Ontario’s Long-Term Report on the Economy Highlights Ministry of Finance January 2010

1 Purpose of the Report This is the second long-range assessment of the economy prepared by the McGuinty government Ontario’s Long-Term Report on the Economy: Informs and inspires public debate about the long-term issues facing Ontario Supports the public debate with reliable information and relevant analysis Advances the principles of transparency in decision-making and accountability with Ontarians.

2 Overview Ontario’s Long-Term Report on the Economy highlights the long-term challenges and opportunities the province faces over the next 20 years While Ontario is projected to see healthy population growth of 28 per cent to 2030, key challenges include aging and slowing growth in the working-age population: Seniors will account for 21.9 per cent of Ontario’s population by 2030, up from 13.7 per cent today – this is expected to increase demand for health care Working-age population (15–64) expected to increase by 13.5 per cent to 2030, about half the growth seen over the previous two decades Expanding productive capacity, increased tax competitiveness and global and domestic demand are expected to result in average real GDP growth of 2.6 per cent in Ontario from 2010 to 2030, comparable to the past, despite slower growth of working-age population.

3 The Report’s Contents Chapter 1: Demographic Trends and Projections Chapter 2: Long-Term Ontario Economic Projection Chapter 3: Long-Term Sustainability of Ontario Public Services Chapter 4: Modernizing Ontario’s Tax System for Jobs and Growth Chapter 5: Addressing Ontario’s Infrastructure Gap Chapter 6: Towards a Prosperous and Sustainable Future

4 Chapter 1: Demographic Trends and Projections Five key demographic trends are projected over the next 20 years: Population growth will be healthy but the pace will moderate Immigration will continue to drive population growth Seniors will represent a much higher proportion of the population Working-age population growth will slow Large urban centres will continue to experience the fastest rates of population growth. Far-reaching implications of the demographic outlook: Slowing labour force growth may restrain future economic growth Increased labour force participation and workplace flexibility will need to be encouraged to mitigate the impact of baby boomers retiring Population growth and aging will increase pressure on government spending, notably health care Regional differences in population growth and age structure will require targeted policy responses Population aging will affect the composition of personal income and spending, potentially affecting government revenues As the population ages, Canada’s retirement income system faces important challenges.

5 Annual Rate of Population Growth in Ontario Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009). Population Growth Rate (Per Cent) 2029–30 ProjectedHistorical

6 Contribution of Natural Increase and Net Migration to Ontario’s Population Growth *Net Migration is the difference between the number of people entering and the number of people leaving the province both from other countries and other provinces. Immigration is the largest component. Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009). Number of People 2029–30 ProjectedHistorical Net Migration* Natural Increase

7 Pace of Growth of Broad Population Age Groups in Ontario Sources: Statistics Canada, 1971–2009, and Ontario Ministry of Finance projections (Fall 2009). Growth Rate (Per Cent) ProjectedHistorical 15 to 64 years 0 to 14 years 65 years and over 2029–30

8 Chapter 2: Long-Term Ontario Economic Projection Provides a projection of Ontario’s macroeconomic growth from 2010–2030. Expanding productive capacity, increased tax competitiveness and global and domestic demand are expected to result in average real GDP growth of 2.6 per cent from 2010 to 2030, a pace comparable to the past despite slower labour force growth and increased global competition Chapter also discusses: Fundamental determinants of long-term capacity — the supply of labour, the stock of capital and productivity Key external factors that affect economic performance — performance of the economy in other jurisdictions, commodity prices, the Canadian dollar exchange rate and interest rates Risks to the economic projection The perspective of other jurisdictions on long-term economic growth.

9 Capital Stock Offsets Slower Labour Growth Sources: Ontario Ministry of Finance and Statistics Canada. Average Annual Growth (Per Cent) 2.6% (Historical) 2.6% (Projected) Ontario Real GDP Growth

10 Ontario Real GDP Growth Sources: Ontario Ministry of Finance and Statistics Canada. Average Annual Growth (Per Cent) HistoricalProjected

11 Ontario Real Export Shares Sources: Ontario Ministry of Finance and Statistics Canada. Per Cent of Total Exports HistoricalProjected Export Share to U.S. Export Share to Rest of Canada Export Share to Rest of World

12 Chapter 3: Long-Term Sustainability of Public Services The economic and demographic projections in previous chapters have implications for the demand for public services in Ontario A doubling of the senior population by 2030 expected to increase demand for health care. Other factors that will drive the demand for and cost of health care services include changes in population health status, patients’ expectations, inflation, technology and medical practice Education spending will reflect the increasing number of elementary and secondary school-aged children over the next 20 years. Differences in growth among regions will mean both rise and fall of enrolment at the local level Emphasis on lifelong learning and services for underrepresented groups, including new immigrants, expected to raise demand for training services The impact of an aging population on economic growth expected to slow revenue growth, particularly as it lowers growth of the taxation revenue base — mitigated somewhat by increasing withdrawals from savings by seniors. Federal transfers also expected to respond to growing provincial demand for services due to demographic and economic factors The McGuinty government will ensure the province returns to a firm and sustainable fiscal footing. Treasury Board/Management Board of Cabinet conducting an expenditure review and the government will deliver its plan in 2010 Budget.

