Ministry of Finance
Toward 2025: Assessing Ontario's Long-Term Outlook
Report Shows Ontario Is On Path To Solid Economic Future
TORONTO, Oct. 4 — Ontario is well positioned to manage the
opportunities and challenges of the next 20 years, according to a long-range
assessment by the Ministry of Finance.
"This report is an open invitation to governments, businesses, academics,
labour organizations, not-for-profit organizations, and all citizens to engage
in the public debate on key issues affecting Ontario's future," Finance
Minister Greg Sorbara said. "Toward 2025 is part of the McGuinty government's
commitment to transparency and accountability to Ontarians. It is also the
first report of its kind in Canada and among the first in the world produced
by a sub-national government."
Toward 2025 outlines some of the challenges and opportunities that the
province of Ontario, its government, its businesses and its people face over
the next 20 years. These include: creating an environment of flexibility where
everyone can readily adapt to a rapidly changing global economy; maximizing
growth in the economy particularly by investing in human capital and
encouraging research and innovation so that Ontarians would be better off; and
continuing to responsibly manage the finances of the Ontario government.
Toward 2025 projects that after balancing the Budget in 2008-09, the
province should be on track for a series of surpluses for the following
decade. However, considering the challenges posed by an aging population,
slower labour force growth and health care costs, Ontario may face small
deficits by 2019-20.
Key projections of the report include:
— Population growth of 3.1 million - for a total population of
15.7 million by 2025.
— Percentage of seniors rising rapidly from 12.9 per cent in 2005 to
19.4 per cent of the population in 2025.
— Health care's share of provincial program spending could rise to
almost 55 per cent in 2024-25 from 45 per cent in 2004-05.
— Federal transfers dropping from 16 per cent of Ontario's total
revenues to 13.5 per cent by 2024-25. Transfers for health,
postsecondary education and social programs as a share of Ontario
program spending in these areas decreasing from 24 per cent in
2005-06 to 18 per cent in 2024-25.
— GDP per person rising from $38,000 in 2004 to $52,000 by 2025 (after
adjusting for inflation), due to positive productivity growth.
— Province's debt to GDP ratio declining, leading to less spending on
debt interest.
"It is important to remember that Toward 2025 is not a plan or an outline
of current government policy. It is an analysis of anticipated challenges and
opportunities - a guide to discussion and debate," said Minister Sorbara. "It
is also critical that business and the not-for-profit and academic sectors,
work with government to encourage entrepreneurship and innovation and to
champion Ontario to the rest of the world."
In accordance with the Fiscal Transparency and Accountability Act, 2004,
the report presents a long-range assessment of Ontario's economic and fiscal
future. It includes a description of anticipated changes in the Ontario
economy and in the demographic profile over the next 20 years, a description
of the potential impact of these changes on the public sector and on Ontario's
fiscal situation during that period, and an analysis of key issues that are
likely to affect the long-term fiscal and economic sustainability of the
economy and the government balance sheet. Copies of the report can be
downloaded at www.fin.gov.on.ca.
Disponible en français
For more information visit www.fin.gov.on.ca
Backgrounder
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Toward 2025: Assessing Ontario's Long-Term Outlook
Toward 2025 is the first ever long-range assessment of Ontario's fiscal
and economic environment produced by the Ontario government. The Fiscal
Transparency and Accountability Act requires a long-range assessment of
Ontario's fiscal environment within two years of each general election.
The act requires this assessment to report on the anticipated 20-year
economic and demographic changes and their potential impact on the public
sector and on Ontario's fiscal policy during that period, and to include an
analysis of key issues of fiscal policy that in the Minister of Finance's
opinion are likely to affect the long-term sustainability of the economy and
the public sector.
Toward 2025 examines a number of economic and fiscal scenarios. Past
trends were examined and used to make reasonable assumptions about the future.
In addition to the base-case scenario, alternative scenarios were
produced to explore potential variations in the key underlying assumptions of
the base case. The analyses are not meant to suggest that policy will not
change, but that the long-term projections cannot take into account what
government policy may be.
Demographic Projections and Implications
Ontario will face five important demographic trends over the next 20
years:
1. Ontario is expected to have ongoing population growth of 3.1 million
— for a total population of 15.7 million by 2025;
2. population growth is projected to come primarily from immigration;
3. population growth is expected to be concentrated in the GTA, which is
projected to be home to almost 7.7 million people by 2025;
4. the population is expected to have an older age structure - the share
of seniors in the population will rise rapidly from 12.9 per cent in
2005 to 19.4 per cent in 2025; and
5. the growth of the core working-age population (ages 15-64) is
projected to slow down considerably from 1.6 per cent in 2005-06 to
0.2 per cent in 2024-25.
