ontario economy - analysis and commentary
TRANSCRIPT
Ontario Economy – October 2016By: Paul Young, CPA, CGADate: October 29, 2016
Paul Young, CPA, CGA
Bio 26+ years of business experience 8+ years in academia 20+ years as CPA/CGA 11+ years in analyzing government policies 11+ years working on financial solutions 15+ years in corporate reporting and analysis, taxation,
business process change, risk management, budgeting and costing
Contact: [email protected]
Agenda
Ontario GDP GDP Growth numbers Ontario Manufacturing Competitiveness Housing Starts Retail Sales / August 2016 Household Spending / 2014 Employment Ontario Deficit Statement of Financial Position
Ontario GDP
Facts – Ontario• Largest GDP in Canada or about 36.6% of total GDP in Canada• Key Sectors
• Automotive• Steel Production• Metal Fabrication• Food Processing• Forestry • Mining• Pharmaceutical
Source – Stats Canada
GDP Growth Projections
Source: http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/ont.pdf
Ontario Manufacturing
• In Ontario, total manufacturing sales rose 1.8% to $289.7 billion in 2015—the highest level since 2006. Transportation equipment contributed to the higher sales in the province, despite retooling at motor vehicle assembly plants early in the year that reduced sales and production at some plants. However, this retooling work allowed some assembly plants to produce higher-end and/or redesigned models later in the year, leading to higher sales toward the end of 2015. Petroleum and coal product sales were down 28.3% on lower prices, and primary metal sales dropped 10.5%, partially offsetting the overall provincial growth
Source – Stats Canada
Ontario FDI
Source: http://forms.fdiintelligence.com/report2016/files/The_fDi_Report_2016.pdf
Facts:• Texas has low tax and no
state income tax (http://www.bankrate.com/finance/taxes/state-with-no-income-tax-better-or-worse-1.aspx)
• New York has made changes to corporate tax. New York has received power from Ontario (http://www.torontosun.com/2015/08/12/ontario-taxpayers-spend-200-million-on-exported-electricity-in-june
• California investment is related to clean energy project.
Key comments Ontario Economy
Ring of fire - http://www.cbc.ca/news/canada/thunder-bay/thunder-bay-ring-of-fire-1.3806947 (issues with transportation)
Automotive / Chrysler - http://www.theglobeandmail.com/report-on-business/ontario-policies-could-put-auto-making-at-risk-fiat-chrysler-ceo-warns/article25418311/ (hydro rates)
Forestry Sector - http://www.cbc.ca/news/canada/thunder-bay/hornepayne-lumber-mill-shutdown-1.3357255 (Heading into the holiday season, nearly half of the workforce in Hornepayne, Ont., is without a job because of layoffs at the mill, which were announced two weeks ago and could become permanent. The co-generation plant at the Olav Haavaldsrud Timber Company needs to sell more power to the provincial grid, in order to turn a profit. But so far, the Ontario government is saying no. And that means no work, and no jobs.
Ontario competitiveness – Hydro Rates
Hydro Rates - http://www.forbes.com/sites/judeclemente/2016/03/30/ontarios-high-electricity-prices-crush-business/#3fae312f2fa8 key Quotes “High cost electricity is “unavoidably harmful” because electricity is indispensable: “electricity cannot not be used.” Today, Ontario has had “the highest industrial rates in North America,” far higher than neighbors using low cost natural gas. With prices increased again in November, ratepayers are “angry, confused.” “How Ontario lost 300,000 manufacturing jobs (and why most aren’t coming back).” “Ontario drives manufacturers away with overpriced electricity.” These industry losses are particularly harmful: manufacturing supports high-paying jobs and has extensive “multiplier effects,” that ripple benefits across the entire economy. Devastating the auto sector in particular, “the main reason for soaring costs — and plummeting employment — is the high cost of electricity as a result of the Green Energy Act.”
