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Ensuring Ontarios Economic Potential

prepared by The Centre for Spatial Economics prepared for The Urban Development Institute/Ontario

February 2006

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Ensuring Ontarios Economic Potential: Recommendations


This report examines possible policy barriers to the achievement of Ontarios economic growth potential over the next several decades. It was prepared at the request of the Urban Development Institute /Ontario by the Centre for Spatial Economics. The report includes twenty recommendations aimed at keeping Ontario on track to achieve its potential. The recommendations are listed below.

Recommendation 1 The federal government should earmark a fixed percentage of the personal income tax revenues it collects from residents in the Golden Horseshoe for strategic transportation infrastructure project investments in the Golden Horseshoe. Recommendation 2 The federal and provincial governments should jointly pledge to eliminate Ontarios estimated $100 billion infrastructure deficit within the next ten years and should implement the tax and regulatory changes that are required in order to achieve this goal. Recommendation 3 The federal and provincial governments should move quickly and deliberately to establish the legal and regulatory framework required to make Alternative Financing Procurement a feasible alternative to the conventional methods of financing, constructing and operating public infrastructure. Recommendation 4 The province should clearly articulate which transportation and other infrastructure projects are covered in the 2005-2010 time frame and when and how those projects will be approved, financed and constructed. The Mid-Peninsula Corridor, the eastward extension of the 407, the dedicated truck route through Windsor, the expanded border capacity in Niagara, the proposed extensions to the GO system and the expansion of the TTC should be identified as immediate priorities.

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Recommendation 5 The federal and provincial governments should move quickly and deliberately to reform the environmental assessment process prior to the announcement of specific infrastructure projects, to facilitate investor interest. Recommendation 6 The province needs to make decisions quickly regarding Ontarios future electricity supply to assure domestic and international investors of the long-term advantages of locating and expanding their businesses in Ontario. Recommendation 7 The province should redefine the Greater Golden Horseshoe to include only those cities, regions and counties containing municipalities that form a part of the metropolitan areas of Oshawa, Toronto, Hamilton, St. Catharines-Niagara, Brantford, Guelph, Kitchener and Barrie. Recommendation 8 The province should release, for review, the technical background papers that underlie their population projections. Recommendation 9 Upon the release of the 2006 Census data, prior to approving municipal Official Plans that have been revised to conform to the growth plan, the province should update its population, dwelling and employment projections to reflect the Census results. Recommendation 10 The Agricultural and Rural Area south of the Greenbelt Area, and more precisely within the GTAH, should, through municipal Official Plan conformity exercises, be identified as Designated Greenfield Area to accommodate the projected population and employment growth. As well, it should be recognized that some of the Agricultural and Rural Area north and west of the Greenbelt will also likely be required for future urban growth before 2031.

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Recommendation 11 The province needs to reconsider its targeted shares for housing by structural type in the Golden Horseshoe and bring them into line with the preferences of the people employers are seeking to attract over the next several decades. Recommendation 12 Considering the complexity and diversity of the employment sector within/across the Golden Horseshoe, the 2:1 persons to jobs ratio may not be achievable in certain municipalities. A further analysis informed by local market realities resulting in a more flexible target should be undertaken. Recommendation 13 The province needs to reconsider its forecasts for employment by land-use type and should undertake further analysis of future employment by industry in the Golden Horseshoe based on detailed information regarding the significant differences in land requirements across industries and over time. This analysis should be carried out in conjunction with the sub-area regional economic assessment to guide planning for employment. Recommendation 14 A more thorough assessment of both residential and non-residential land requirements throughout the Golden Horseshoe is needed. Future residential land requirements should better reflect consumer preferences. Future employment land requirements should be based on detailed projections of employment by industry and on an assessment of likely future changes in land requirements per employee by industry. As part of this exercise the province should release the technical background material underlying the proposed targets for review. Recommendation 15 If the province decides to pursue immigration to fill current and expected skilled labour shortages it will need to work closely and cooperatively with the federal government to develop an appropriate immigration policy to fulfill its needs in the short and long-term.

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Recommendation 16 Where immigration is an option in meeting the skills Ontario will require in the future, the province needs to facilitate the recognition of the qualifications of these new Canadians. Recommendation 17 Where local development is an option in meeting the skills Ontario will require in the future, the province needs to better counsel students regarding the opportunities and advantages of the occupations expected to be required in the future. Recommendation 18 The federal government needs to adjust the Kyoto targets and implement a realistic program that reinforces the incentives being provided by the market place combined with incentives to encourage energy conservation. Recommendation 19 The provinces plans for transit infrastructure within the Golden Horseshoe should focus on the provision of rapid transit links (including bus, light and heavy rail) among the urban growth centres, providing adequate parking opportunities for commuters at strategic transit nodes, rather than on the provision of door-to-door transit service in local neighbourhoods. Recommendation 20 The province needs to take a proactive stance with respect to the Golden Horseshoes requirements for additional airport facilities over the next quarter century. In collaboration with the federal government, the province should develop an airport location strategy that helps to direct people and businesses to the regions within the Golden Horseshoe designated for future growth to ensure ready access and minimize traffic congestion.

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Table of Contents
Section Section 1 Topic Introduction Ontarios Growth Potential Canadas Potential is Linked to Ontario Ontarios Potential is Linked to the Golden Horseshoe Major Challenges on the Horizon Necessary Conditions for Growth in Ontario Section 2 Current Policies Supporting Ontarios Economic Potential Background Monetary, Fiscal and Trade Policies Transportation Panning Immigration Post-Secondary Education Conclusion Section 3 Current Policies Threatening Ontarios Economic Potential Background Federal-Provincial Revenue Sharing Infrastructure Funding Infrastructure Timing Electricity Supply Defining the Greater Golden Horseshoe The Population Projections The Preservation of Agricultural Lands Residential Requirements Employment Lands Land Supply Skilled Labour Environmental Policies Transit Airports Section 4 Appendix A Appendix B Appendix C Appendix D A Final Word Growth Trends in the Golden Horseshoe Implications of the Aging of the Baby Boomers Growth Trends in the External Trading Environment The Macro-Economic Environment Page 1 1 2 4 6 8 8 8 9 9 10 11 11 11 11 12 14 16 17 18 22 25 30 38 40 41 42 43 44 47

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List of Figures
Figure Subject 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 The Federal Governments Net Fiscal Position With Respect to Ontario Population of Ontario and the Golden Horseshoe Ontarios Standard of Living Ontarios Population by Single-Year Age Group The Golden Horseshoe as Eight Metropolitan Areas Population of the Golden Horseshoe by Census Division Comparison of Greater Golden Horseshoe Population Projections Population of the Greater Golden Horseshoe by Five-Year Age Group Comparison Population and Farm Acreage Shares in Ontario Change in Farm Acreage in Ontario by Area Farm Acreage and Population in Ontario by Census Division Dwelling Proportion for Single Homes by Age by CMA in the Golden Horseshoe Dwelling Stock by Structural Type by CMA in the Golden Horseshoe GTA and Hamilton Percent Share of Householders 65 and Over Preferring Single Dwelling Requirements by Type in the Golden Horseshoe Dwelling Type Preferences by Major Criteria Net Migration from GTA to Outlying Areas Number of Renter Households Who Can Afford to Buy Employment by Industry in Ontario Province of Ontario Population Projections Page 3 5 6 7 19 21 23 24 26 27 28 30 31 33 34 36 37 37 39 45

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Ensuring Ontarios Economic Potential


Section 1: Introduction
This report examines possible policy barriers to the achievement of Ontarios economic growth potential over the next several decades. It was prepared at the request of the Urban Development Institute /Ontario by the Centre for Spatial Economics.

This report has 3 key goals: 1. To identify the conditions necessary for Ontario to reach its economic potential over the next several decades and the policies that influence those conditions. 2. To identify the policies that threaten Ontarios achievement of these necessary conditions. 3. To provide recommendations aimed at keeping Ontario on track to achieve its potential.

Ontarios Growth Potential In recent reports1 we have noted that Ontarios economy has enormous growth potential: Ontario accounts for a disproportionate share of the countrys most rapidly expanding industries. Ontarios economy is the most diversified in the country. Ontarios labour market is educated, mobile and flexible. Ontarios share of persons 25 - 64 years of age holding a university degree is the highest in the country. Ontario has an above average post-secondary school enrolment rate resulting in high productivity levels and high income levels. These high incomes attract job seekers from other provinces and countries, boosting Ontarios population and Gross Domestic Product (GDP) growth. The Golden Horseshoes close proximity to the US has contributed to the heavy concentration of the provinces people and productive capacity in the area.
1

See C4SE Ontario Outlook Fall 2005, the Centre for Spatial Economics, and Key Forces Shaping the Economic Geography of Ontario to 2025 by Tom McCormack in Ontario Toward 2025: Assessing Ontarios Long Term Outlook, Ontario Ministry of Finance, September 2005.

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The Golden Horseshoe is well located to service this huge and rapidly expanding US market, contributing enormously to Ontarios economic growth potential.

The Centre for Spatial Economics projects that, as a result of these and other attributes, Ontarios economy will grow at an average annual rate of 3.2 percent in real terms over the next decade, well ahead of the projected national average of 2.9 percent. Among the remaining nine provinces only Alberta will manage to achieve a similar rate. Our longer-term projections foresee Ontario sustaining an average growth rate above the national average through to the middle of the century.

The positive future for Ontario suggested by our projections is by no means inevitable. If Ontario is to reach its potential of higher than average growth and rising living standards, many policy-related concerns must first be addressed. The objective of this report is to identify the conditions necessary for Ontario to reach its potential, to draw attention to those policies which support and those policies that threaten these necessary conditions, and to recommend policy changes that will improve Ontarios chances of realizing its promise.

Canadas Potential is Linked to Ontario Economic growth in Ontario benefits the rest of Canada. In 2004, although Ontario accounted for only 38.8 percent of Canadas population, it accounted for 39.6 percent of its jobs, 41.6 percent of its GDP and 43.7 percent of the federal governments revenues, yet it received only 33.2 percent of the federal governments expenditures.2 As a result, in 2004 the federal government ran a considerable surplus in relation to Ontario, collecting $27 billion more in revenues from Ontarios citizens and businesses than it spent on them, or an average of $2,166 per person. In sharp contrast, in the same year, the federal government ran a net deficit with the rest of Canada, totaling $12 billion. Absent Ontarios contribution, the federal surplus of $15 billion would not have occurred.3
2 3

Calculations by the Centre for Spatial Economics based on Provincial Economic Accounts data from Statistics Canada.

Estimated Net Financial Flows Between the City of Toronto and the Federal and Provincial Governments, May 2005, Centre for Spatial Economics. Statistics Canada Provincial Economic Accounts data, available only through to 2002, reveal that Alberta and British Columbia are also net contributors to the federal governments fiscal position. From 1998 - 2002 Albertas average annual net contribution averaged $7.4 billion per year, British Columbias $2.7 billion and Ontarios $24.4 billion. The federal surplus averaged $11.9 billion per year over the same period, leaving the federal net position with respect to the remaining 7 provinces and 3 territories averaging $22.6 billion per year.

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Ontarios contribution to the rest of Canada in 2004 is nothing new, over the last quarter century the federal government spent more on Ontario then it collected in revenue from Ontario citizens and businesses on only two occasions; during the recession of the early 1980s (1982 -1985) and the recession of the early 1990s (1993) (Figure 1). Over the last eight years Ontarios net contribution to the federal treasury has averaged $24 billion per year.

In other words, the federal government has tapped into Ontarios prosperity in a significant way over time to raise the living standards elsewhere in Canada, to levels that could otherwise not be supported by the employment and productivity levels prevailing in the majority of those provinces. Figure 1 The Federal Governments Net Fiscal Position With Respect to Ontario Billions of Dollars from 1981 to 2004
30 Billions of Dollars 25

20

15

10

0 Years -5 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Source: Statistics Canada and the Centre for Spatial Economics

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A key mandate of the Canadian government is to attempt to equalize the nations wealth among its provinces and territories through the redistribution of tax revenues. We suggest that, in view of the Canadian governments dependence on Ontario to fulfill that role, the federal government needs to do more to ensure that Ontario reaches its economic potential in the decades ahead.