13 Per-Capita Ontario Government Health Spending, by Age Group, 2007 Per-Capita Provincial Government Health Spending, by Age Group, Ontario, 2007, Current Dollars Age GroupSpending Per Person ($) 1 Share of Population, 2007 Actual (Per Cent) Share of Population, 2030 Projection (Per Cent) <19, –41, –141, –441, –642, , –746, –8411, , Total3, Weighted average. Sources : Canadian Institute for Health Information, Statistics Canada and Ontario Ministry of Finance population projections (Fall 2009).

14 Elementary, Secondary and Postsecondary Source Population, 1989 to 2030 — Ontario Sources: Statistics Canada, 1989–2009, and Ontario Ministry of Finance projections (Fall 2009). Number of People HistoricalProjected 2030 Aged 4 to 13 Aged 18 to 24 Aged 14 to 17

15 Chapter 4: Modernizing Ontario’s Tax System for Jobs and Growth The comprehensive tax package announced in the 2009 Budget creates a more modern tax system that will better support long-term economic growth, create more jobs, raise incomes and help sustain the public services Ontarians rely on The comprehensive tax package: Replaces the Retail Sales Tax with a value added tax that is combined with the federal Goods and Services Tax (GST) to create a 13 per cent Harmonized Sales Tax (HST) starting July 1, 2010; and Provides $15 billion in temporary and permanent tax relief to people and businesses over three years Tax measures in the package make Ontario significantly more attractive for new business investment and allow businesses to improve their competitiveness by lowering their prices The comprehensive tax package, together with other recent tax changes, will cut Ontario’s marginal effective tax rate (METR) on new business investment in half, making Ontario a highly attractive location for businesses to invest and create jobs A study by accounting firm KPMG also shows that the comprehensive tax package significantly improves Ontario’s tax competitiveness A recent study by Professor Jack Mintz estimates that within 10 years the comprehensive tax package, together with other recent tax changes, will provide large benefits for Ontario — $47 billion in new business investment, 591,000 net new jobs and higher annual incomes of up to 8.8 per cent.

16 Cutting Ontario’s METR on New Business Investment in Half* Per Cent Note: * Includes the Ontario Corporate Income Tax (CIT) rate cuts and Harmonized Sales Tax announced in the 2009 Budget, the phase-out of Ontario’s Capital Tax by July 1, 2010, and the reduction in the general federal CIT rate to 15 per cent by Sources: Ontario Ministry of Finance and Finance Canada. U.S. average (2012) OECD average (2012)

17 Impact of 2009 Budget on Ontario’s Tax Competitiveness, All Industries Total Tax Index Note: The total tax burden for each city, over a 10-year period from business start-up, is expressed as an index with the average for all U.S. cities in KPMG’s Competitive Alternatives 2008 set at Reflects tax measures in effect or announced prior to the date of the 2009 Ontario Budget. 2 Reflects tax measures announced prior to August 1, 2009 that are expected to be in effect in 2011 and subsequent years. 3 Average for Ontario cities included in the study. 4 Average for U.S. cities included in the study. Sources: KPMG and Ontario Ministry of Finance.

18 Chapter 5: Addressing Ontario’s Infrastructure Gap Improving public infrastructure can boost Ontario’s productivity, encourage investment, lower business costs and improve travel times Growing urban populations, an expanding economy and climate change will increase the demand for infrastructure Chapter outlines the Province’s response to these infrastructure challenges: $32.5 billion infrastructure stimulus investments over two years in all key sectors and the $30 billion ReNew Ontario completed in 2008–09 are laying a foundation for future productivity and economic growth Greening energy and infrastructure will support the transition to a low-carbon future, a key to sustaining Ontario’s long-term prosperity.

19 Per-Capita Change in Ontario’s Public Infrastructure Sources: Statistics Canada and Ontario Ministry of Energy and Infrastructure. Annual Average by Decade (Constant $2002 Prices)

20 Ontario Infrastructure Growth Outpaces that of the Rest of Canada* *Data reflect the change in per-capita net public capital stock. Sources: Statistics Canada and Ontario Ministry of Energy and Infrastructure. (Index: 2002=100, Constant $2002 Prices)

21 Chapter 6: Towards a Prosperous and Sustainable Future Job creation and output growth are increasingly driven by the service sector Greening the economy and promoting the transition to a low-carbon future are central to Ontario’s long-term prosperity and sustainability The McGuinty government is preparing Ontario to confront the challenges of the coming decades and to seize opportunities emerging in the new economy. Key government policies and programs focus on: Modernizing Ontario’s tax system Reducing regulatory barriers to innovation and economic growth Addressing the infrastructure gap Investing in knowledge and skills Ensuring environmental sustainability Fostering innovation and a knowledge-based economy Partnering with both emerging and established industries for economic growth and diversity.

22 Share of Employment by Industry, Ontario Note: Numbers may not add due to rounding. *Includes agriculture, resources, utility and construction. **Includes education, health and public administration (federal, provincial and local). Sources: Statistics Canada (Labour Force Survey) and Ontario Ministry of Finance. Per Cent of Total Employment

23 Conclusion Ontario’s Long-Term Report on the Economy highlights the challenges and opportunities the province may face over the next 20 years, while outlining measures the government is taking to prepare the province to grasp opportunities emerging in the new economy. The McGuinty government’s initiatives for improving overall productivity and future economic growth include modernizing the tax system, ensuring environmental sustainability, investing in infrastructure and key services such as health care and education, while continuing to be prudent with its fiscal management.