Northern Ontario’s Population Growing But Performance Is Mixed

 

The 2021 Census detailed population results have been released and they show that Canada has been undergoing robust population growth that exceeds that of the other G7 countries.  According to Statistics Canada: “Approximately 1.8 million more people were calling Canada home in 2021 compared with five years earlier, with four in five of these having immigrated to Canada since 2016. Although the onset of the pandemic slowed population growth from a record high in 2019 (up 583,000 or +1.6%) to its lowest growth rate in a century in 2020 (up 160,000 or +0.4%), Canada's pace of population growth remains the highest in the G7.” Indeed, since 2016, Canada’s population has grown 5.2 percent while Ontario’s has grown by 5.8 percent.

 

The results for northern Ontario are intriguing given that the long-term propensity in the north has been towards a relatively flat population.  After the decline of the 1990s, population in the region stabilized but since 2016 the overall population has also grown albeit at a much lower rate than the rest of the province and the country.  Moreover, the growth performance is uneven with some parts of the north seeing increases and others declines.  Figure 1 shows the population by northern district as well as regional agglomeration. The north grew 1.2 percent since 2016 – well below the Ontario and Canadian population growth rates.

 

 

 

The northwest saw relatively restrained growth at just over one-fifth of one percent.  Within the northwest, Rainy River saw a decline of 3.4 percent while Thunder Bay district and Kenora district saw increases of six-tenths and seven-tenths of a percent respectively.  Most of the growth in the north’s population is coming from the northeast which grew 1.6 percent. Even there, there are some differences ranging from lows of -2.6 and -2.2 percent in Timiskaming and Cochrane while Parry Sound saw a 9.5 percent increase, Manitoulin 5.1 percent growth and Sudbury District (including Greater Sudbury) an increase of 2.9 percent.  While the north grew by 1.2 percent from 2016 to 2021, the Indigenous population on reserves grew 1.5 percent though even here there were interesting divergences are the approximately 115 Indigenous Reserve divisions.  For example, Bearskin Lake grew 26 percent while Pic River shrank by 16 percent. 

 

Like the rest of the country, the greatest population growth was in urban centers though even there the results are quite mixed (Figure 2).  Of the five major cities in northern Ontario, three saw population increases in their CMA populations – Thunder Bay (1.4 percent), Greater Sudbury (2.8 percent) and North Bay (1.9 percent).  On the other hand, Timmins and Sault Ste. Marie saw declines of 1.5 and 1.8 percent respectively.  When some of the smaller towns are examined, often there are declines.  White River for example, shrank by nearly 14 percent losing 88 people while Nipigon shrank 10 percent losing about 170 people. Even Kenora managed a slight decline though Elliot Lake grew at the national and provincial rates coming in at 5.9 percent.

 

 

 

These of course are just numbers, but the real question is why the differential growth across the region. Obviously larger centers do better because they offer a better set of amenities and economic opportunities but even being a larger urban center is not a panacea given Timmins and the Sault.  Given low rates of natural increase, some northern centers have done a better job at attracting new migrants and overall, the northeast has done better than the northwest given its proximity to southern Ontario.  Higher housing costs have seen Toronto’s population growth fall below that of adjacent cities like Hamilton, Barrie, and Kitchener-Waterloo. Some of the exodus has obviously spilled over into the near north regions of Parry sound and Nipissing as well as Sudbury. 

Do the Liberals Deserve a Majority?

 

This election is only about whether the current governing party deserves a majority.  It is not about who is the best steward of the economy, who has the best housing plan, who can manage the pandemic best or even issues like what should Canada’s foreign policy or trade policy be in the currently fractured world.  It should be about all these things, but these things are only a veil for what is the real issue.  Given a minority government that appeared to be working, was an election during a pandemic for the sake of trying to get a majority something the current governing party should be rewarded for?

 

That is a good question.  The answer really depends on what happens after this election.  If the Liberals get their majority – a prospect which currently appears problematic– then the federal business of government will continue pretty much as it has whether you like it or not. The rolling of the dice will have been rewarded with the anticipated prize and the universe will unfold as Liberal strategists desired. 