Ontarios Potential is Linked to the Golden Horseshoe Economic growth occurs in two ways: through increasing the quantity of inputs used in the production process4 and/or through increasing the quantity of output obtained per unit of input (productivity growth5). Ontarios economy has grown in the past both because the inputs have grown and productivity has grown. Productivity growth is important because it manifests itself over time through rising real incomes per worker and per business owner. Productivity growth, in other words, provides the wherewithal for society to increase its standard of living.

One of the many ways that societies achieve productivity growth is through agglomeration. Metropolitan areas exist because of the enormous efficiencies they afford: businesses can access suppliers and skill sets more easily, as well as market and distribute their products and services in a more cost effective manner; consumers can more readily obtain the products and services they want; and governments can provide public services in a more efficient and cost effective manner.

When metropolitan areas reach a critical mass they are able to support even higher levels of private and public offerings (regional shopping centres, performing arts venues, major league sports teams, etc.). As a result, the standard of living provided in a metropolitan area is significantly greater than that provided in smaller communities.

Metropolitan areas are the natural outcome of societies constantly striving for a better standard of living. Urban areas attract people pursuing higher paying jobs, and businesses seeking bigger markets and a larger pool of suppliers and employees.

To state the obvious, urban growth attracts more urban growth.


4 5

Land, labour and capital. Through the use of more and better technology, educated workers, organizational structures and management practices, etc.

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This kind of self-reinforcing behavior has been at work in Ontarios Golden Horseshoe for some time (Figure 2) and is fundamental to the continued achievement of Ontarios economic potential. Three decades ago the Golden Horseshoe accounted for 57 percent of Ontarios population; today it accounts for 64 percent; by 2031 it will account for 69 percent. These gains reflect the fact that 80 to 90 percent of the growth occurring in Ontario now and into the future is concentrated in the Golden Horseshoe. Figure 2 Population of Ontario and the Golden Horseshoe 1976 to 2031
18,000,000 Population 16,000,000 Ontario Population (Left Scale) 14,000,000 Golden Horseshoe Population (Left Scale) 12,000,000 67.0 69.0 GH Population as % Share of Ontario Population (Right Scale) % Share 71.0 73.0

10,000,000

65.0

8,000,000

63.0

6,000,000

61.0

4,000,000

59.0

2,000,000 Years 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031

57.0

55.0

Source: Statistics Canada and the Centre for Spatial Economics

This relentless drive toward agglomeration along with the use of better skilled workers, more sophisticated equipment and advanced management practices have combined to raise the standard of living in Ontario over the last quarter century by more than 40 percent. And, provided we meet the various conditions described in this report, our projections suggest our standard of living could grow by another 60 percent by 2031 (Figure 3).

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Figure 3 Ontarios Standard of Living Gross Provincial Product per Person in Constant 2004 Dollars
$70,000 Constant 2004 dollars per person $60,000 Projected by C4SE $50,000 History $40,000

$30,000

$20,000

$10,000 Years $0 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031

Source: Statistics Canada and the Centre for Spatial Economics

Major Challenges on the Horizon Over the course of the next quarter century Canada and Ontario face the many opportunities and threats posed by the continued expansion of global trade, and specifically by the industrialization of the underdeveloped nations of the world. If Ontario is to continue to prosper it will need to not only sustain, but also enhance, its competitive position in the global arena, no small test as the spread of prosperity worldwide will result in an increase in the number of competitors.

Yet the biggest test to be faced by Canada and Ontario in the coming decades, an aging population, is homegrown. Between now and 2031 Canada must absorb the economic and social impacts of the retirement of the largest cohort, the aptly named Baby Boom Generation (Boomers).

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Today, the Boomers (40-60 year olds) are for the most part fully engaged in economic and social activities, and are in their peak earning power and spending years. In 2011, however, the oldest of the Boomers will reach 65, by 2031 the entire cohort will be 65 and over. The demographic shift projected to occur between 2006 and 2031 will result in an increase of 1.7 million persons 65 plus (Figure 4). Figure 4 Ontarios Population by Single-Year Age Group in 2006 and 2031
300,000 Number of people 2006 250,000 2031 200,000

150,000

100,000

50,000 Age 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+

Age

Source: The Centre for Spatial Economics

By 2025 the number of people 65 and over will exceed the number of persons under 20 for the first time ever. Over the succeeding quarter century the generational gap will grow significantly, even if immigration levels are increased considerably (as we expect they will be). The aging of the Baby Boom generation is a major policy concern as public spending per capita on persons over 65 substantially exceeds such spending on persons under 20.6

Appendix B contains background information with respect to the impacts of the aging of the Baby Boomers.

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Necessary Conditions for Growth in Ontario In this report the variety of conditions required for Ontario to reach its potential economic growth rate has been organized into two categories: 1. Current government policies that support Ontarios achievement of its economic potential. 2. Current government policies that threaten Ontarios achievement of its potential, including suggested remedies to get Ontario back on track. These conditions for economic success and policies related to their achievement are described in separate sections of this report.

Section 2: Current Policies Supporting Ontarios Economic Potential


Background Ontarios economic growth over the last quarter century can for the most part be attributed to its penetration of foreign markets, especially those of the United States. During the 1980s exports accounted for 31.0 percent of Ontarios real GDP. That share skyrocketed to 41.2 percent during the 1990s as a result of the Free Trade Agreement and the North American Free Trade Agreement, and has increased even further to an average of 49.3 percent so far this decade. The gains that Ontario made in penetrating these foreign markets propelled its growth over this period. For example, between 1981 and 2004 the Ontario economy grew at an average annual rate of 3.1 percent, in real terms, but exports grew at an annual rate of 7.0 percent.7

So long as Ontario retains its competitive edge, international trade can be expected to continue to drive Ontarios prosperity in the future. The market for Ontarios exports is likely to remain positive for the foreseeable future as the U.S. economy is forecast to continue to grow, though at a gradually decelerating rate, and China is expected to be a major economic force in the further expansion of world trade in the coming decades.

Calculations by the Centre for Spatial Economics based on Provincial Economic Accounts data from Statistics Canada.

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The emergence of China on the world scene contains both advantages and disadvantages for Ontario. On the positive side, China is a fast growing market that the industrialized world, including Ontario, can continue to export to. On the negative side, China is a major competitor to all industrialized nations.8

The long-term continuation of growth in world trade bodes well for Ontario. However, a number of conditions must be met if Ontario is to capture its share of these expanding world markets.

Monetary, Fiscal and Trade Policies In our view no changes need to be made to Canadas macro-economic and trade policies to ensure that Ontario reaches its economic potential. Canadas monetary, fiscal and trade policies are positioned to sustain a low rate of inflation and balanced budgets over the long term, while further improving on the establishment of competitive tax rates and liberalized trading relationships.9

Transportation Planning Ontarios transportation links to the rest of the world must be expanded, particularly to the US, if Ontario is to reach its potential. To this end, the provinces growth management plan, Places to Grow: Better Choices, Brighter Future: Proposed Growth Plan for the Greater Golden Horseshoe, November 2005 (Places to Grow) represents an important sea change in policy direction. In half a century, no other provincial government has exhibited the political will to: 1. Step forward and accord so much attention to one geographic area of the province, the Greater Golden Horseshoe (GGH). 2. Recognize the critical importance of the GGH to the well being of the entire province. 3. Identify the critical link between the transportation system throughout the GGH and the provinces future prosperity. 4. Assume the leadership position regarding transportation planning in concert with population and employment growth and land use planning, throughout the GGH.
8 9

Appendix C reviews growth trends in the external trading environment in greater detail. Appendix D reviews the macro-economic policy environment in greater detail.

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We commend the province for assuming this leadership role. Without the strong planning commitment to the Golden Horseshoe made by the province through Places to Grow we believe Ontarios future prosperity would be jeopardized. We support the provinces key goals as expressed through Places to Grow and later in this report offer further input and recommendations to assist the province in reaching those goals.

Immigration If Ontario is to capture its share of expanding world markets and reach its economic potential it will need to fill hundreds of thousands of new jobs over the next several decades. As the Boomers retire and the age structure changes, Ontarios ability to attract immigrants will become increasingly important as a source for skilled workers. Canadas current immigration policy stance recognizes this need.

We do, however, question recent speculation by the federal government suggesting the current immigration rate of 240,000 per year must increase in the next five years to 300,000. We believe the current 240,000 per year pace is appropriate for at least the next decade, that a pace of 300,000 per year will not be required until the Baby Boom retirement is in full swing.10 Nevertheless, we applaud the federal government for recognizing that higher immigration in the years ahead is a necessary condition for the achievement of Canadas and Ontarios economic potential.

The assimilation of new Canadians into society poses major challenges in terms of skills identification, language training, skills enhancement, the provision of new housing, etc., issues that require attention from both the federal and provincial governments. We are encouraged by the fact that both levels of government understand the critical role immigration must play in the achievement of Ontarios economic potential. In later sections of this report we address specific immigration policy implementation issues that need improvement, including cooperation between the two levels of government and the recognition of foreign credentials.

Indeed, we see the need for an immigration pace exceeding 300,000 per year by 2016, increasing to above 350,000 per year during the 2020s. See Appendix B for more details.

10

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Post-Secondary Education The jobs that will be created over the next decade will require ever more complex skill sets. The Institute for Competitiveness and Prosperity recently drew attention to the fact that, compared to a peer group of sixteen states and provinces, Ontario has fewer workers with university degrees and produces fewer graduate degrees, and this deficit is especially pronounced among the managerial levels of our businesses.11

The Ontario budget of May 2005 recognized the need to close this gap and included significant new spending for capital and operational funding for post secondary education. We encourage the province to maintain its focus on post secondary education and to increase funding further in the future.

Conclusion We conclude that the current stance being taken by the federal and provincial governments with respect to monetary, fiscal, trade, immigration, and post-secondary education policies is appropriate. In all of these areas the current position, if pursued into the future, will support Ontarios achievement of its economic potential.

Section 3: Current Policies Threatening Ontarios Economic Potential


Background The previous section of this report identified government policies that support the conditions essential to the achievement of Ontarios economic potential. This section examines current policies that threaten the conditions essential to Ontarios future success.

This section is organized around several themes, including discussion and recommendations regarding: federal-provincial revenue sharing, infrastructure funding, the timing of infrastructure delivery, land use, electric power generation and skills development.

11

See Balancing Priorities for Prosperity, The Institute for Competitiveness and Prosperity, November 2005.

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Federal-Provincial Revenue Sharing We noted previously that the federal government ran a huge surplus in 2004, thanks to Ontario, collecting $27 billion more from its people and businesses than it spent on them. This is only part of the story (Figure 1).

According to research we conducted in 2002 the federal governments surplus in the year 2000 totaled $19.4 billion. The federal governments net fiscal position with respect to the City of Toronto alone, however, was a surplus of $8.0 billion12 and its net surplus with the four GTA regions of Durham, York, Peel and Halton totaled $9.1 billion13. In other words, in 2000 the federal government generated a surplus of $17.1 billion in 2000 with respect to the GTA and $2.3 billion with respect to the rest of Canada.14 Our research at that time also shows that, over the period from 1981 to 2000, the federal government never once generated a deficit with respect to either the City of Toronto or the four suburban GTA regions, not even during those years in which it was running deficits on a country-wide basis in the $30 to $40 billion range.15

A review of the detailed calculations carried out in connection with that reveals that the progressive nature of Canadas personal taxation system, coupled with the Employment Insurance program, account for most of the GTAs unique net surplus with respect to the federal government. The GTA has the highest average personal incomes in Canada and relatively low unemployment rates, and accounts for 18 percent of Canadas population and jobs. In other words, within Canada the GTA is relatively big and it very well off. Nevertheless, because the federal government depends so heavily on the GTA for so much of its spending in the rest of Canada, it seems reasonable to expect it might have done more over the decades to ensure the GTAs long term survival.

See the report we prepared for the Toronto Board of Trade entitled Estimated Net Financial Flows Between the City of Toronto and the Federal and Provincial Governments in January 2002.
13 14

12

Based on our research for the Toronto Board of Trade in January 2002 but not published.