A Long-Term Projection for Ontario's Economic Growth
http://files.newswire.ca/130/realgdp.doc
The two fundamental internal factors affecting Ontario's economic growth
are: total labour-force growth and growth in productivity. External factors
discussed include the U.S. economy, oil prices, exchange rate, inflation and
interest rates.
Toward 2025 includes a discussion of structural forces that could affect
Ontario's economy - including the shift from goods to services employment and
rapid change within sectors.
— Annual real GDP growth is projected to decline slightly (to 2.3 per
cent per year by 2020-25).
— GDP per person is projected to rise from $38,000 in 2004 to $52,000
by 2025 (after adjusting for inflation), due to positive productivity
growth.
— The unemployment rate, now 6.6 per cent, is projected to drop to 4.1
per cent by 2025.
Strengthening Productivity Growth
http://files.newswire.ca/130/percapita.doc
The report identifies the levers that can improve productivity growth.
They include: an effective and responsive education system; a flexible labour
market that supports new graduates and new immigrants; business investment
that enables Ontario businesses to continue to compete effectively; research
and development, including stronger ties between academia and business; a
competitive tax structure; and good, functioning infrastructure. Government,
business and academia all play a role in enhancing productivity.
Drivers of Future Health Care Costs
Health care represents a significant fiscal challenge for the Ontario
Government. Given reasonable assumptions, health care's share of provincial
program spending is projected to rise from 45 per cent (2004-05) to about
55 per cent (2024-25). Health care spending is projected to grow faster than
GDP - averaging 6.0 per cent annually from 2009-10 to 2024-25.
— Population growth and aging, as well as utilization are key drivers
of costs.
— The estimated contribution of aging to projected average annual
growth in government health spending is 1.1 per cent (of the 6.0 per
cent growth).
— Population growth accounts for another 1.1 per cent of the projected
average annual growth in government health spending and utilization
accounts for 1.5 per cent.
— Towards the end of the next 20 years, the contribution of aging
relative to population growth is expected to increase as the oldest
cohort of the baby boom reaches age 70.
— On average, health care costs are higher for older people. For
example, in 2002, the average annual per-capita health care
expenditure in Ontario was $2,239, while for those over age 85 the
per-capita expenditure was $17,052.
Intergovernmental Finances
Ontario's fiscal interaction with the federal government will have a
significant bearing on the province's fiscal position. Chapter 5 projects that
the fiscal capacity of the federal government will continue to exceed that of
the provincial government - particularly in light of the Province's
responsibility for health care.
— If current policy continues unchanged, federal transfers would drop
from 16 per cent of Ontario's total revenues to 13.5 per cent by
2024-25.
— Federal transfers for health, postsecondary and social programs are
projected to decrease as a share of Ontario program spending from the
current 24 per cent to 18 per cent in 2024-25.
Municipalities have an important and growing role in the economic future
of the province and will face ongoing pressure, particularly for improvements
in infrastructure.
Long-Term Fiscal Prospects
The high and low economic growth scenarios demonstrate how small positive
or negative changes in costs or growth can have a profound long-term impact on
Ontario. By the end of the 20-year period, for example, a small increase in
productivity growth rates could compound to a significant increase in the
annual real income of the average Ontario resident and could lead to budget
surpluses. At the same time, a minor increase in the growth of health care
costs, could, if no policy action was taken in the meantime, lead to budget
deficits. The number of children in Ontario is projected to grow very slowly
over the next 20 years - easing the pressure on education spending.
http://files.newswire.ca/130/fiscal.doc
— As set out in the 2005 Ontario Budget, the government projects a
budget balance in 2008-09 - or in 2007-08 if the reserve is not
needed. The base-case projection indicates that the Province is
expected to be on course for a series of surpluses in the following
decade.
— After 2018, according to projections and absent of any policy change,
there is a potential of returning to deficit, largely due to health
care spending growing faster than revenues.
The projections show that Ontario's revenue growth and spending growth
are very finely balanced, but that maintaining balanced budgets will continue
to require careful management.
Contact:
Manuel Alas-Sevillano
Ministry of Finance
416 212-2155
Disponible en français
For more information visit www.fin.gov.on.ca
Contact Info
For further information: Sean Hamilton, Minister's Office,
(416) 325-8679; Manuel Alas-Sevillano, Ministry of Finance, (416) 212-2155