 

If there is a Liberal minority, then all was for naught, and we are back to a minority government that requires the support of at least one of the other parties - but the mandate of the Liberal minority will be weaker.  While they are still the government, they did not get their majority and the prospect for good relations with other parties after the rancor and rhetoric of an unnecessary election will shorten the life of the next parliament considerably.  It is a recipe for more unstable government, but with some continuity in dealing with the resurgent fourth COVID wave given the Liberals will still be in charge at least for a short time.

 

Suppose there is a Conservative or for the sake of argument an NDP minority government.  Then once again we have a prospect for unstable and short shelf-life government and probably a fair amount of chaos during the transition.  As the fourth wave grows, we will be busy watching to see who the new cabinet will be and what the policies transpire and who is going to be supporting the government and who is not.  Will the Liberals swallow their pride and support a conservative or NDP government?  Or will they simply retreat into sniping mode and leave the heavy lifting to the Bloc?  It is not a good prospect.

 

There is of course the possibility of a Conservative majority which solves the problem of the instability of a minority government.  However, there is still the prospect of transition. Ministers will be learning their portfolios and there is always the risk that if you change horses mid-stream, Canadians will simply fall into the creek.  In the end, one might argue it does not matter what happens.  After all, Canada’s political parties are really all middle of the road or centrist parties and all of them in the end will do pretty much the same thing but with differences in speed and intensity.  The NDP are simply Liberals in a hurry and the Conservatives are slower Liberals and Liberals are whatever they think Canadians want them to be. 

 

Moreover, politicians are merely actors on a stage and the real decision making and business of state is done by the civil servants, and they are not going anywhere. Still, in the end, political leadership matters.  Vision and inspiration matter.  Prime Ministers matter because even if scripted some deliver their lines better than others while others interpret the role in unique and uplifting ways. Or at least they should.

 

I guess, the real question is should you reward the Liberals for going to the polls during a pandemic and risking the aftermath of chaotic instability of government and transition during a rising fourth pandemic wave?  Should they be rewarded for opening such a can of worms? The answer to that is invariably complicated and can best be summarized as simultaneously both Yes and No.   Think of it as an election variant of Schrodinger's cat.

 

 

 

 

Ontario’s Spring 2021 Budget: The Future Looks Bleak for Health Care

 

Well, the Ontario 2021 budget came out yesterday and it is rightly preoccupied with the COVID-19 pandemic.  COVID-19 funding and support will continue to flow for the next couple of years and along with the $20.1 billion of support in 2020-21, there will be an additional $6.7 billion and $2.8 billion in the subsequent two years before the government anticipates a return to  some type of normalcy. 

 

For 2020-21, the deficit is estimated at $38.5 billion and for the 2021-22 fiscal year it is expected to be $33.1 billion and then $27.7 billion the year after.   However, the government has actually proposed a fiscal plan for getting to a balanced budget –but it is very long-term.  Deficits are projected to continue falling until 2029-30 when there will finally be a $900 million-dollar surplus – assuming the projections for economic growth and spending take shape and indeed, that the world should last so long.

 

Figure 1 presents the numbers for total revenues, total expenditures and the deficit out to 2029-30 but also puts them into historical perspective.  The numbers are from the Fiscal Reference Tables for the 1990 to 2019 period with GDP numbers from Statistics Canada and the Ontario 2021 Budget for the years after up until 2029. If these projections come to pass, Ontario will have run since 2008-09 a total of 21 budget deficits before reaching “balance” in 2029-30 resulting in accumulated deficits of $284.9 billion.  By 2029, Ontario will be taking in $210.1 billion in revenues – up 35 percent from 2019-20 – and then spending $209.1 billion- up 27% from the same reference point. The net debt that will rise from $397.2 billion in 2020-21 to reach an astounding $585.3 billion by 2029-30 and a net debt to GDP ratio that will remain just short of 50 percent for an entire decade.  Moreover, as the stock of debt rises, so does debt service and its rises from $12.5 billion in 2021-21 to $20.6 billion in 2029-30 – an increase of 65 percent.