In a just completed update to that research for the Toronto Board of Trade we found that the federal government ran a surplus with respect to the people and businesses of the City of Toronto equal to a revised $7.8 billion in 2000 (slightly lower than our earlier $8.0 billion estimate due to data revisions from Statistics Canada), $6.9 billion in 2001, $5.8 billion in 2002, $5.7 billion in 2003 and $6.7 billion in 2004. Estimates for the GTA suburban regions were not updated at this time but would no doubt show a similar persistent positive net position over the same period.
15

If interest payments on the federal debt paid to people and businesses in the GTA over that period are removed from the estimates of the amount spent by the federal government on the GTA (since the GTA did not generate the debt in the first place should interest paid on it to the people of the GTA be considered a benefit to them?) the net federal fiscal surplus position with the GTA increases to significantly more than the figures cited here.

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In that connection, the federal budget of 2005 included measures to share 1.5 cents per litre of its gasoline tax with Canadian municipalities for public transit and other infrastructure projects in 2005 (generating a total of approximately $600 million in 2005, growing to $2 billion by 2010). We suggest that this program is flawed in two key ways: 1. The revenues are allocated to municipalities on a per capita basis (so the GTA, the engine of growth for Ontario and Canada, will get the same amount of money per person as those municipalities where jobs and population are stagnant or in decline). 2. The revenues are dependent on the volume of gasoline consumed, which will likely decline in the future. The federal government has a strong vested interest in the future success of the Golden Horseshoe. To reach its potential the Golden Horseshoe needs investment in transportation infrastructure that keeps pace with population and job growth. Rather than the proposed approach (a per capita allocation based on overall gasoline consumption) we suggest a better method would have the federal government earmark a fixed percentage of the personal income taxes it collects from the residents of the Golden Horseshoe for investment in Golden Horseshoe transportation infrastructure. The strength of this approach is that the infrastructure spending it generates would directly reflect the growth occurring in that area.

In 2002, had the federal government taken 10 percent of the revenues it received from the personal income taxes it collected from the residents of the Golden Horseshoe and earmarked them for transportation infrastructure in the area, the amount of funding involved would have totaled $2.6 billion. Despite that large amount the federal government would still have received $17.5 billion more from the people and businesses of Ontario than they spent on them in 2002 (instead of the $22.1 billion net surplus position that was recorded for Ontario relative to the federal government that year). If the federal government was to implement such a policy vis-vis the Golden Horseshoe, if the province was to match that amount in infrastructure funding, and if, in turn, the $5.2 billion of federal and provincial government infrastructure funding was to be leveraged into an equal amount of private sector infrastructure funding, the estimated $100 billion infrastructure deficit in the province at this time16 could be eliminated within a decade.

16

See ReNew Ontario 2005-2010, page 2.

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Recommendation 1 The federal government should earmark a fixed percentage of the personal income tax revenues it collects from residents in the Golden Horseshoe for strategic transportation infrastructure project investments in the Golden Horseshoe.

Recommendation 2 The federal and provincial governments should jointly pledge to eliminate Ontarios estimated $100 billion infrastructure deficit within the next ten years and should implement the tax and regulatory changes that are required in order to achieve this goal.

Infrastructure Funding In the past, the federal and provincial governments have dealt with infrastructure funding in a variety of ways. Our national railway system the Canadian Pacific Railway was built by the private sector encouraged by governments to do so through a system of incentives that includes land grants, monopoly rights and subsidies. In the case of the railway, the private sector assumed the associated financial risks of front-end financing and building of the required infrastructure in exchange for the expectation of future profits. In other cases, the government itself or its agencies funded, built and operated needed infrastructure (for example, the highway and road network). Other infrastructure (for example the cable television system) was built and operated entirely by private companies under the umbrella of a legal/regulatory framework that protects both the private sectors investment and the consumer.

More recently, alternate arrangements, tagged Public-Private Partnerships (PPPs) or Alternative Financing Procurement (AFPs) have been developed as a means of leveraging private sector money and expertise to fund, build and operate public sector infrastructure. AFPs take many forms but they all employ a mix of public and private funding, with operation and maintenance performed by private enterprise on behalf of the government. As recently pointed out by Bank of Canada Governor, David Dodge, other countries such as the United Kingdom and Australia boast numerous examples of successful PPPs whereas Canada has yet to establish the well-developed legal and regulatory framework for PPP investment found in those other countries:

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Pension and endowment funds are now allocating an increasing share of their portfolio assets to infrastructure investments . . . These funds are increasingly looking for longerterm assets that provide a better match to their liabilities. So far much of this investment has gone to projects in other countries. This is partly because the domestic markets for PPPs in these countries are more developed than ours. 17

We have previously noted that over the last decade the federal government has generated considerable surpluses largely financed by the people and businesses of Ontario, and, in particular, the people of the Golden Horseshoe. At the same time, the government of Ontario repeatedly claims it cannot afford to pay for new infrastructure because it must first balance its budget. Our long-term projections demonstrate that, despite the growing needs for increased health care and other spending resulting from our aging population, the federal and Ontario governments combined have the financial capacity to pay for the necessary infrastructure in Ontario.18 Furthermore, this financial capacity can be used to leverage private sector capital through the AFP measures that were announced by the province last year.

Despite the fact that funds are clearly available for this purpose from public and private sources, a logjam of inter-governmental wrangling over responsibilities and financing strategies, combined with a complex regulatory approvals process, holds up infrastructure projects crucial to the achievement of Ontarios economic potential. This situation is unacceptable, particularly in light of the publics and business communitys desire to see concrete progress regarding such issues as gridlock. To remedy this situation we offer the following recommendation.

Recommendation 3 The federal and provincial governments should move quickly and deliberately to establish the legal and regulatory framework required to make Alternative Financing Procurement a feasible alternative to the conventional methods of financing, constructing and operating public infrastructure.
17

This point and the discussion on infrastructure financing options and risks in the previous two paragraphs is based on remarks by David Dodge, Governor of the Bank of Canada, to the Canadian Council for Public-Private Partnerships (Toronto, November 28, 2005).

See the presentation Government Balances in Ontario: How Tight? by Ernie Stokes of the Centre for Spatial Economics to the Pragma Council of the University of Waterloo in April 2005.

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Infrastructure Timing As the province is aware, the achievement of Ontarios economic potential is dependent on the maintenance and expansion of the existing transportation network at a pace consistent with, and preferably in advance of, the forecasted population and employment growth.

In May 2005 the province released ReNew Ontario 2005-2010 in conjunction with the provincial budget.19 The document describes itself as a five-year infrastructure investment plan to strengthen our economy and our communities. It lists many major projects totaling more than $30 billion that Ontario and its partners will invest in infrastructure over the next five years. As best as we can determine some $11.4 billion of this total appears to be earmarked for public transit, highways, borders and other transportation projects with the rest to be spent on health, education and justice. Regrettably, the plan is short on details. It does not make clear the amount of money that will be spent on which projects, nor does it identify start and completion dates for any projects. The section that references investing for growth leaves the unsettling impression that the Golden Horseshoe will receive a disproportionately small share of the promised $30 billion.

In November 2005 the province released Places to Grow: Better Choices, Brighter Future: Proposed Growth Plan for the Greater Golden Horseshoe, November 2005 (Places to Grow) which explicitly recognizes the importance to Ontarios prosperity of the free flow of goods within, to and from the Golden Horseshoe.20 Places to Grow, in very broad terms, describes a transportation plan designed to deal with both the movement of goods and the movement of people throughout the area by addressing the need for refurbishing and expanding its system of highways, roads, inter-modal facilities and transit systems.

Again, however, the province is silent about the timing of the rollout of fundamental segments of the transportation plan.

19

See ReNew Ontario 2005-2010 Strategic Highlights: A Five-Year Infrastructure Investment Plan to Strengthen Our Economy and Communities, Ontario Ministry of Public Infrastructure Renewal (May 2005). See Places to Grow: Better Choices, Brighter Future: Proposed Growth Plan for the Greater Golden Horseshoe, Ontario Ministry of Public Infrastructure Renewal (November 2005).

20

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Businesses within and outside of the Golden Horseshoe that are evaluating future moves to or expansions in the area need to be reassured that they will be able to move their products and deliver their services in the future. Construction of the infrastructure required to handle the expected growth in goods movement between Ontario and the United States such as the MidPeninsula Corridor, a dedicated truck route through Windsor, expanded border capacity in Niagara is still years away due to the long and complex Environmental Assessment review requirements. Regrettably, the evidence that is available including increasing congestion and a set of plans lacking specifics is a deterrent to businesses to locate or expand in the Golden Horseshoe. Businesses require clear timelines on these major transportation projects to make informed choices. Substantial blocks of land throughout the Golden Horseshoe are not being developed as a result of the uncertainties surrounding the timing of such projects as Highway 404 north, Highway 427 north, Highway 407 east and the Mid-Peninsula Corridor.

Recommendation 4 The province should clearly articulate which transportation and other infrastructure projects are covered in the 2005-2010 time frame and when and how those projects will be approved, financed and constructed. The Mid-Peninsula Corridor, the eastward extension of the 407, the dedicated truck route through Windsor, the expanded border capacity in Niagara, the proposed extensions to the GO system and the expansion of the TTC should be identified as immediate priorities.

Recommendation 5 The federal and provincial governments should move quickly and deliberately to reform the environmental assessment process prior to the announcement of specific infrastructure projects, to facilitate investor interest.

Electricity Supply Electric power is essential to households and remains a crucial source of energy for many of Ontarios most important industries (newsprint, cement, chemicals, aluminum, iron and steel, mining, etc.).

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In May 2005, the Ontario Power Authority (OPA) was charged with developing recommendations regarding the future of Ontarios electricity supply taking into account conservation targets and new sources of renewable energy out to 2025.

In December 2005, the OPA released its recommendations on options for the future development of Ontarios electricity system to the Ontario Minister of Energy.21 Following the release of the OPAs recommendations the Premier indicated that he would follow their advice only after an appropriate consultation with stakeholders had taken place. Because of the lack of sufficient attention to this issue in the past, the unavoidable retirement of existing nuclear capacity in the near term, and ever-growing demands for electricity in the future, there is precious little time for extensive consultations to inform needed decisions. An adequate supply of affordable electricity is a crucial condition that must be met to ensure the future prosperity of Ontario. We suggest that the OPAs recommendations are an important step in the right direction.

Recommendation 6 The province needs to make decisions quickly regarding Ontarios future electricity supply to assure domestic and international investors of the long-term advantages of locating and expanding their businesses in Ontario.

Defining the Greater Golden Horseshoe A year ago the province released The Growth Outlook for the Greater Golden Horseshoe.22 This document contains population, household and employment projections for each of the sixteen Census Divisions (CDs) (cities, regions and counties) it considers to be part of what it refers to as the Greater Golden Horseshoe. This document contains three projections for population growth in the GGH called the Current Trends, Compact and More Compact scenarios.

The Compact scenario serves as the reference projection for the policies outlined in the Places to Grow plan released in November 2005.23

21 22 23

See Supply Mix Advice Report, Ontario Power Authority (December 2005). See The Growth Outlook for the Greater Golden Horseshoe, Hemson Consulting Ltd., January 2005. See Places to Grow, Section 7 Schedule3.

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We are concerned about the provinces definition of the Greater Golden Horseshoe and submit that it is much larger than is appropriate. We note that the suburban municipalities of the four original members of the Golden Horseshoe the Census Metropolitan Areas (CMAs) of Oshawa, Toronto, Hamilton and St. Catharines-Niagara have grown outwards to such an extent that they abut the also growing suburban municipalities of the Census Agglomerations (CAs) of Barrie, Guelph and Brantford, with the suburbs of the latter two abutting the suburban municipalities of the Kitchener CMA (Figure 5).

