Ontario’s election deliberately ignored undeniable economic challenges facing the province


The current labor shortage is just a taste of the problems to come, with the lack of skilled workers and digital workers jeopardizing the construction of infrastructure and the transition to a greener economy.Aaron Vincent Elkaim/The Canadian Press

Ontario’s economy is doing well, with the rebound from the pandemic recession well underway.

Two years after the dizzying economic whirlwind of the first confinement, the job market is racing and employers are now complaining of a labor shortage. The province’s once huge budget deficit has shrunk sharply and revenues are rising rapidly, in part propelled by the effects of inflation. And Ontario’s economy is growing at a rate not seen in more than two decades.

This relatively buoyant economic outlook was the backdrop for a provincial campaign that seemed largely to take prosperity for granted, with the three major parties vying over who could spend the most. Doug Ford and his Progressive Conservatives won that contest, securing a second majority government with an increased number of seats.

There has been little discussion of the long-term economic and fiscal currents in Ontario that threaten this placid image of prosperity. Economic growth will slow, interest rates will rise and an aging population will put increasing pressure on spending, with permanent budget deficits on the horizon within a decade.

“Certainly, the No. 1 question shouldn’t be how are we going to spend or divide the money, but how are we going to grow the economy,” said Rocco Rossi, president and CEO of the Ontario Chamber of Commerce. a meeting.

Unfortunately, productivity was “not at all” a campaign issue, he says. “Whoever wins…must put it at the top of their agenda,” Mr Rossi wrote in a follow-up message ahead of the vote.

The current labor shortage is just a taste of the problems to come, with the lack of skilled workers and digital workers jeopardizing the construction of infrastructure and the transition to a greener economy.

The ongoing economic expansion is expected to slow by the middle of the decade, with the province’s gross domestic product growth halving in 2025 from this year. Bank of Nova Scotia senior economist Marc Desormeaux predicts a “solid but moderate” expansion as Ontario’s economy returns to more typical growth rates.

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The current financial windfall that has given the government billions of extra dollars to spend will disappear. In addition, the province’s projection of a declining deficit depends on very ambitious assumptions that would keep growth in education and health spending well below the rate of inflation and population growth.

Rossi sees a host of structural issues threatening Ontario’s economy in the near future that the re-elected Progressive Conservatives will need to address. The labor shortage is the most apparent. The roughly 400,000 vacancies represent a loss of productivity and tax revenue, he says, with immigration backlogs further compounding this problem.

Along the same lines, he sees the reliability of Ontario’s energy system as a major economic vulnerability later in the decade, as the Pickering nuclear plant is decommissioned and greater electrification of the vehicle fleet of the province increases demand. And finally, Rossi says the province needs to focus on reducing its debt load so it has the financial flexibility to deal with a pandemic-like crisis in the future.

Ontario’s Financial Accountability Office, a provincial legislative watchdog, has also flagged a number of other long-term economic risks: the impact of climate change, income inequality and changes in the labor market, including the gig economy.

As with most elections, Ontario’s campaign focused on jobs, with various parties touting their plans to boost employment, even amid a historic labor crisis. Robert Asselin, ssenior vice-president of policy at the Business Council of Canada, considers this focus to be misguided. “Think about the future. Think about increasing productivity, not just jobs,” he advises.

This will require emphasizing the valorization of Canadian intellectual property and encouraging private sector investment in research and development, he says.

Ribbon cutting for new assembly operations makes good policy. But Mr. Asselin says these jobs, while undoubtedly good news for new hires, are not the key to a higher-wage economy. “Let’s be honest,” he said. “That’s not where the productivity gains will happen.”

Instead, the provincial government needs to focus its efforts on areas where Ontario has a comparative advantage: agriculture, biotechnology, advanced manufacturing and clean technology.

He adds that a key part of this effort will be to focus curricula on science, technology, engineering and math (STEM).

Elizabeth Dhuey, associate professor of economics at the University of Toronto, agrees that Ontario suffers from a lack of STEM skills, but says it’s part of a broader skills gap in the province. “I think we are seeing a skills mismatch,” says Professor Dhuey.

There are geographic imbalances, a lack of STEM workers, and a chronic shortage of skilled tradespeople. Professor Dhuey says there are some pretty obvious solutions, including reduced or even free tuition for skilled trades programs. But she says she heard “virtually nothing” during the campaign to reform Ontario’s education system.

One of the biggest mismatches: the growth of vacancies is accompanied by a sharp increase in the ranks of the long-term unemployed.

Retraining efforts to steer the chronically unemployed into the green economy have an uneven track record at best; it is difficult to turn “miners into coders”, explains Professor Dhuey. There is a much greater economic benefit to focusing much earlier in life, building basic literacy, math and problem-solving skills for children in the school system. The focus should be “almost entirely” on these future workers, she says.

Along with changes to the curriculum, this would require reversing what Professor Dhuey sees as a short-sighted cut to Ontario’s education budget.

But any such move to increase education spending will inevitably clash with the province’s short-term goal of returning to a balanced budget by the 2027-28 fiscal year. Benjamin Dachis, associate vice president of public affairs at the CD Howe Institute, says this plan is already unrealistic, in part because it is based on ambitious assumptions that severely limit the growth of spending on education and health.

Health spending, for example, is projected to grow only 0.9% in fiscal year 2024-25, well below the rate of population growth and inflation. There are substantial increases to the education budget over the next two years, but thereafter the increases are much smaller: 2.6% in FY2025 and 1.9% in FY2025. fiscal year 2028, the year in which the budget is expected to be balanced.

Those projections aren’t realistic unless the province aims to impose a salary freeze on teachers in the province, says Dachis, who was director of policy, budget and fiscal planning in the premier’s office during the of the first year of the Ford government.

He calls for “tough action” to rein in spending. That might seem like a surprising message, given the province’s latest budget forecast of a slight shift toward deficit elimination. “Things are looking rosy right now in terms of economic growth, incomes are rising like gangbusters,” Dachis acknowledges.

But over the next term of the re-elected Progressive Conservatives, Ontario’s cost of debt will begin to eat into an ever larger share of revenue. This will mark the beginning of a long-term deterioration in the province’s finances unless steps are taken to reduce debt growth and increase economic growth. By mid-century, the FAO says, the province will be heading for deficits that will rival the monster deficits of the pandemic — but which will be permanent.

“There are huge headwinds where all the signs point to a fiscally unsustainable system,” Dachis said.

Queen’s Park reporter Jeff Gray examines the outcome of the Ontario election which saw the resignation of the leaders of the NDP and the Liberal Party, and Doug Ford was re-elected premier amid very low voter turnout.

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