An Economic Recovery Fueled by Growth: Key Takeaways from 2021 Ontario Fall Economic Statement
5 November 2021
November 5, 2021 – Ontario’s Minister of Finance Peter Bethlenfalvy presented Ontario’s Fall Economic Statement on Thursday, November 4th 2021. The statement lays out the provincial government’s spending priorities for the coming years and is developed around the following three themes:
- Protecting Our Progress
- Building Ontario
- Working for Workers
Under the theme of “Protecting Our Progress”, the government has planned a diverse array of investments in healthcare and long-term care with additional planned investments in COVID-19 measures. The “Building Ontario” theme outlines several investments in highways, transit and community, aiming to provide access to critical mineral resources in Northern Ontario and to cut down on commuting time. “Working for Workers” includes minimum-wage increases, extended support for workers in the skilled trades to create more better-paying jobs, and a new staycation tax credit to encourage domestic tourism.
PART 1 STATEMENT HIGHLIGHTS
- Significant funding to fight against COVID-19 and expanding healthcare capacity
The government has stepped forward with unprecedented support, including building on its initial Action Plan, which totals $51 billion over four years to fight the COVID-19 pandemic and promote economic recovery. While the spending will have a significant impact on public finances, the previous funding has been proved to be necessary and vital. The pandemic has also highlighted the need for more frontline health care staff as well as expanded home care services. These investments will add a total of over 13,000 new and upskilled workers to the healthcare system. Over the next 10 years, the province will invest $30.2 billion to increase capacity in hospitals, to build health care facilities and to renew existing hospitals and community health centers.
- New transit projects for to connect neighborhoods
The province is also making progress with the all-new Ontario Line . The transit projects, once completed, would not only reduce traffic gridlock, greenhouse gas emissions and fuel consumption by providing an affordable and convenient alternative to driving, but stimulate economic and community growth along the future transit line and create new job opportunities.
- Doubling investment on building community infrastructure
The government is doubling its annual investment in the Ontario community infrastructure fund with an additional $1 billion over the next five years to help small rural and northern communities invest in local infrastructure projects. These infrastructure projects will contribute to the province’s economic growth by creating 1,500 jobs annually over the next five years, laying the foundation for Ontario’s long-term economic recovery and prosperity.
- Minimum hourly wage increased to $15
Ontario is increasing the general minimum hourly wage from $14.35 to $15 (including for liquor servers) effective January 1st 2022, which will then be indexed annually starting October 1st 2022. This is a big relief for many workers as the cost of living has increased considerably over the past several months, but wages had not kept pace. This increase could, however, have administrative and financial impacts on small businesses, putting more pressure on their cashflow constraints and resulting in further increases in cost of doing business. As a result of the increase in cost, business owners may need to increase price of goods and services to make ends meet.
- More job training provided through various programs
The government is investing an additional $90.3 million in its Skilled Trades Strategy over the 3 years to promote and streamline careers in the skilled trades. The second career program is expanded to help newcomers, gig workers and people with disabilities to acquire the skills needed for in-demand jobs. A proposal of expanding Ontario jobs training tax credits to the next year is put forward as well, which will provide more training opportunities for workers. All the initiatives are essential to addressing Ontario’s protracted labor shortage and labor force skill mismatches.
- Protecting high-quality jobs in the auto sector
The province has also received significant electric vehicle supply chain investment commitments of $5.6 billion in total from major automotive manufacturers. Ontario’s auto sector remains competitive globally and continues to grow and thrive, in the new era of e-mobility. The aboriginal loan guarantee program is also expanded to help create economic opportunities and jobs in indigenous communities, while supporting decarbonization initiatives.
In 2020-2021 the government will provide support for Ontario businesses, including $6.3 billion going to small businesses. These investments have lowered costs for employers to help them grow as well as protect existing jobs and create new opportunities for workers.
- Action Plan to boost online sales
The government is moving forward with its small business digitization action plan to help businesses to find more ways of generating sales online. By leveraging innovative tools and technologies, this initiative will help local small businesses in expanding their reach to enter new markets. It also aims to help small business owners to adjust to the new realities of doing business during the pandemic and in the next phase of economic recovery.
TOURISM AND HOSPITALITY
- New staycation tax credit 2022
To support the recovery of the tourism and hospitality sector, the province is proposing a new Ontario staycation tax credit for the 2022 tax year that would provide provincial residents with support of up to 20% of eligible accommodation expenses. While a maximum tax credit of $200 or $400 for an individual and a family, respectively, might not seem a great deal of money, this will contribute to the recovery of the tourism and hospitality sectors by encouraging Ontarians to explore the province. The credit will provide an estimated amount of $270 million to support over 1.85 million families to further discover Ontario.
