service utilization, and cost. Funding for autistic children will also be provided to ensure that they have better chances of enrolling in regular schools.

Budget and Spending

The government announced increases in spending for education, transit, and health and reduced spending for various departments to cut the current deficit. The goal is to gradually reduce the debt-to-GDP ratio as the province has one of the highest ratios in Canada /slightly over 40 percent/. The debt-to-GDP ratio is expected to decrease to 38.6 percent by 2024. A Premier and Minister’s Accountability Guarantee has also been announced under which the deadlines for fiscal reporting should be met. In the event of failure to meet them, this will result in a 10-percent cut of the Finance Minister and Premier’s salaries.

Other changes have been announced in the fields of estate tax, cellular and internet infrastructure, and legal aid and justice. The government plans to introduce different measures to modernize and strengthen the quality of the judicial system in Ontario. The proposed set of measures includes in-custody court appearances through video conferencing, evidence digitization, and measures for reduced recidivism rates. There are also plans to review and reform the auto insurance system to cut premiums, which are currently the highest in Canada. The goal is to encourage competition so that insurance companies offer discounts to customers.

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