 

 

 

It indeed will be the roaring twenties when it comes to the growth of net debt and debt service costs in Ontario.  Ontario’s fastest growing expenditure category from 2021 to 2920 will be debt service costs.  The average annual growth rate for nominal health spending is expected to be 2.6 percent.  Education will grow at an annual average of 1.1 percent, post-secondary education at 1.2 percent, children and social justice comes in at 0.6 percent annually (so much for children as the future) and interest on the debt at 5.1 percent. 

 

The results for health care spending are particularly at odds with the Ford government’s commitment to increasing hospital capacity and long-term care.  While base health spending – that is not including the short-term COVID-19 bump -  is projected to grow at 2.6 percent a year, it means that given population growth of about 1 percent annually and inflation of 2 percent, real per capita spending on health will at best stay flat and even decline somewhat.  

 

This will come after nearly a decade of relatively flat real per capita provincial government health spending in Ontario and it seems to conflict with government claims it is going to boost health and long-term care. We do seem to be heading for a rather dire fiscal future in which the budget is not going to be balanced, the public finances are not sustainable and spending on important things like health will actually decline in real per capita terms.  It is indeed a rather bleak looking future for health care in Ontario despite all the government spin.

What Ontario Needs to Do In Today's Budget

 

The Ford government will table Ontario’s 2021 budget on March 24, at a time when there’s an overflowing plate of pressing policy issues. Along with continuing the fight against COVID, sorting the ongoing fallout in long-term care, promoting economic recovery and addressing solvency issues in the university sector, there’s also the matter of the province’s finances.

Indeed, there are probably not enough hours in a day for the government to deal with the onslaught of policy issues and their cost-benefit calculations. So, one must prioritize.

First is COVID-19, which is seeing a renewed rise in cases. Given the public fatigue with restrictions, it’s now a race between the virus and vaccinations. The vaccination process is ramping up, but speed is the question. To vaccinate 14 million Ontario residents (with just one dose) by the end of June requires dispensing nearly one million shots a week effective immediately. Ontario usually orders enough flu shots to vaccinate 30 to 40 per cent of its population every year with five to six million flu shots dispensed in just a few months. As such, it should be well within the province's technical ability to effectively double that rate in an emergency. Indeed, Premier Ford has affirmed the province’s ability to administer 4.8 million vaccine shots a month. Yet it’s currently running at about a quarter of that rate—or about 1.2 million shots a month—because in the end, you still need a consistent and abundant vaccine supply.

Second, there’s the economic recovery, both short and long-term. According to the Financial Accountability Office of Ontario (FAO), the broad-based lockdowns have resulted in a 5.9 per cent drop in Ontario real GDP in 2020, the largest annual decline in economic output on record. However, assuming vaccines are distributed to the general population over the course of 2021 and government lockdown restrictions are progressively eased (and this third wave does not spiral out of control), Ontario’s economy should rebound strongly. The latest labour force numbers from Statistics Canada suggest employment is rebounding, with 100,000 jobs created in February and the unemployment rate falling a full percentage point to 9.2 per cent.

However, most of Ontario’s February employment gains were in part-time work with notable increases in accommodation, food and retail trade. These are fragile gains for an economy that seems to always be teetering on the brink of yet another lockdown. Moreover, the long-term picture is more ambiguous. On the one hand, the U.S. economy is recovering robustly, and given Ontario’s integration of exports and production with American business and supply chains, one might expect smooth and sustained growth prospects once the pandemic is behind us. The province’s northern resource sector will certainly benefit from the uptick in commodity prices for minerals and lumber.

At the same time, the Biden administration is sending mixed signals on its degree of economic engagement with its traditional partners. One of President Biden’s first actions was an executive order imposing strict new made-in-America rules for U.S. government spending with limited exceptions, meaning the spillover from the U.S $1.9 trillion stimulus program could cut Canadian companies out of the procurement process.