- Funding for new advanced technologies and renewables
To foster sustainable and inclusive economic growth and in response to growing international competition for investment, Ontario is providing $40 million to new the advanced manufacturing and innovation competitiveness stream under regional development funds to support investments in advanced technologies and skills.
To support green electricity generation while maintaining electricity stability for businesses and households, the province has proposed to fund the re-contracted above-market costs of near-term extensions of existing biomass electricity generators under the Renewable Cost Shift program. This proposal will provide more predictability to businesses and encourage more investments in affordable and sustainable biomass generation.
PART 2 ECONOMIC OUTLOOK
- Real GDP growth projection slightly lower than previous forecasts
Economies around the world including Canada had experienced a significant rebound from the unprecedented impacts of the COVID-19 pandemic. Ontario’s real GDP is projected to rise 4.3% in 2021, 4.5% in 2022, 2.6% in 2023 and 2% in 2024. For the purposes of prudent fiscal planning, these economic planning assumptions are slightly below the average of private sector forecasts.
- Scenario analysis for economic growth
The Minister of Finance has developed faster growth and slower growth scenarios that the economy could take over the next several years.
(1) In the slower growth scenario, the level of real GDP is projected to surpass its pre-pandemic level in the Q1 2022. By the year 2024, the level of real GDP will be 1.7% lower than the planning projection.
(2) In the faster growth scenario, pre-pandemic level of real GDP’s would be reached by Q4 2021. By the year 2024, the level of real GDP will be 2.6% higher than the planning projection.
The scenario analysis provides more transparency about the province’s economic outlook. It is worth mentioning that alternative scenarios should not be considered the best case or the worst case. Rather, they represent possible outcomes in this period of heightened uncertainty.
- Better employment recovery than the federal level and the US
Ontario employment recovery has exceeded that of Canada and the United States relative to the pre-pandemic level. Employment has increased by over 1.1 million net jobs since June 2020 and has recovered to above the February 2020 pre-pandemic level. The unemployment rate has steadily declined from a high of 13.5% in May 2020 to 7.3% in September 2021. Job gains are expected to continue and there will be more than a half million net new jobs by 2024, compared to 2021.
PART 3 FISCAL OUTLOOK
- Steady and healthy annual growth in fiscal expenses
The base program expense is projected to increase every year to 2024, growing an average annual rate of 3%. This represents an increase of $10.2 billion over the period as the government continues to invest in programs that serve the people of Ontario. This moderate increase in fiscal spending reflects government’s commitment to maintaining fiscal flexibility to respond quickly to protect people’s health but also creating conditions for sustainable growth investment and job creation.
- Pandemic funding phasing out
As vaccination rates increase and the province fully reopens, Covid-19 time-limited funding is projected to decline from $10.7 billion this year to $3.4 billion in 2022-2023, before fully phased out in 2023-2024. It is important to note that some of this funding will continue to be available to deploy resources where they are needed most and to support further recovery initiatives, given the unpredictability of the COVID-19 pandemic.
- Interest costs remain low with decreased Debt-to-GDP ratio
The average cost of borrowing in 2021-2022 is forecasted to be 1.9%, unchanged from what was forecasted in the 2021 budget. A one percentage point change in interest rates either up or down from current forecast would have a corresponding change in interest costs by approximately $700 million in the first full year. Ontario’s interest costs are below the projected levels, as a result of lower-than-forecast deficits and borrowing requirements. However, interest on debt expense remains Ontario’s fourth-largest expense after health care, education and social services.
In addition, Ontario net Debt-to-GDP ratio is forecasted to be 43.4%, representing a decrease of 5.4 percentage points from the forecast in the 2021 budget, due to lower deficits and higher nominal GDP growth. A lower provincial Debt-to-GDP ratio empowers the province to effectively use the resources at hand to finance the existing debt.
PART 4 CLOSING
Overall, while more considerations could be given to mitigating Ontario’s greenhouse gas emissions and enhancing capital access for small businesses, the Ontario’s Economic Outlook and Fiscal Review demonstrates confidence that the province’s economic recovery from the pandemic will not reply on spending cuts or tax hikes, but be fueled by growth, a sustained economic growth that will lead to job creation and greater prosperity.
Author: Victoria Guo, Director, Research, Global Risk Institute
You can read the full report here: https://budget.ontario.ca/2021/fallstatement/pdf/2021-fall-statement-en.pdf