Ontario competitiveness – Red Tape
Source - =CFIB
Ontario Competitiveness
Ontario Competitiveness -Recommendations
Source - https://www.utoronto.ca/news/ontario%E2%80%99s-thriving-%E2%80%9Ccluster%E2%80%9D-regions-can-grow-our-economy-institute-competitiveness-and
Housing Starts
Source: http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/ont.pdf
Retail Sales
Source – Stats Canada
Sales at motor vehicle and parts dealers were down 0.5% in August, in large part because of weaker sales at new car dealers (-1.1%) and, to a much lesser extent, used car dealers (-0.6%). Following declines in July, sales rose at other motor vehicle dealers (+5.4%) and automotive parts, accessories and tire stores (+1.1%). The gains at automotive parts, accessories and tire stores were concentrated in Ontario and Quebec.
Household Spending Facts:
• Food costs are the lowest in Ontario• Carbon taxation/Price of Carbon will increase food costs by
6-8% - http://www.slideshare.net/paulyoungcga/carbon-tax-or-carbon-pricing-impact-on-consumer-good-prices-for-canada
• Households in Ontario spend on average 31.5% on shelter. • Ontario has some highest hydro rates in Ontario. It is not
on unheard to have $400-500 monthly bills - http://www.torontosun.com/2016/10/28/5-ontario-hydro-bills-compared-rural-bills-in-the-hundreds-while-toronto-brothers-pay-100 or http://www.owensoundsuntimes.com/2016/10/24/even-greenest-of-grocers-burned-by-hydro-costs
Employment
Employment in Ontario was little changed in September, and the unemployment rate was 6.6%. However, on a year-over-year basis, employment in the province increased by 82,000 (+1.2%) and the unemployment rate declined 0.3 percentage points.Source: Stats Canada
Where are the jobs
Source: http://careers.workopolis.com/advice/canadas-hiring-outlook-for-2016-where-the-jobs-will-and-wont-be-created/
Government Deficit
Source – Government of Ontario
Statement of Finance Position
Source – Government of Ontario
Ontario Debt Comments Ontario debt - http://www.ofina.on.ca/borrowing_debt/debt.htm
In a 600-page report released in late 2014, provincial auditor general Bonnie Lysyk was already warning about the growing debt, pointing out that the government was, at that point, spending more on debt interest payments than on post-secondary education. A large debt-load can have several negative effects, Lysyk noted, not the least of which is that the government needs to divert money away from other programs in order to cover the interest payments and pay down what it owes. Source - http://globalnews.ca/news/2845864/reality-check-is-ontarios-debt-really-that-bad/
Today’s debt is tomorrow’s spending cuts and/or taxation increases - https://www.youtube.com/watch?v=PAGqKhSw5Lg (Margaret Thatcher on government spending)
What’s next
Ontario – area of focus Low dollar has insulated Ontario from global pressures High hydro rates are impacting business investment -
http://www.occ.ca/portfolio/empowering-ontario/ Red Tape is delay projects (
http://business.financialpost.com/news/mining/what-ontario-needs-to-unlock-ring-of-fires-mineral-wealth-is-a-marshall-plan
Broken arbitration system (http://www.cfib-fcei.ca/english/article/6069-government-wages.html
Carbon taxation (https://www.thestar.com/business/2016/10/04/how-trudeaus-carbon-price-plan-will-affect-five-canadian-industries.html or
Innovation spending (http://www.theglobeandmail.com/report-on-business/economy/canada-falling-behind-in-research-and-development/article21605656/)
Slow global economy (http://www.gbm.scotiabank.com/English/bns_econ/forecast.pdf
Ontario business investment - http://www.statcan.gc.ca/daily-quotidien/160510/dq160510a-eng.pdf
Ontario heads to another election in 2018 Issues at hand
Hydro Rates Economy Delivery of program spending Government debt Taxation/carbon tax
Ontario Debt / Deficit
Ontario’s budget watchdog says that the province’s deficit will be $2.6 billion in 2017-18, despite a Liberal government pledge to balance the books by then. The Financial Accountability Office released its economic and fiscal outlook today, saying that beyond that fiscal year the deficit will deteriorate further to $3.7 billion in 2020-21.
Ontario’s Liberal government is dipping into its reserve fund to help balance the budget for the next two years, ahead of the next provincial election.
An accounting dispute with the auditor general over how pension assets should appear on the books is adding $2.2 billion to the deficit this fiscal year, but the government insists it will reach balance by its self-imposed deadline of 2017-18.
Ontario universities face several financial pressures, among them pension solvency deficits, according to a new commentary by debt rating service DBRS Ltd. (who is on the hook for the pension shortfall?