2008 Ontario Economic Outlook And Fiscal Review
Since the McGuinty government delivered the 2008 Ontario Budget in March, the global economy has changed. The slowing U.S. economy and global financial situation are causing significant uncertainty in many jurisdictions, and Ontario is no exception. In recent years, Ontario has also been affected by the strong Canadian dollar and high oil prices - additional factors beyond the government's control.
Based on the information available to date and on the significant lowering of private-sector forecasts, the government is projecting Ontario real gross domestic product (GDP) growth of 0.1 per cent for 2008, compared with 1.1 per cent at the time of the 2008 Budget. As a result, the government expects that revenue will decline.
The government is projecting a deficit of $500 million in 2008-09. A deficit, followed by a plan for its elimination, represents a balanced response to today's global reality.
The government's response to the challenges arising from the global economic situation will be guided by three principles:
- The McGuinty government's five-point economic plan will continue to be the foundation of its approach to today's economy. Investing in skills and knowledge, infrastructure, lowering business costs, innovation and key partnerships remains the right response in uncertain times.
- The government will continue its prudence while maintaining the ability to respond quickly to changing economic circumstances.
- The government will do everything it can to protect the gains made by Ontario while taking a balanced, comprehensive approach to future growth.
As part of this approach, the government will make the necessary adjustments to help ensure key priorities are protected. To accomplish this, it will also take immediate action to implement fiscal restraint. The government will delay the implementation of and slow down some new spending while continuing to manage internal expenses. For more details, see Managing Expenditures.
FIVE-POINT ECONOMIC PLAN
For five years, the McGuinty government has made strategic investments in skills and knowledge, infrastructure, lowering business costs, innovation and key partnerships.
These investments have helped prepare Ontario to weather the current economic challenges. They constitute an economic stimulus package that is helping individuals, families and businesses today:
- The Second Career Strategy, which helps retrain laid-off workers for new jobs, will be enhanced this fall. The strategy is a key part of the $2 billion Skills to Jobs Action Plan, which further enhances skills and builds places to learn. In addition, the Reaching Higher Plan for postsecondary education and investments in skills training mean that 100,000 more Ontarians are being trained in colleges and universities today and 50,000 more are learning a trade.
- ReNew Ontario's five-year, $30 billion infrastructure investment is building new roads, schools, hospitals, bridges and transit across Ontario. Today, more than 100 major construction projects have been initiated. Our infrastructure investments will create over 100,000 jobs this year. Through the Investing in Ontario Act, 2008, the government is investing an additional $1.1 billion this year in municipal infrastructure to improve roads and bridges, expand public transit and build other municipal projects throughout the province. This investment is expected to create 11,000 full-time jobs during the construction period and will make Ontario's economy more competitive in the long term.
- Strategic tax cuts since 2004 have already saved businesses more than $1.5 billion and will save businesses nearly $3 billion annually when fully implemented, while promoting new investment and creating jobs.
- A proposed tax incentive for new businesses that commercialize Canadian research would help turn home-grown ideas into hometown jobs. In addition, our investments are attracting new high technology jobs to Ontario.
- Ontario is partnering with key sectors of the economy, Aboriginal peoples, municipalities and others to foster growth. Ontario will continue to press the federal government for fairness.
Global financial uncertainty is a key factor contributing to the change in the province's 2008-09 fiscal outlook, as a decline in economic growth results in a decline in revenues.
The $500 million deficit forecast for 2008-09 represents 0.5 per cent of the 2008-09 revenue outlook. The government has prudently managed through deficits in the past - the $5.5 billion deficit inherited in 2003 was eliminated within two years and was followed by three consecutive surpluses. This was achieved while investing in key public services. The government continues to strengthen the economy through its five-point economic plan.
The 2008-09 revenue outlook is projected to decrease by $918 million from the 2008 Budget forecast, largely reflecting slower economic growth projections for 2008.
Total expense in 2008-09 is projected to increase by $132 million from the 2008 Budget forecast. This change is primarily due to higher utilization-related expense in the Ontario Health Insurance Plan (OHIP) program.
The 2008 Budget plan included prudence in the form of a reserve of $750 million in 2008-09 to protect against adverse changes in the province's revenue and expense outlooks, including those resulting from changes in Ontario's economic performance. A portion of the reserve has been drawn down to partially offset the effects of slower economic growth on the province's fiscal outlook. The government continues to maintain a $200 million reserve in recognition of the continued global uncertainty that could further impact the province's finances.
The province's economic growth is expected to be slow in the near term due to heightened global uncertainty. Based on the information currently available, the Ministry of Finance is projecting Ontario real GDP growth of 0.1 per cent for 2008, compared with 1.1 per cent at the time of the 2008 Ontario Budget. As of October 16, 2008, the average private-sector forecast for Ontario real GDP growth is 0.7 per cent for 2009.
Ontario has created 104,100 net new jobs so far this year. Approximately 83 per cent of those jobs have been in the private sector. Although Ontario has lost 16,200 manufacturing jobs, there have been strong job gains in other industries paying above-average wages, including construction (37,500); professional, scientific and technical services (19,400); and health care and social assistance (26,800). The increase in employment has led to solid income gains. Labour income grew by 4.2 per cent over the first half of the year, supported by job gains and higher wages. Since October 2003, the Ontario economy has created more than half a million net new jobs.
The side of the Ontario economy that is based on domestic demand has remained strong in 2008. Household spending remains firm, with real consumer spending up, and residential construction spending has increased. Housing starts are up from the same period in 2007. However, while housing starts have increased, home resales have weakened.
Corporate profits are down over the first half of this year, reflecting the negative impact of high oil prices and the strong Canadian dollar in recent years.
THE NEXT SIX MONTHS
The McGuinty government will continue to inform the people of Ontario through quarterly economic updates. There will be continued uncertainty and anxiety in the global economy. The government will diligently monitor and respond to events as they unfold.
As in other times of uncertainty, Ontario will rise to the current challenges and seize opportunities to strengthen economic growth, create new jobs and continue to be a great place to live and invest.