Don Drummond’s report on the state of Ontario’s public services is clear: The province can no longer count on a booming economy to rescue its finances.
Balancing the provincial government’s books will require deep and long-lasting spending restraints, an effort that is “pretty much unprecedented in Canadian post-war history,” said Mr. Drummond, an economist and chair of the commission that oversaw the report.
He sees long-term economic growth of just 2 per cent a year – and cautions it could be lower. “We don’t think the previous growth rates, unfortunately, will come back,” he said.
That is less than the province’s projection in its last budget but similar to the Conference Board of Canada’s recent estimate of about 1.9 per cent.
Mr. Drummond urged the provincial government to develop an economic roadmap for the future. He recommends holding broad consultations with the public on the economic and fiscal challenges – given the ebbing strength of its manufacturing base.
“We cannot count on robust economic growth to resolve our fiscal challenge,” the report said.
Here are four factors holding Ontario’s economy back:
1. Manufacturing has dwindled as a share of the province’s output and employment base, and this trend will continue, the report said. Ontarians “have not yet grasped” how much the decline of Ontario’s manufacturing base is hitting both its economic advantage in Canada and the government’s ability to finance public services. Factory employment – typically a source of high-paying jobs – has faded to just 11.8 per cent of total employment from 23.2 per cent in 1976. A strong dollar and uneven U.S. demand are the main culprits.
2. The labour force expansion is slowing. Ontario’s workers are aging, its fertility rates are low, and its population growth is slowing. It is no longer attracting immigrants at the pace it once did, and the province should prepare for a wave of retirements from the boomer generation.
3. Productivity is weak. Not only has productivity (a ratio of output per number of hours worked) been lacklustre in recent years, the report anticipates productivity growth will remain modest in the years to come. It recommends shifting emphasis in both government services and business support programs to track productivity better.
4. Most of the growth in the province’s labour force will come from immigrants. But the incomes of recent immigrants are well below those of workers who were born in Canada, and the chasm is widening. More attention should be paid to closing the wage gap between newcomers and Canadian-born workers.
Ontario’s economy by the numbers
$16-billion – Ontario’s deficit
$30.2-billion – projected deficit in seven years if spending goes unchecked
0.8 per cent – recommended increase to overall spending annually, until 2017-18
1 per cent – annual increase to education
1.5 per cent – annual increase to postsecondary education
2.5 per cent – recommended annual increase to health-care spending
0 – recommended increase to doctors’ pay
$1-billion – top range of projected annual savings of linking drug benefits for seniors to income
1 – the number of casinos in Niagara that the report recommends closing
17 – horse-racing tracks in Ontario – report calls for expansion of slot machines outside racetracks
$2-billion – possible revenue from areas such as contraband tobacco, the underground economy and income from Crown agencies