In other words, the municipalities included in these eight metropolitan areas have gradually knit together to form one huge metropolitan area. Figure 5 The Golden Horseshoe as Eight Metropolitan Areas

Barrie CA Oshawa CMA

Guelph CA

Kitchener CMA

Toronto CMA

Hamilton CMA St. Catharines-Niagara CMA

Brantford CA

Source: The Centre for Spatial Economics

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Statistics Canada defines a metropolitan area to be a group of contiguous municipalities with a city at its centre that has a population of at least 100,000 or more persons (a CMA) or a population of at least 10,000 or more persons (a CA) where the central city and its surrounding municipalities are economically and socially interdependent. For the purposes of provincialmunicipal administration, and because of the availability of data , it is useful to define the Golden Horseshoe on the basis of CDs by including any CD that contains any of the municipalities that make up the eight CMAs and CAs that we feel properly define the area. Such a redefinition leaves a list of twelve CDs that define the Golden Horseshoe: Brant Dufferin Durham Halton Hamilton Niagara Peel Simcoe Toronto Waterloo Wellington York

The provinces definition of the Golden Horseshoe what they call the Greater Golden Horseshoe expands on our definition to include the City of Kawartha Lakes and the Counties of Northumberland, Peterborough and Haldimand. In our view, these communities are not part of the Golden Horseshoe and should not be included in the definition of the GGH. They do not constitute major metropolitan areas like the eight we have included, and rapidly growing suburban communities do not connect them to one another. The annual rates of growth in the population of these four areas over the last 25 years, in both absolute and percentage terms, does not match the accelerated pace witnessed across the twelve CDs we have included in our definition (Figure 6).

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Figure 6 Population of the Golden Horseshoe by Census Division 1981, 2006 and 2031
Average Annual Absolute Population 1981 Golden Horseshoe - C4SE Golden Horseshoe - Province Toronto Peel York Durham Halton Hamilton GTAH Total Niagara Brant Waterloo Wellington Dufferin Simcoe Other C4SE Golden Horseshoe Norhumnberland Peterborough Kawartha Lakes Haldimand Other Province Golden Horseshoe 5,188 5,494 2,247 508 261 291 261 424 3,993 378 107 314 133 32 230 1,195 61 105 49 92 306 Population 2006 8,129 8,535 2,648 1,214 945 592 446 528 6,373 434 135 487 205 56 438 1,756 85 134 76 111 407 Population 2031 11,081 11,540 3,096 1,738 1,534 1,067 664 686 8,785 466 162 632 248 86 702 2,296 102 144 97 116 459 Change 81-06 118 122 16 28 27 12 7 4 95 2 1 7 3 1 8 22 1 1 1 1 4 Average Annual Absolute Change 06-31 118 120 18 21 24 19 9 6 96 1 1 6 2 1 11 22 1 0 1 0 2 Average Annual Percentage Change 81-06 1.8 1.8 0.7 3.5 5.3 2.9 2.2 0.9 1.9 0.5 0.9 1.8 1.8 2.3 2.6 1.6 1.4 1.0 1.8 0.8 1.1 Average Annual Percentage Change 06-31 1.2 1.2 0.6 1.4 2.0 2.4 1.6 1.1 1.3 0.3 0.7 1.0 0.8 1.7 1.9 1.1 0.8 0.3 1.0 0.1 0.5

Note that in the above table Haldimand includes Norfolk. In Schedule 3 of Places to Grow Haldimand does not include Norfolk. Source: Statistics Canada and the Centre for Spatial Economics

The slower pace of growth in these four areas means they are not prime choices among business as site locations. This is supported by the provinces projections, as well as our own, that indicate that these four will not capture much of the GGHs future population growth. Our concern is that the inclusion of these four areas within the GGH planning area will drain financial and planning resources away from the areas in greatest need (the twelve CDs that can be readily justified for inclusion).

We are also concerned that the provinces inclusion of these four areas could be used to justify future growth in these communities that is difficult to support on economic grounds.

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As well, given the distances involved, we are concerned about the infrastructure costs that would be required to connect these communities to the rest of the GGH. If the province is really concerned about future infrastructure costs in the GGH, the planning area for the growth plan should be restricted to the twelve suggested CDs and should not include the City of Kawartha Lakes and the Counties of Northumberland, Peterborough and Haldimand.

Recommendation 7 The province should redefine the Greater Golden Horseshoe to include only those cities, regions and counties containing municipalities that form a part of the metropolitan areas of Oshawa, Toronto, Hamilton, St. Catharines-Niagara, Brantford, Guelph, Kitchener and Barrie.

The Population Projections The Centre for Spatial Economics produces and updates population projections for the 5,600 municipalities right across Canada on an annual basis. Using the provinces definition of the GGH we find that our projections for the total population, households and employment for each of the GGHs major components the GTA plus Hamilton and the Outer Ring differ only marginally.

We agree that, between 2001 and 2031, the population of the GGH will grow by 3.7 million, that the number of households will grow by 1.7 million, and that total employment will grow by 1.8 million. However, the calculations we used to reach those numbers are different enough from the provinces calculations to cause us some concern.

The provinces projections forecast Canadas immigration rate to decline from approximately 218,000 annually between 2001-2006 to about 210,000 annually from 2007-2031. This projection assumes a proportionate slowdown in the flow of immigrants to the GGH. As well, the provinces projections call for the net natural change in population (births less deaths) to decline only slightly over the projection horizon in the GGH, from an annual rate of 34,600 between 2001-2011 to 30,300 between 2021-2031. The provincial projections assume that fertility rates will hold at current rates in the future and that mortality rates will decline slightly.

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In contrast, we foresee the net natural change in population of the Greater Golden Horseshoe falling from 32,000 per year between 2001-2011 to just 7,000 per year between 2021-2031, a much larger drop than suggested by the provincial projections. In conjunction with the drop in net natural change we project an increase in net in-migration, thus arriving at the same total population projections as the province. Our projection is predicated on an increase in overall immigration to Canada from an annual rate of 225,000 in the 2001-2011 period to 275,000 per year in the 2011- 2021 period and to 350,000 per year in the 2021-2031 period, in response to growing labour market requirements as the Baby Boom generation retires.

In other words, the provinces projections for the GGH require less in-migration to achieve a total of 11.5 million people in 2031 than our projections because the province projects a more modest decline in net natural population growth. This is puzzling given that we agree with the provinces assumptions regarding future fertility and mortality rates. We are unable to replicate the results of the provinces projections. Figure 7 compares the two projections.

Figure 7 Comparison of Greater Golden Horseshoe Population Projections by Source of Growth Province of Ontario and Centre for Spatial Economics Projections
Actual 2001 Provincial Projections Population Growth (10 year growth) Net Natural Change (average annual) Net Migration (average annual) Centre for Spatial Economics Projections Population Growth (10 year growth) Net Natural Change (average annual) Net Migration (average annual) Provincial less C4SE Projections Population Growth (10 year growth) Net Natural Change (average annual) Net Migration (average annual) -65,000 59,000 -700 6,700 99,000 165,000 2,600 13,400 301,000 202,000 20,600 -600 -31,000 -332,000 23,300 -56,300 7,855,000 1,221,000 46,000 76,000 8,991,000 1,135,000 32,000 82,000 10,039,000 1,048,000 18,000 87,000 11,531,000 1,492,000 7,000 142,000 7,790,000 1,280,000 45,300 82,700 9,090,000 1,300,000 34,600 95,400 10,340,000 1,250,000 38,600 86,400 11,500,000 1,160,000 30,300 85,700 Projected 2011 Projected 2021 Projected 2031

Source: The Growth Outlook for the Greater Golden Horseshoe and the Centre for Spatial Economics

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Figure 8 compares the provinces age and sex distribution of the population of the GGH in the year 2031 projections to our own projections. The provincial projections suggest that the population aged 30 to 74 among both males and females will be less than we project, and that the population aged 20 to 30 and 90 and over will be more than we project.

This result is puzzling in many ways, particularly given that the provinces projection is based on a lower rate of net in-migration. Since migrants are typically relatively young (18 -35 yr olds dominate) we would have expected to find that our projection, based on more in-migration, would have resulted in a younger age profile in 2031, not the other way around.

Figure 8 Population of the Greater Golden Horseshoe by Five-Year Age Group in 2031 Province of Ontario and Centre for Spatial Economics Projections Comparison
90+ 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 05-09 00-04 -500,000 -400,000 -300,000 -200,000 -100,000 0 100,000 200,000 300,000 400,000 500,000 Males Province of Ontario Projection C4SE Projection Females

Source: The Growth Outlook for the Greater Golden Horseshoe and the Centre for Spatial Economics

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On a cumulative basis our projections call for immigration into the GGH to exceed that projected by the province by upwards of 400,000 to 500,000 over the entire 30-year forecast horizon. Thus the immigrant share of the population implied by our projections is approximately 5 percent higher in 2031 than the share implied by the provinces projections.

These observations may have the appearance of professional quibbling. But the implications of our observations in terms of the projected age and ethnic mix of the population are significant, and these differences could have considerable policy impacts in relation to the type of housing and public services that will be required.

Recommendation 8 The province should release, for review, the technical background papers that underlie their population projections.

Recommendation 9 Upon the release of the 2006 Census data, prior to approving municipal Official Plans that have been revised to conform to the growth plan, the province should update its population, dwelling and employment projections to reflect the Census results.

The Preservation of Agricultural Lands A key goal of the province as articulated in Places to Grow is the preservation of prime agricultural land. We submit that such preservation is unnecessary for a number of reasons. Research we carried out in 200124 and 200225 revealed a number of trends in the agricultural industry suggesting that the depletion of agricultural land due to economic development in Ontario need not be a concern. In brief, our research pointed out that farm production continues to increase even though farm acreage is declining, as is farm employment. Farm productivity is growing at a rapid rate, so less farmland, less farms and less farm workers are required each year.

See Land Development and Agriculture prepared by the Centre for Spatial Economics on behalf of the Ontario Home Builders Association in June 2001. See an until-this-point unpublished analysis of farm acreage trends in Ontario between 1986 and 2001 prepared by Tom McCormack of the Centre for Spatial Economics when he served as a member of the Province of Ontarios sub-panel on Smart Growth Strategy.
25

24

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Our research pointed out that the majority of Ontarios farm acreage is found in counties that are not urbanizing in a major way, and that the majority of the decline in farm acreage in Ontario between 1986 and 2001 occurred in counties that are not urbanizing. In fact, the decline in farm acreage in the urbanizing regions and counties of the province was far less than the decline in the non-urbanizing counties. Furthermore, we found that a select number of counties witnessed large increases in farm acreage between 1986 and 2001, suggesting that specialization is occurring. None of these counties are urbanizing rapidly and none are likely to in the future.

According to the 2001 Census of Agriculture, only 20 percent of Ontarios farm acreage is found in the Golden Horseshoe. The lions share 80 percent is found among the 37 other CDs in the province. Interestingly, these shares did not change between 1986 and 2001. As of 2001 some 63 percent of Ontarios population lived in the Golden Horseshoe. The other 37 CDs accounted for the remaining 37 percent. In 1986 the shares were 59 percent and 41 percent respectively. Figure 9 illustrates these significant differences. Figure 9 Population and Farm Acreage Shares in Ontario The Golden Horseshoe and Other Ontario

Population Share
Other Ontario 37 %

Farm Acreage Share


Golden Horseshoe 20 %

Other Ontario 80 %

Golden Horseshoe 63%

Source: Statistics Canada and the Centre for Spatial Economics

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Between 1986 and 2001 farm acreage in Ontario declined from 14.0 million acres to 13.5 million, or by 445,700 acres. Among the Golden Horseshoes twelve regions and counties farm acreage fell from 2.8 million to 2.7 million, or by 160,500 acres. Across the rest of Ontario, farm acreage fell from 11.1 million to 10.8 million, or by 285,200 acres. Within the group of thirty seven CDs outside the Golden Horseshoe farm acreage increased within a group of 10 CDs by a total of 147,500 acres and fell by 432,600 acres in the remaining twenty seven CDs. Three CDs alone accounted for one-third of the decline within this latter group. None of these three CDs are urbanizing.