And third and finally, there’s the elephant at the cabinet table—Ontario’s fiscal picture. According to figures released in the fall, the 2020-21 fiscal year was expected to see a $38.5 billion budget deficit followed by $33.1 billion in 2021-22 and $26.2 billion in 2022-23. This would see Ontario’s net debt climb to $472.9 billion from $335.2 billion in 2019-20. While one could opine that the scale of deficits and pace of debt accumulation is mainly a function of the short-term rise in spending needed to fight the pandemic and the short-term collapse in revenue, the government must provide some plan to balance the budget over the medium term. Next week’s budget is a good place to start.

In a sense, these three policy problems are all related. End the pandemic and the economy will recover. Once the economy recovers and growth resumes, government revenues will recover and it’s reasonable to expect the deficit to shrink. The problem is, this has been the standard way to deal with Ontario’s budgetary shortfalls—hope you can grow your way out of it. One might term it faith-based fiscal planning, and its track record has not been successful.

According to figures from Finances of the Nation, the last time Ontario’s budget yielded even a small surplus was in 2000-01. Since then, there’s been a budget deficit every single year with nominal net debt rising from roughly $130 billion to reach nearly $400 billion by 2020-21. Apparently, there’s never a good time to deal with Ontario’s long-term structural gap between revenues and spending. If its not a recession, it’s a global financial crisis. If it’s not a financial crisis, it’s weak economic growth. If it’s not weak growth, it’s a need to invest in the future given low interest rates. And now, with a pandemic, one does not have to be very imaginative to see where this is going.

In the absence of a concerted effort to address its structural fiscal gap, the pandemic will pass but Ontario’s net debt will continue to grow.

This originally appeared in the Fraser Institute Blog, March 22^nd, 2021.

Thunder Bay Municipal Budget 2021: Overview

 

It is budget time at Thunder Bay City Council and this year’s discussion should be quite interesting given the coming together of the pandemic, numerous water issues that have affected residents directly in their pocket-books as well as the long-term effects of rising municipal expenditures combined with a flat population profile and an essentially stagnant property tax base.

 

The proposed 2021 municipal tax levy, which represents the total amount of dollars that needs to be raised from property taxpayers to fund City services, local boards and agencies and contribute to capital infrastructure programs, is $203,682,300 - an increase of 2.15% or $4.3 million over the 2020 approved municipal tax levy of $199,398,000. By comparison, in 2020 the municipal levy increase was $5.3 million, representing a 2.73% increase over 2019. Not included in the increase are costs associated with the COVID-19 pandemic, which are proposed to be funded from the Stabilization Reserve Fund in 2021 and one expects the millions of dollars in federal and provincial funds that have been provided for the purpose.

 

As well, there are numerous user fee increases not least of which is for water which comes in at 3.5 percent.  The irony of a 3.5 percent increase for water given the epidemic of residential pinhole leaks affecting thousands of residents is notable. As well, the 2021 proposed capital budget is presented at $51,607,300 gross of which $16,525,700 is funded by the tax levy representing an increase of 8.6% compared to the 2020 budget.  In terms of employment, the number of fulltime equivalent positions (FTEs) rises from 1724 to 1758 which we are assured is temporary because it has to do with cleaning costs associated with COVID.  This increase of 34 FTEs in municipal employment comes on the heels of 9 FTEs in 2020 and 10.5 in 2019.

 

If one wants some comparisons, Figure 1 plots the total municipal tax levy from 1990 to the current forecast for 2021 with the trend readily apparent. As well, while we know that Thunder Bay in 2020 had the second highest property tax rate of 35 Ontario cities, Figure 2 looks at the per capita levy in 2020 for 27 Ontario cities.  It turns out, that at $1783 per capita, Thunder Bay is the fourth highest.  For those purists who say it is unfair to compare us with cities like Toronto, very well, let us just look at the five major northern Ontario ones.  Here, Thunder Bay is ranked first – primus inter pares – above North Bay, Timmins, Sudbury and the Sault.

