It's not just a soft patch. Ontario has shifted into an era of slow growth, and a main engine of its economy – manufacturing – can no longer be counted on to fuel Canada's most populous province.
Assumptions of Ontario's growth in the 2011 provincial budget are overly optimistic, a long-awaited report on the state of the province's public services said Wednesday. It sees long-term growth of 2 per cent a year and cautions it could be lower than that.
Manufacturing has weakened, and won't revive any time soon. The labour force expansion is slowing, while productivity remains weak, all of which have weighed on the economy in recent years.
"We don't think the previous growth rates, unfortunately, will come back," said Don Drummond, chair of the commission that oversaw the report, in a technical briefing to reporters.
His commission's projections show revenue growth will be lower, and spending growth higher, than assumed in the 2011 budget. If current plans remain in place, the province's deficit will hit $30.2-billion by 2017-18 – more than double the 2010-11 deficit.
To balance the budget by 2017-18, the province will have to keep growth in total program spending to 0.8 per cent a year for seven years – restraint that would touch everything from health care and education to employment training programs and support for businesses.
Manufacturing has dwindled as a share of the province's output and employment base, and this trend will continue, the report said. At the same time, most of the growth in the province's labour force will come from immigrants. But the incomes of recent immigrants have been well below those of workers who were born in Canada.
"We cannot count on robust economic growth to resolve our fiscal challenge," the report said.
The report made 362 recommendations in total. Here are some key economic and business highlights:
- The provincial government needs to publish an economic vision for Ontario.
- "Sunset" all current direct business support programs in 2012-13. Pool the remaining funds into a single body used to fund such programs, one that will focus on productivity growth in the private sector (rather than job creation).
- The Ontario government's wage bill accounts for half of all spending. Wage growth should be moderated across the civil service, though the report cautioned against outright wage freezes.
- Streamline provincial employment training programs.
- Additional revenue growth could come from sources such as the underground economy, contraband cigarettes, better collection of outstanding taxes and overhauling Crown agencies.