Thus, the greatest decrease in farm acreage occurred in CDs where the population was not growing by very much between 1986 and 2001. Figure 10 illustrates these different farm acreage trends in Ontario. Figure 11 provides detailed information regarding population and farm acreage trends for every CD in Ontario. Figure 10 Change in Farm Acreage in Ontario Between 1986 and 2001 Golden Horseshoe vs. Farm Acreage Growth and Decline Areas Outside the GH
-500,000 -400,000 -300,000 -200,000 -100,000 0 100,000 200,000

Change in farm acreage

Golden Horseshoe

Farming Growth Areas Outside the GH

Farming Decline Areas Outside the GH

Source: Statistics Canada and the Centre for Spatial Economics

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Figure 11 Farm Acreage and Population in Ontario 1986 and 2001 by Census Division
Farm Acreage 1986 Farm Acreage 2001 Rank Farm Acreage 2001 --Rank Farm Farm Acreage Acreage Change Change 1986-2001 1986-2001 -445,652 -160,486 34 30 18 38 36 25 37 7 48 26 11 32 -252 -20,241 -27,882 -20,047 -6,204 -4,125 -25,043 -9,203 0 -12,154 -696 -34,639 -285,166 40 3 43 14 17 28 5 8 47 19 1 15 45 6 4 24 16 29 33 2 46 42 23 20 12 39 9 22 21 35 31 13 10 41 44 27 -6,453 2,219 -25,112 3,726 -1,372 -23,635 -39,488 -7,106 -3,897 -27,536 4,456 -10,821 -9,180 8,878 37,345 -49,104 -26,888 -9,479 -6,498 -3,307 61 -17,086 -44,677 -19,721 26,839 -16,802 17,714 -13,992 6,621 -14,659 5,989 -20,736 22,516 -17,104 -18,037 11,160 21 11 41 10 16 39 46 23 18 43 9 27 24 6 1 48 42 26 22 17 12 32 47 35 2 31 4 29 7 30 8 38 3 33 34 5 14 37 44 36 20 19 40 25 13 28 15 45 --Rank Rank Population Population Population Population Populatiion Change Change 1986 2001 2001 1986-2001 1986-2001 9,424,089 11,897,647 5,581,139 109,122 33,378 334,863 279,271 436,357 380,256 613,453 243,920 2,305,302 339,054 143,315 362,848 3,842,950 135,678 60,901 97,432 72,317 325,307 118,571 76,627 92,443 12,235 119,081 57,437 53,825 60,552 109,693 128,773 50,826 86,595 35,177 10,828 343,034 41,281 81,131 63,131 626,364 87,458 34,606 68,259 107,724 59,083 22,954 23,566 91,272 105,570 182,195 159,705 41,319 7,462,797 128,871 53,022 526,987 390,235 510,073 426,532 1,032,308 391,819 2,592,460 456,349 194,821 759,320 4,434,850 123,927 66,342 89,627 84,737 390,475 144,094 92,476 109,504 15,655 132,171 61,999 71,818 66,513 111,902 131,835 64,932 100,339 40,963 13,165 421,969 55,330 86,283 80,458 806,560 103,149 41,181 76,543 130,678 79,476 25,841 22,959 98,833 115,320 185,000 157,043 35,753 21 37 29 31 11 16 28 24 47 17 39 35 36 23 18 38 26 43 48 9 40 30 32 3 25 42 34 19 33 45 46 27 22 14 15 44 20 41 5 12 6 8 2 10 1 7 13 4 --2,473,558 1,881,658 19,749 19,644 192,124 110,964 73,716 46,276 418,855 147,899 287,158 117,295 51,506 396,472 591,900 -11,751 5,441 -7,805 12,420 65,168 25,523 15,849 17,061 3,420 13,090 4,562 17,993 5,961 2,209 3,062 14,106 13,744 5,786 2,337 78,935 14,049 5,152 17,327 180,196 15,691 6,575 8,284 22,954 20,393 2,887 -607 7,561 9,750 2,805 -2,662 -5,566 48 35 47 28 11 14 22 21 38 27 37 19 33 43 39 24 26 34 42 9 25 36 20 5 23 32 30 15 16 40 44 31 29 41 45 46 17 18 4 8 10 13 1 6 3 7 12 2

Census Division Ontario Total Golden Horseshoe Brant Dufferin Durham Halton Hamilton Niagara Peel Simcoe Toronto Waterloo Wellington York Other Ontario Algoma Bruce Cochrane Elgin Essex Frontenac Grey Haldimand-Norfolk Haliburton Hastings Huron Kawartha lakes Kenora Kent Lambton Lanark Leeds, Grenville Lennox and Addington Manitoulin Middlesex Muskoka Nipissing Northumberland Ottawa Oxford Parry Sound Perth Peterborough Prescott, Russell Prince Edward Rainy River Renfrew Stormont, Dundas, Glengarry Sudbury Thunder Bay Timiskaming

13,953,009 13,507,357 2,831,538 158,945 213,403 358,168 118,805 145,083 236,942 129,476 550,073 0 237,954 472,085 210,604 2,671,052 158,693 193,162 330,286 98,758 138,879 232,817 104,433 540,870 0 225,800 471,389 175,965

11,121,471 10,836,305 100,577 609,242 101,984 379,060 335,494 229,177 632,609 522,205 17,873 333,604 714,610 371,511 47,172 543,524 567,210 291,076 363,538 206,920 180,021 623,628 34,718 100,256 298,342 317,365 418,619 112,612 485,212 272,634 290,763 157,882 182,091 423,714 473,982 101,151 77,420 203,675 94,124 611,461 76,872 382,786 334,122 205,542 593,121 515,099 13,976 306,068 719,066 360,690 37,992 552,402 604,555 241,972 336,650 197,441 173,523 620,321 34,779 83,170 253,665 297,644 445,458 95,810 502,926 258,642 297,384 143,223 188,080 402,978 496,498 84,047 59,383 214,835

Note: In the table above the CDs for Sudbury Region and Sudbury District have been combined. Source: Statistics Canada

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On a nation-wide basis, agricultural production today is approximately double that of the early 1960s, and agriculture employment is less than half. Thus agricultural productivity output per employee is almost four times greater today than it was four decades years ago. In other words, agricultural production has been increasing even though the number of workers and the amount of land used for farming has been in decline.

We have not highlighted the above information to undermine the provinces case for the establishment of a large zone within the Golden Horseshoe to be protected from urban development. Many people strongly support the preservation of the natural heritage areas and the environmentally sensitive lands within the Greenbelt Plan Area. We believe, however, that extensive protection of the agricultural and rural areas south of the Greenbelt but north of the currently designated urban areas is not required because this area consists mostly of non-vital non-producing agricultural land.

Failure to designate these lands for future residential and employment use will have a major impact on Ontarios ability to reach its potential. The protection of these lands will limit the future range of housing choices available in the Golden Horseshoe, undermine its ability to attract the highly skilled workers that will be required, limit the amount of land available for future employment and residential use and increase the relative cost of non-protected land within the Golden Horseshoe. In subsequent sections of this report we conclude, for a number of reasons, that the amount of land required between now and 2031 for residential and employment use in the Golden Horseshoe will exceed that identified in the Places to Grow document. In view of these conclusions, and considering our assessment here of the future need for agricultural lands in the Golden Horseshoe, we offer the following recommendation.

Recommendation 10 The Agricultural and Rural Area south of the Greenbelt Area, and more precisely within the GTAH, should, through municipal Official Plan conformity exercises, be identified as Designated Greenfield Area to accommodate the projected population and employment growth. As well, it should be recognized that some of the Agricultural and Rural Area north and west of the Greenbelt will also likely be required for future urban growth before 2031.

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Residential Requirements We are concerned with the targets for dwelling units by structural type that are used in The Growth Outlook for the Greater Golden Horseshoe and in Places to Grow. The targets translate the projected population of the Greater Golden Horseshoe into the future need for residential units by type and, in turn, into its future requirement for residential land.

Census data for 2001 reveal that in all five CMAs in the Golden Horseshoe the preference for single detached dwelling units increases with age and remains high across the age spectrum until the age of 75 when the share declines slightly (Figure 12).26 The single detached housing share is lowest in the Toronto CMA across all age groups; it is significantly higher in all four of the other Golden Horseshoe CMAs. Figure 12 Dwelling Proportion for Single Homes by Age of Household Head Five CMAs in the Golden Horseshoe in 2001
0.50

Proportion in single homes


0.45 0.40 0.35 0.30 0.25 0.20

Toronto

Oshawa

Hamilton

St. Catharines Niagara


0.15

Kitchener
0.10 0.05 0.00 15-24 25-34 35-44 45-54 55-64 65-74 75+

Age
Age of household head

Source: Statistics Canada

26

We have not purchased the data for the CAs in the Golden Horseshoe from Statistics Canada but Barrie, Guelph and Brantford likely show profiles close to those of the four CMAs outside of the Toronto CMA.

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The structural composition of the housing stock in 2001 differs across the five CMAs for a number of reasons, primarily relating to differences in the age composition of the population, income levels, relative housing costs and other local factors. The single detached share in the Toronto CMA is approximately 45 percent whereas in the other four CMAs of the Golden Horseshoe it ranges from 56 percent to 70 percent (Figure 13). In contrast, the share for apartments (the other category in Figure 13) is 39 percent in the Toronto CMA but is much lower, ranging between 18 percent 28 percent, in the other four. Figure 13 Dwelling Stock by Structural Type by CMA in the Golden Horseshoe in 2001
0.80 Proportion of existing dwelling stock 0.70

0.60

Toronto

0.50

Oshawa

0.40 Hamilton 0.30 St. Catharines Niagara 0.20 Kitchener 0.10 Dwelling stock type 0.00 Single Semi Row Others

Source: Statistics Canada

Data for the Greater Toronto Area by region indicate that the single detached share of the housing stock in the City of Toronto is approximately 30 percent but that the share is much higher in the four suburban regions (ranging from 50 percent in Peel to 75 percent in York). In other words, the share of single detached housing in the outer regions of the GTA and in the other four (4) CMAs in the Golden Horseshoe all exceed the share in the City of Toronto.

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As most of Ontarios population growth is occurring in the Golden Horseshoe in the municipalities immediately surrounding the City of Toronto that is, in the four suburban regions of the GTA and in the immediately adjacent other municipalities within the Golden Horseshoe the Census data reveal that the newest residents of the area clearly prefer single detached housing.

In preparing projections for housing requirements for the CMAs throughout Canada we use detailed census data by age regarding dwelling preferences by structural type (such as the rates shown in Figure 12 but including rates for the other structural types as well). Our projections are based on the assumption that each age group will prefer housing in the future consistent with the preferences prevailing in 2001. Our projections, therefore, account for the impact on housing preferences over time of the changing age structure of each CMA.

Our approach is conservative as it likely under-projects the share of single detached houses that will be required. This so because our projections assume that the share of people over 65 living in single detached units in the future will remain at the level prevailing in 2001, even though the evidence reveals that this share has been increasing in the past and is likely to continue increasing (Figure 14). As each new generations standard of living has improved on that of the previous generation, so has the share of middle-aged householders that achieved single detached homeownership. Therefore, it is probable that the share of people 65 and over preferring single detached units will be higher in the future than it is today. Since the rate of increase in this share slowed in the GTA-Hamilton area between 1996 and 2001 (Figure 14) we feel it is prudent to assume the share in the future will hold constant at the rates prevailing in 2001. Our only concern is that our approach likely leads to a slight under-projection of the required share of single detached housing in the future. Our projections for the five CMAs included in our definition of the Golden Horseshoe 27 indicate that between 2001 and 2031 the single detached share of the units constructed during that period should be 51.9 percent, the semi-detached share 7.9 percent, the row share 6.5 percent and the apartment share 33.7 percent.
27

We do not have dwelling unit data by age and dwelling type for 2001 for the three CAs in our definition of the Golden Horseshoe (Guelph, Brantford and Barrie) but their inclusion would not change the projections significantly.

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Figure 14 GTA and Hamilton Percent Share of Householders 65 and Over Preferring Single Detached Housing
55

50

45

40

35 1986 1991 1996 2001

Source: The Growth Outlook for the Greater Golden Horseshoe

In contrast, the provinces Reference Projection (the Compact Scenario in The Growth Outlook for the Greater Golden Horseshoe) foresees a policy-induced single detached rate of only 44 percent this decade, falling to 33 percent during the decade encompassing 2021 to 2031; a semidetached rate of 10 percent increasing to 11 percent; a row house rate rising from 15 percent to 2 percent; and an apartments rate of 31 percent rising to 34 percent. By comparison, between 1991 and 2001 the single detached housing share in the Greater Golden Horseshoe was 50 percent, the semis rate 9 percent, the rows rate 16 percent and the apartments rate 26 percent.

Our projections suggest that by 2031 the number of single detached dwellings in the Golden Horseshoe should increase by 926,000 units. The provinces targets, however, would permit single detached units to increase over that period by only 643,000 units. The difference would be made up primarily by the building of 184,000 more row units, 51,000 more semi-detached units and 49,000 more apartment units than our projections suggest consumers will prefer.