 

If City Council is to be guided on what to do this year it may want to heed the results of its own budget survey which had nearly 500 respondents though one expects that the expert statisticians resident on City Council will simply discount the results as based on a small and biased sample of negatively minded people not representing the true mind of the City of which only City Councillors have the divine power to ascertain.  Still, the survey results were quite telling as the general tenor of the responses was to focus on core services. 

 

As the report reads: “While there was a wide variety of topics covered, the strongest message and overarching theme centred around not spending money on extras considered ‘wants’ and instead focusing on essential ‘needs’. For example, not spending money on new capital projects such as the Multi-use Indoor Turf Facility, a waterfront sign, roundabout, or art gallery, and instead investing in existing City infrastructure (roads, facilities, fixing water pipes), and social services such as crime prevention and supporting vulnerable populations. It was also conveyed that citizens have experienced financial hardship because of the pandemic and do not want to see their taxes raised at this time – especially not to support new capital projects. Citizens outlined they would like to see the City invest in what we currently have and support the core needs without increases taxes – understanding this means giving up those items which would be nice to have but are not essential services.”

 

Indeed, based on a ranking of what is considered “very important or important,” the top programs and services in the city should be: emergency services, winter maintenance, drinking water, road maintenance and construction, garbage and recycling.  Included at the bottom are transit, child-care, libraries, recreation programs and facilities, animal services, and economic development.  There certainly does not seem to be a groundswell of support in this survey for new capital projects that do not reflect a core services mandate.

 

What should the City of Thunder Bay do this budget season?  Well, that is the $203,682,300 question.  First, it probably is time for Thunder Bay to visit the concept of core services in a more substantial manner.  Given our tax base, running the expansive set of services that we have is increasingly difficult given the size of the tax base. If the province wants us to fund an expansive set of community and social services on a local and regional level perhaps, they should foot more of the bill. Second, the 2.15 percent proposed increase does represent a retreat from the 4 percent or more number that was being bandied about earlier in the year.  While it may seem that City Councillors and administration have seen the light, it is unfortunately an oncoming freight train in a dark tunnel and more needs to be done. 

 

While 2 percent does mirror the rule of keeping increases to the sum of the rate of inflation (approximately 2 percent) plus population growth (pretty much zero), it should represent an upper bound rather than a flexible target.  There is more to be done to get levy growth even lower. Third, given that approximately 70 percent of costs are often associated with employment levels, there really needs to be a program of reduction via attrition and redeployment and retraining of staff.  For the next three years, for every two municipal employees that retire or resign, there should only be one replaced.  That FTE footprint needs to start coming down to where it was a few years back – say 1700 as in 2017.  At 100,000 per employee – which is not an unreasonable estimate of what each municipal FTE costs when salaries and benefits are combined, that would eventually reduce spending by $5 million a year.

 

Of course, all this talk of numbers and reductions is probably a lot for more upbeat members of council and one certainly one would not wish to bore them to death as they are perfectly capable of doing that to themselves during their marathon five and six-hour meetings.  A better way of framing all of this is via a simple analogy from the world of nature.  Simple stories are often the best ones as they can reduce complicated issues to the essentials needed for understanding.

 

Picture if you will, our municipal government as a Physalia physalis – also known as a Portuguese Man O’ War – floating serenely in a large aquarium.  It is essentially a large jelly like inflated bladder that in the end is rather brainless and feeds instinctively on the small fish and creatures in the aquarium via the lethal stingers in its tentacles.  Along with being rather brainless, it also really has no anus so it is probably recycling its own waste matter which can eventually get monotonous and a little stale given the size of its environment. 

 

As it sits in its limited environment and exhausts its food supply, it really is not capable of doing what needs to be done.  The solution is either to expand the size of the aquarium and restock it with new prey or replace the current Physalia Phyalis with a new and much smaller one or perhaps even an entirely new creature.  The current creature of course behaves by instinct and really is not capable of altering its size or its environment.  It is not capable of expanding the size of its environment – economic growth and an expanded tax base – and it does not appear to be capable of shrinking on its own.  I suppose that a solution has to be done by forces external to the situation.  I guess that is where the voters will ultimately come into the picture.