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Figure 15 Dwelling Requirements by Type in the Golden Horseshoe Thousands of New Units Required 2001 to 2031
1,000 Thousands of New Units Required 900 800 700 600 Province 500 400 300 200 100 0 Singles Semis Rows Apartments and Other Structural Type C4SE

Single Detached Gap will be 285,000 units

Source: The Centre for Spatial Economics and The Growth Outlook for the Greater Golden Horseshoe

The targeted shares that lie behind the provinces projections reflect what is primarily a groundrelated dwelling units strategy since the targeted share for apartments closely matches the share preferred by householders on average across the area. To achieve the higher density targets proposed in Places to Grow the province intends to provide the yet-to-arrive residents of the Golden Horseshoe with 44 percent fewer single detached homes than they will want28. The province expects these people who are coming to the Golden Horseshoe in pursuit of higher paying jobs and a higher standard of living to come nevertheless even though many of them will not be able to find the single detached accommodation they prefer and, therefore, will have to be content to live, instead, mostly in row or semi-detached type units.

Recall that this is a conservative estimate based on the assumption that the preferences for units by type by age in 2001 will hold in the future. We know that the preferences for single-detached units could be higher in the future than it was in 2001 because the ratio among those 65 and over could increase.

28

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It is our view that, because of the huge mismatch between what consumers clearly want and what the province intends to permit, the provinces dwelling-type target shares which inform the intensification targets in Places to Grow will not be met. Expenditures for housing account for a significant portion of the average household budget, reflecting the relative importance people attach to where and how they live. Housing is a key means by which people express themselves and their achievements. As household incomes have climbed, Ontarios householders have expressed these standard of living gains by choosing larger and better-appointed accommodations. There is a strong correlation between increased overall preference for single detached homes and rising average real incomes.

To successfully compete with other metropolitan areas the Golden Horseshoe needs to attract highly motivated, highly educated, highly paid and highly mobile workers over the next three decades. We are concerned that, if the province implements the structural-type shares proposed in Places to Grow, the skilled people we are trying to attract in the future might locate elsewhere because the lifestyle they expect at their income level will not be available. Survey data obtained in 2002 by Clayton Research29 suggests that single detached units are preferred by more than 60 percent of respondents, a higher rate than that underlying our projections (Figure 16). Other evidence provided by Clayton Research notes that, historically, whenever housing affordability in the GTA has worsened, people migrate from the GTA to the outlying communities (Figure 17). Clayton Research also notes, not surprisingly, that the number of renters in the City of Toronto who can afford to buy a house in Toronto declines significantly as the average house price goes up (Figure 18). Drawing on all of the above evidence we conclude that if the single detached targets in Places to Grow are adhered to: 1. The average price of the existing stock of dwelling units will increase significantly with the price of single-detached units relative to the price of other dwelling types increasing the most because the demand for such units will clearly exceed the supply. 2. The housing affordability index in the Golden Horseshoe will deteriorate.
29

See Ensuring Balance: Provincial Land Use Planning Initiatives and Economic Growth in Central Ontario prepared by Clayton Research for the Urban Development Institute (2002).

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3. These higher dwelling prices will encourage people to locate in the communities closest to, but outside of, the sixteen regions and counties under strict development controls. 4. Many of the highly skilled workers Ontario needs to fill the jobs that will be created will locate elsewhere, thus creating labour shortages and seriously undermining Ontarios ability to achieve its potential. 5. Many businesses will locate either in the communities bordering on the Golden Horseshoe instead of in the Golden Horseshoe itself, or outside of Ontario altogether, again threatening Ontarios ability to reach its potential. In view of these conclusions we submit the following recommendation.

Recommendation 11 The province needs to reconsider its targeted shares for housing by structural type in the Golden Horseshoe and bring them into line with the preferences of the people employers are seeking to attract over the next several decades. Figure 16 Dwelling Type Preferences by Various Criteria
Single
0 Total Sample 20

Semi
40

Row
60

Apartment
80 100

Percent groundrelated 87%

Looking for home price < $200K Looking for home price = $200K

76% 90%

New subdivision Established neighbourhood

82% 88%

With income < $60K With income = $60K

82% 89%

Age under 35 Age 35 and over

87% 86%

Source: Clayton Research based on CMHC, Consumer Intentions to Buy, Toronto, 2002

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Figure 17 Net Migration from GTA to Outlying Areas Toronto Ownership Housing Affordability*
25,000 Persons Percent 50

20,000 Net migration (left scale) Affordability * (right scale) 15,000

40

30

10,000

20

5,000

10

0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

* Percent of average family income required to finance an average resale home A rising affordability percentage implies worsening affordability Source: Clayton Research based on data from Statistics Canada and TREB

Figure 18 Number of Renter Households Who Can Afford to Buy Average Price MLS* House in Toronto
160 Thousands
* Home sold through the Multiple Listing Service Note: Includes renter households headed by a person under 50. Assumes 5% downpayment, 5-year mortgage and 25% mortgage to income ratio.

120

116

96

80

78

40

0 Current house prices (Q1 20044) 10% higher house prices 20% higher house prices

Source: Clayton Research based on data from TREB and 2001 Census of Canada.

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Employment Lands The provinces projections for employment in Places to Grow consider only three land use types: major office employment, employment-lands employment and population-related employment. It is not clear that this delineation is sufficiently detailed to accurately determine the amount of employment land required throughout the Golden Horseshoe over the next three decades.

The provinces projections suggest that the major office share will increase slightly between 2001 and 2031 (from 23 percent to 24 percent), that the population-related share will increase slightly (from 34 percent to 35 percent) and that the employment-lands share will fall (from 43 percent to 41 percent). Our analysis suggests that these assumed shifts are too small.

Significant changes in the production, distribution and retailing of goods have occurred over the last three decades, and service jobs as a share of total employment have increased dramatically. Without knowing which industries are included in each of the three designations used in the provinces definitions of employment by type we are unable to map our projections by industry onto the provinces projections. Even lacking these details we find it surprising that such small changes are anticipated by the province over the next thirty years.

By way of illustration, our projections suggest that the manufacturing share of employment will fall from 18.0 percent to 11.5 percent, and the share of health care and social services will increase from 9.5 percent to 11.6 percent between 2001 and 2031 (Figure 19). Changes in production and distribution processes over time will be required to keep Ontario competitive. The required changes differ across the range of industries. All of these changes are likely to have an impact on future non-residential land use throughout the Golden Horseshoe.

The provinces land allocation for employment purposes assumes approximately 50 jobs per hectare. However, average rates of jobs per hectare vary significantly from industry to industry from as low as 10 jobs per hectare in the primary industries to as high as 100 jobs per hectare in business services. With the share of employment by industry expected to shift dramatically in the future the overall average is likely to change. Thus, a 50 jobs per hectare average might not be a reliable guide to future employment land requirements.

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Figure 19 Employment by Industry in Ontario 1987, 2004 and 2031


% Share % Share % Share 1987 2004 2031

1987

2004

2031

Total employed Agriculture Forestry, fishing, mining, oil and gas Utilities Construction Manufacturing Trade Transportation and warehousing Finance, insurance, real estate and leasing Professional, scientific and technical services Business, building and other support services Educational services Health care and social assistance Information, culture and recreation Accommodation and food services Other services Public administration Total manufacturing employment Food, beverages, tobacco Textiles, clothing Wood Pulp, paper Printing, related Petroleum, coal Chemicals Rubber, plastics Cement, concrete Primary, fabricated metals Machinery Computers, equipment Other electronic equipment Transportation equipment Furniture, related Miscellaneous manufacturing

4,899,900 6,316,300 8,082,300 115,000 78,600 50,500 56,800 33,900 22,800 48,100 58,300 67,800 300,000 368,500 535,700 1,031,000 1,109,000 933,300 755,800 963,200 1,485,500 222,000 300,400 402,700 339,900 429,800 591,100 215,100 435,800 613,200 113,500 277,000 405,400 284,000 389,600 413,300 416,400 635,900 934,400 214,700 303,700 454,500 271,000 364,900 455,300 240,000 257,200 352,000 276,600 310,500 364,800 1,031,100 1,109,100 111,800 115,500 62,300 46,600 26,600 43,700 42,300 38,500 45,500 50,400 8,100 5,300 57,400 55,300 54,100 79,700 31,100 30,100 166,800 144,300 58,600 73,200 20,600 13,200 97,900 77,300 172,300 227,700 40,800 60,800 34,900 47,500 933,300 94,400 17,900 44,000 21,500 17,900 4,600 41,200 109,700 30,300 117,200 79,100 11,500 67,900 189,100 69,600 17,700

100.0 2.3 1.2 1.0 6.1 21.0 15.4 4.5 6.9 4.4 2.3 5.8 8.5 4.4 5.5 4.9 5.6 21.0 2.3 1.3 0.5 0.9 0.9 0.2 1.2 1.1 0.6 3.4 1.2 0.4 2.0 3.5 0.8 0.7

100.0 1.2 0.5 0.9 5.8 17.6 15.2 4.8 6.8 6.9 4.4 6.2 10.1 4.8 5.8 4.1 4.9 17.6 1.8 0.7 0.7 0.6 0.8 0.1 0.9 1.3 0.5 2.3 1.2 0.2 1.2 3.6 1.0 0.8

100.0 0.6 0.3 0.8 6.6 11.5 18.4 5.0 7.3 7.6 5.0 5.1 11.6 5.6 5.6 4.4 4.5 11.5 1.2 0.2 0.5 0.3 0.2 0.1 0.5 1.4 0.4 1.5 1.0 0.1 0.8 2.3 0.9 0.2

Source: Statistics Canada and the Centre for Spatial Economics

If Ontario is to reach its economic potential, employment lands throughout the Golden Horseshoe should be allocated geographically in a manner that provides ready access to major highways, close proximity to border points, local conditions, etc., all of which suggests that blanket density targets by municipality across the planning area are inappropriate. Places to Grow requires that the designated greenfield areas of each upper-tier or single-tier municipality be planned to achieve a minimum density target of not less than 50 residents/jobs per hectare.
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In view of our previous analysis regarding preferred residential structure types, and given the differing employment rates per hectare across industries, it is not at all clear that a single density target of 50 residents/jobs per hectare is either reachable or reasonable, certainly not across all areas. In view of the above analysis we offer the following recommendation.

Recommendation 12 Considering the complexity and diversity of the employment sector within/across the Golden Horseshoe, the 2:1 persons to jobs ratio may not be achievable in certain municipalities. A further analysis informed by local market realities resulting in a more flexible target should be undertaken.

Recommendation 13 The province needs to reconsider its forecasts for employment by land-use type and should undertake further analysis of future employment by industry in the Golden Horseshoe based on detailed information regarding the significant differences in land requirements across industries and over time. This analysis should be carried out in conjunction with the sub-area regional economic assessment to guide planning for employment.

Land Supply The analysis carried out above suggests that more residential land will likely be required between now and 2031 in the Greater Golden Horseshoe for residential purposes, and that the amount of employment lands set aside geographically across the area might need to vary significantly from community to community based on efficiency considerations such as highway and border access. We are concerned that the provinces targets for dwellings by type and for employment to population ratios will result in considerably higher land costs in the area in the future. Higher land costs, unattractive accommodation choices and inappropriate employment land allocations mean many skilled workers and much of the business investment needed here will be diverted from the area risking Ontarios ability to reach its economic potential.

In view of our concerns we offer the following recommendation.

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Recommendation 14 A more thorough assessment of both residential and non-residential land requirements throughout the Golden Horseshoe is needed. Future residential land requirements should better reflect consumer preferences. Future employment land requirements should be based on detailed projections of employment by industry and on an assessment of likely future changes in land requirements per employee by industry. As part of this exercise the province should release the technical background material underlying the proposed targets for review.

Skilled Labour Ontarios future prosperity depends on its ability to recruit and retain a highly skilled labour force. Ontario faces a number of challenges in fulfilling this requirement.

The pending retirement over the next quarter century of the Baby Boom generation poses major challenges for Ontario in a number of key skill groups, most notably in occupations currently dominated by older males such as heavy manufacturing production line workers and skilled construction trades. These jobs pay relatively high wages. In the case of the skilled trades they also offer the opportunity to establish a business. A shift in cultural bias has resulted in a decreasing number of people pursuing careers in these fields and increasing recruitment difficulties among employers due to fewer applicants.

Recruitment abroad includes its own challenges as similar pending shortages exist in other industrialized nations, and there is no guarantee that the designated licensing authorities in Ontario will recognize foreign credentials here.

These workers are important to Ontarios future prosperity. They are needed to produce the new machinery and build the new places of work and infrastructure required by all growing industries.

Ensuring that such specialized skilled labour is available in the future could be one of the greatest challenges Ontario faces, as doing so requires a high level of cooperation between the federal and provincial governments.

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Recommendation 15 If the province decides to pursue immigration to fill current and expected skilled labour shortages it will need to work closely and cooperatively with the federal government to develop an appropriate immigration policy to fulfill its needs in the short and long-term.

Recommendation 16 Where immigration is an option in meeting the skills Ontario will require in the future, the province needs to facilitate the recognition of the qualifications of these new Canadians.

Recommendation 17 Where local development is an option in meeting the skills Ontario will require in the future, the province needs to better counsel students regarding the opportunities and advantages of the occupations expected to be required in the future.

Environmental Policies Environmental standards will continue to evolve in Ontario and other jurisdictions reflecting changes in information regarding the impact of economic activity on the environment. The most significant environmental policy from an industry perspective in Canada and Ontario is that surrounding the Kyoto protocol. This policy seeks to limit the emission of greenhouse gasses principally through the reduction of fossil fuel use. The impact of this policy is significant for manufacturers as, outside of the European Union and Japan, this treaty binds none of the countries with which Canadian or Ontario manufacturers compete.

Under Kyoto, the Canadian government committed to reducing greenhouse gas (GHG) emissions to 6 percent below 1990 levels by 2008-2012. As of 2002 GHG emissions were 20 percent above 1990 levels. In other words, GHG emissions now need to be cut a minimum of 26 percent, and likely more, as the economy will continue to grow between now and 2008-2012. In April 2005 the federal government released its plan to achieve this goal. The plan is vague but the implications for Canadian business are significant. The costs to business depends on whether the government imposes a reduction in energy use or whether it relies on mechanisms to purchase credits for reductions.
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If Canada remains committed to the Kyoto protocol while our major trading partners do not face the same restrictions, Ontarios economic potential will be threatened. To date, the most effective action to reduce GHG emissions is high oil and natural gas prices, not a government program. Since these cost increases affect our trading partners too, the impacts are less damaging to the Ontario economy than independent actions to boost energy costs.

Recommendation 18 The federal government needs to adjust the Kyoto targets and implement a realistic program that reinforces the incentives being provided by the market place combined with incentives to encourage energy conservation.

Transit We agree with the province that building new roads, using existing rail lines and establishing inter-modal hubs throughout the Golden Horseshoe are critical to the efficient movement of goods now and in the future. We also agree that the future emphasis on people movement must be transit. However, for the reasons discussed above regarding housing preferences, we would suggest that the transit emphasis be tilted away from the development of local (into neighbourhoods) transit towards the development of a rapid rail transit system linking the urban growth centres identified in the plan, thus facilitating long-range commuting.

Despite the lengthening of distances people now travel in the area for commuting purposes, and despite the high cost of automobile ownership and operation, the automobile is as popular today as it was two decades ago. We submit that people are no more likely to abandon their cars than they are to change their preference for single detached housing. Like the single detached home, the automobile is a key means through which individuals express themselves and their achievements.

The province would have fewer problems gaining wide public acceptance for a growth plan that permits people to live in single detached homes, own their own cars, park them at a major transit node, and climb aboard a rapid transit system that connects them to the various urban growth centres.

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The phenomenal success of the GO system confirms this line of reasoning.

Recommendation 19 The provinces plans for transit infrastructure within the Golden Horseshoe should focus on the provision of rapid transit links (including bus, light and heavy rail) among the urban growth centres, providing adequate parking opportunities for commuters at strategic transit nodes, rather than on the provision of door-to-door transit service in local neighbourhoods.

Airports The transportation plan maps included in Places to Grow (Schedule 2) denote the locations of the existing airports in the area in Mississauga, Hamilton and Kitchener and of the proposed facility in Pickering. The airport system is of critical importance to Ontario and the Golden Horseshoe because of the important role it plays in connecting business people, time sensitive documents, products and the traveling public to the rest of the world. A well planned, well thought out and well-coordinated air transportation system in the Golden Horseshoe is essential to the future success of Ontario.

The federal government has jurisdiction over the airport system across the nation. Since the early 1990s it has gradually transferred airport responsibilities to local authorities created for that purpose. The Greater Toronto Airports Authority (GTAA) is responsible for planning and operating the major airport facility in the Golden Horseshoe, Lester B. Pearson International Airport in Mississauga, and the proposed airport in Pickering. In contrast, the Hamilton and Kitchener airports are planned and operated by local authorities operating independently from the GTAA.

The Places to Grow plan foresees the 3.7 million increase in the population of the Greater Golden Horseshoe mostly occurring in the central regions of Toronto, York, Peel and Simcoe. These four regions are projected to grow from 4.8 million in 2001 to 6.9 million in 2031, thus accounting for a gain of 2.1 million, or 57 percent of the population growth expected in the entire Greater Golden Horseshoe.

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The plan calls for almost 30 percent of the population growth of the GGH to occur in the regions to the west of these central regions an increase of 1.1 million people and only 13 percent of the GGHs growth to occur in the regions to the east of the central regions an increase of only 492,000 people (Figure 20). Figure 20 Province of Ontario Population Projections The Greater Golden Horseshoe by Region 2001 to 2031
Change % Share 01-31 100.0 57.0 16.4 7.4 13.2 19.9 13.3 11.6 0.8 0.4 0.5 29.8 1.2 0.7 0.3 10.5 4.0 2.3 7.4 3.4

2001 Greater Golden Horseshoe Central Peel Simcoe Toronto York East Durham Kawartha Lakes Northumberland Peterborough West Brant Dufferin Haldimand Halton Hamilton Niagara Waterloo Wellington 7,790 4,772 1030 392 2,590 760 813 530 72 80 131 2,206 129 53 46 390 510 427 456 195

2031 11,500 6,887 1640 667 3,080 1,500 1,305 960 100 96 149 3,310 173 80 56 780 660 511 729 321

Change 01-31 3,710 2,115 610 275 490 740 492 430 28 16 18 1,104 44 27 10 390 150 84 273 126

Source: The Growth Outlook for the Greater Golden Horseshoe

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Despite this significant spatial bias in population (and job) growth toward the western portion of the GGH, the GTAA is aggressively pursuing a policy that will locate most of the new airport capacity of the GGH in Pickering. The GTAAs interests in that site are understandable since the GTAA has authority only for providing airport facilities on behalf of the municipalities in the GTA.

We are concerned that, given the GTAAs near monopoly airport position within the Golden Horseshoe, it is pursuing an expansion plan that the market might not choose. The western regions of the Golden Horseshoe are more strategically located relative to US markets, are better serviced with transportation infrastructure (existing and planned) and will, as demonstrated in Figure 20, receive a substantial share of the projected population and job growth expected in the GGH between now and 2031.

Furthermore, if the Pickering airport were to be developed instead of Hamilton, land transportation patterns within the Golden Horseshoe could be seriously jeopardized. If allowed to occur it would result in 87 percent of the road traffic growth taking place in the central and western regions of the GGH between now and 2031 but all of the airport capacity growth in the eastern regions. This outcome would clearly place an unnecessary and avoidable burden on an already over-utilized transportation network.

The location of airports in the Golden Horseshoe is of strategic importance to the province. The location of large airport facilities helps determine the location of employment as well as residential lands. The province needs to pay more attention to this matter.

Recommendation 20 The province needs to take a proactive stance with respect to the Golden Horseshoes requirements for additional airport facilities over the next quarter century. In collaboration with the federal government, the province should develop an airport location strategy that helps to direct people and businesses to the regions within the Golden Horseshoe designated for future growth to ensure ready access and minimize traffic congestion.

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Section 4: A Final Word


The standard of living in Ontario today is significantly better than it was 50 years ago. People have far more choices with respect to housing, transportation, health and social services, vacations, leisure activities, etc. than did the average person five decades ago.

Our governments justify many of their current policies on the grounds that they will lead to further gains in prosperity in the future. People correctly interpret this to mean a steadily improving standard of living. While our base case projections suggest Ontarios potential for achieving prosperity exists, our assessment of current policies suggests that many of them seriously threaten that potential.

The people of Ontario will not support these policies if they do perceive that they will lead to an increased standard of living in the years immediately ahead.

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Appendix A Growth Trends in the Golden Horseshoe

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Growth Trends in the Golden Horseshoe


Over the last 30 years the Golden Horseshoe1 accounted for 81 percent of the population growth of the province of Ontario. Over the last ten years alone its contribution reached almost 87 percent. Yet it accounts for only about 2.5 percent of Ontarios entire landmass, and for only 20.5 percent of Ontarios landmass excluding the Northeastern and Northwestern Regions. Over the last decade the population of Ontario grew at a rate of almost 164,000 people per year. Most of this growth more than 115,000 per year, or 70 percent of the provincial total can be attributed to the population explosion in the Greater Toronto Area and Hamilton. But major population growth also occurred throughout the rest of the Golden Horseshoe, most notably in Simcoe (more than 10,000 per year), Waterloo (more than 7,000), Wellington (more than 3,000) Niagara (more than 2,000 per year) and Brant and Dufferin (each more than 1,000 per year). (See Map A-1.)

Figure A-1 Golden Horseshoe Population Growth Average Annual Change 1976-86, 1986-96 and 1996-2004
York 15,170, 24,720 and 34,930
Simcoe 2,830, 9,500 and 10,150 Kawartha Lakes 930, 1,590 and 580 Peterborough 530, 1,900 and 810

Dufferin 420, 1,350 and 1,080 Wellington 1,610, 3,290 and 3,180

Peel 22,400, 26,530 and 36,580

Northumberland 300, 1,330 and 860 Durham 8,070, 13,650 and 11,480

Halton 4,420, 7,020 and 9,710

Toronto 7,190, 15,440 and 17,940 Niagara 490, 3,420 and 2,100 Brant 740, 1,430 and 1,140

Waterloo 4,150, 7,800 and 7,330


Hamilton 1,440, 4,440 and 4,860

Source: Statistics Canada and the Centre for Spatial Economics

The Centre for Spatial Economics defines the Golden Horseshoe to include the Greater Toronto Area Toronto, Durham, York, Peel and Halton plus Hamilton, Niagara, Brant, Wellington, Waterloo, Dufferin and Simcoe.

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Monthly labour force survey data reveal that since 1995 employment in the Golden Horseshoe has been growing at a much faster pace than in the rest of Ontario, right through to December 2005 (Chart A-1 below). The strong and sustained pace of job creation in the Horseshoe since the mid 1990s reflects its position as the primary choice within Ontario for the establishment of new, and the expansion of existing, businesses. Business investment draws new workers; workers bring families; the net result is robust employment and population growth.

Figure A-2 Employment Growth in The Golden Horseshoe and the Rest of Ontario Index With Annual Average for 1988 = 100, Monthly Seasonally Adjusted Data
135 Index 1988 = 100 Monthly data, seasonally adjusted 130 Golden Horseshoe 125

120 Rest of Ontario 115

110

105

100 Last observation Dec 2005 95 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Statistics Canada

The relative strengthening of employment and population growth in the Golden Horseshoe over the last decade can be attributed to a number of factors. Since Canada and the United States entered their free trade agreements in the late 1980s and early 1990s merchandise trade between the two nations has grown substantially. Ontario has benefited more than any other province from this increased trade with the US. Within Ontario the Golden Horseshoe because it represents Ontarios greatest concentration of industrial and commercial activity has been the major beneficiary of these trade trends.
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As a result of the liberalization of trade policies on a global scale, the movement of goods and services around the globe is less impacted today by artificial cost differences created by nations using tariff and other trade policies, and more by real cost differences reflecting relative wage rates and accessibility to markets, skills and reliable transportation. Ironically, globalization no longer reflects nations competing with nations, or states and provinces competing with provinces and states. Global trade in the 21st Century increasingly involves one metropolitan area competing with other metropolitan areas, competition that as often as not occurs among metropolitan areas within the same country. This worldwide phenomenon favors the further concentration of jobs and people in the Golden Horseshoe.

There is a bias in growth within the Golden Horseshoe toward its north, west and south sections. This bias can be attributed to several factors: free trade rapidly expanded the amount of trade occurring between Ontario and the United States during the 1990s; the north, west and south sections of the Horseshoe are closer to US markets than those in the east and northeast; the QEW, Highway 401 and other 400-series highways connect these regions directly to the US border through Windsor and Niagara; the western section of Highway 407 has been open for some time while some of the eastern section has yet to begin construction; and Pearson Airport is located in the western portion of the GTA.

Given that the final eastern portion of Highway 407 will not open for several years, that traffic congestion within the GTA is mounting each year (thus raising the cost of transporting goods through the GTA), that Hamiltons Red Hill Expressway is currently under construction, and that a mid-Niagara Peninsula corridor highway will likely be built sometime in the future, the concentration of new jobs and new residents in the north, west and south sections of the Golden Horseshoe will likely continue for some time.

Some of the costs of growth have become increasingly evident in the Holden Horseshoe with the passage of time, particularly rising land values and traffic congestion.

House prices increases over time mainly reflect the rising cost of land.

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The average price of a house in the GTA2 over the twelve months ending in November 2005 on the resale market was $339,000 compared to $197,000 in the rest of Ontario (chart A-2 above). The average values in 1996 were $198,000 in the GTA and $123,000 in the rest of Ontario. Over that period the price in the GTA increased by 71 percent while the price elsewhere in Ontario increased by 60 percent.

Figure A-3 Average House Price in the GTA and the Rest of Ontario Monthly Seasonally Adjusted Data from January 1988 to November 2005
$400,000

$350,000

Greater Toronto Area


$300,000

$250,000

$200,000

$150,000

$100,000

All Other Ontario


$50,000

$0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Canadian Real Estate Association

As might be expected, in other areas of the Golden Horseshoe, average house prices in 2005 were below those in the GTA, but above those prevailing in Ontario outside the Golden Horseshoe.

Using Canadian Real Estate Association data we included information for the following areas: the City of Toronto, York and Durham Regions, and the cities of Mississauga, Brampton, Oakville, Milton and Orangeville. To match the official definition of the GTA we would have to add Burlington and Caledon and remove Orangeville but we could not do so given the data available.

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For example, the average house price in Hamilton-Burlington over the last twelve months was $228,000 compared to $218,000 in Kitchener-Waterloo and $199,000 in St. Catharines-Niagara. The higher house prices in the GTA reflect the relatively stronger demand there for land. Lower prices in the GTAs suburbs compared to in the City, and in the GTAs nearby communities compared to the GTA, have helped to attract businesses and residents to the GTAs regions and nearby communities, which have accommodated the lions share of the growth in the area over the last three decades.

The number of rush-hour trips in the Greater Toronto Area and Hamilton reached about 2.7 million per day in 2001 and will likely reach 3.0 million per day in 2006, up from 2.2 million a decade ago. Rush-hour trips in the area will likely grow to 4.0 million by 2031 as the pace of job creation outpaces that of the population. This growth in commuter traffic will lead to even more congestion in the area, raising serious questions about its capacity to sustain the volume of goods movement through the area, let alone increase it. These congestion trends favor an increase over time in the share of Ontarios growth accounted for by the Golden Horseshoe outside of the GTA.

Though the problems associated with rapid growth have become increasingly apparent over time, other than during the 1950s the various provincial governments over that period tended to shy away from trying to directly manage this concentration of growth in the province of Ontario.

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Appendix B Implications of the Aging of the Baby Boomers

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Implications of the Aging of the Baby Boomers


Since its creation in 2000 the Centre for Spatial Economics has projected that, at some point in the future, the annual flow of immigrants to Canada will have to increase from current levels in order to meet future labor market requirements. Our position on this issue can be summarized as follows: the rate of economic growth will gradually slow in Canada from 3.0 to 2.0 percent annually over the next several decades; productivity growth in the future is expected to average 2.0 percent per year; that rate exceeds the 1.0 to 1.5 percent average rate witnessed in the post war period; therefore, with real GDP growth expected to eventually slow to 2.0 percent per year, employment growth will gradually slow to zero. Despite this slowing rate of growth, however, employment will reach 19.0 million by 2031, compared to 16.2 million today. The population aged 20-64 is 20.2 million at this time; employment currently accounts for 79.9 percent of the population aged 20-64. Between now and 2031 the unemployment rate will fall a bit (from 6.8 to 6.0 percent), female participation rates will likely increase a bit, while male rates will likely hold at current levels, all of which means that by 2031 the proportion of persons 20-64 working will increase to 84.3 percent. That means we need 22.5 million people aged 20-64 to fill the 19.0 million jobs projected for 2031. But by 2031 the entire Baby Boom generation will have reached 65 years of age; thus the total population must grow faster than persons 20-64 between now and 2031; the total population consistent with 22.5 million 20-64 year olds in 2031 is 38.7 million. If future productivity growth is less than 2.0 percent per year, but we nevertheless achieve our export potential, immigration will have to increase even more than stated here. If immigration was to be eliminated in 2006 our population would start to decline immediately, including our population aged 20 to 64 (see Chart B-1). That would mean Canada could not reach its economic potential between now and 2031 because there would not be enough people 20 to 64 years of age to fill the jobs expected to emerge. The people most likely to participate in labour market activity are aged 20 to 64; participation rates are especially high among persons aged 25 to 59. Over the next several decades most of the population growth in Canada will be among people 50 and over. Migrants tend to be very young people compared to the population at large; they are far more likely to be between 15 and 35 than the general population; in other words, migrants are highly likely to participate in labour market activity. Our projections suggest net immigration between 2005 and 2031 must total 6.6 million if we are to reach our economic potential.

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Without immigration the labour force would increase only 320,000 over the next decade; with immigration it will increase by 1.4 million, thus keeping pace with our employment growth potential. Despite the significant inflow of young migrants suggested here, deaths will grow faster than births; the net natural change in Canadas population will turn negative by 2021; this will occur even though we expect net immigration to be significant. We need net immigration to average 170,000 per year between now and 2015; beyond 2015 we need net immigration to increase to 300,000 per year and more.

Beyond 2031, after the last Baby Boomer reaches 65, net immigration can slow a bit. The youth dependency ratio does not vary much whether we allow immigration to increase in the future or not (see Chart B-2). That is because fertility rates among immigrants mirror those of the population in general. But in the absence of immigration the elderly dependency ratio increases significantly. Without immigration the burden of the elderly would fall on a smaller pool of persons 20 to 64. The main report notes that public spending per capita on people over 65 significantly exceeds public sector spending on persons under 20. The fiscal challenges to Canada posed by the aging of the Boomers can more readily be met if the Canadian economy Ontarios potential is being reached than if it is not. Even with productivity expected to grow faster in the future, Canada and Ontario need higher immigration in the future to if we are to achieve our economic potential.

This reality will help to drive future immigration levels beyond current levels.

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Figure B-1 Total Population of Canada 1986 to 2051 Assuming No Net Immigration or that Immigration Grows from 2006 to 2051
45,000,000

Total Population Net Immigration Varies


40,000,000

Total Population No Net Immigration


35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

Population Aged 20 to 64 Years Net Immigration Varies


10,000,000

Population Aged 20 to 64 Years No Net Immigration


5,000,000

0 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036 2041 2046 2051

Source: Statistics Canada 1986 to 2005, the Centre for Spatial Economics 2005 to 2051

Figure B- 2 Youth and Elderly Dependency Ratios for Canada 1986 to 2051 Assuming No Net Immigration or that Immigration Grows from 2006 to 2051
0.60

Ratio of Persons 65+ Relative to Persons 20-64 No Net Immigration


0.50

Ratio of Persons 65+ Relative to Persons 20-64 Net Immigration Varies


0.40

0.30

0.20

Ratio of Persons 0 to 19 Realtive to Persons 20-64 No Net Immigration


0.10

Ratio of Persons 0 to 19 Realtive to Persons 20-64 Net Immigration Varies

0.00 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036 2041 2046 2051

Source: Statistics Canada 1986 to 2005, the Centre for Spatial Economics 2005 to 2051

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Appendix C Growth Trends in the External Trading Environment

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Growth Trends in the External Trading Environment


The main report notes that Ontarios economic growth over the last quarter century can mostly be attributed to its penetration of markets abroad, especially those of the United States. During the 1980s exports accounted for 25.9 percent of Ontarios real GDP. Its export share skyrocketed to 40.3 percent during the 1990s as a result of the FTA and NAFTA, and it increased even further to an average of 50.7 percent so far in the current decade. It also notes that from 1981 to 2004 the Ontario economy grew at an average annual rate of 3.1 percent in real terms. Its exports to other countries grew at an annual rate of 7.0 percent while its exports to other provinces grew at a rate of just 1.6 percent. The gains that Ontario made in penetrating foreign markets propelled its growth over the last quarter century. International trade can be expected to continue to drive Ontarios prosperity in the future, as well, so long as Ontario retains its competitive edge.

The United States is Ontarios biggest export destination. Though half of Ontarios exports are currently tied to prosperity in the slower growing, nearby, Great Lakes States (Michigan, New York, Ohio, Illinois and Pennsylvania), a quarter of its exports now reach some of the faster growing, further flung states, including California (the second largest market for Ontarios exports, after first place Michigan), Texas (seventh after Pennsylvania), Indiana (eighth), New Jersey (ninth) and Georgia (tenth). Ontario also exports to other countries. In recent years its markets in the European Union, the United Kingdom, China, Mexico, Japan, Australia, Africa and the Middle East all grew faster than its export market in the United States.

The US economy is expected to grow at a rate of between 3 and 4 percent per year in real terms through to the end of the current decade, then slow to less than 3 percent per year by the middle of the next decade. Between 2015 and 2025 the rate is expected to fall to around 2 percent then drop to below 2 percent beyond 2025.

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Over the next decade US monetary and fiscal policies will need to tighten somewhat in order to redress the huge fiscal and trade imbalances that have built up stemming largely from the war in Iraq. This tightening is behind the gradual slowing in the pace of GDP growth over the next decade. US import growth will slow from the current high rates to a pace less than that of GDP over this period. The further slowing in the pace of US growth beyond 2015 reflects an expected slowdown in the rate of growth of the US population, especially among those aged 20 to 64 from which the labour force is primarily drawn.

Over the longer term the US, like Canada, faces the aging Baby Boom issue. Allan Greenspan recently stated, Current entitlement law may have already promised to this generation of retirees more in real resources than our economy, with its predictably slowing rate of labor force growth, will be able to supply. So long as health-care costs continue to grow faster than the economy as a whole, as seems likely, federal spending on health and retirement programs would rise at a rate that risks placing the budget on an unsustainable trajectory. 3

Similar patterns of slowing economic growth can be expected in Europe and Japan (each growing by about 2 percent annually over the next ten years, slowing to 1 percent from 2015 to 2025 and to between 1 and 1 percent annually after 2025).

The emergence of China on the world scene can be seen both positively and negatively.

On the positive side, China has been growing at almost 10 percent annual rates in real terms over the last decade and its share of global income has increased from 6 percent in the late 1990s to 13 percent now. The freeing from central planning of the Chinese economy is the main factor behind this rapid growth. Chinas accession to the World Trade Organization will help it to continue to achieve strong growth in the future. By 2015 Chinas share of world income is expected to reach 20 percent. Chinas share of world trade has increased in tandem, from 1 percent in the late 1980s to 6 percent now. It is projected to grow to more than 15 percent over the next ten years.

Testimony of Federal Reserve Board Chairman Allan Greenspan before the Joint Economic Committee of the U.S. Congress, November 3, 2005.

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Sustained high growth rates such as those achieved by China over the last decade are not unprecedented: Japan grew at an average rate of 9 percent between 1962 and 1972 and Korea at a rate close to 10 percent between 1967 and 1977. China is a fast growing market that the industrialized world, including Ontario, can continue to tap. Ontarios exports to China increased by more than 50 percent between 2000 and 2004.

On the negative side, China is emerging as a major competitor to all industrialized nations. Chinas workforce of 750 million people is clearly not as productive as the labour force in the industrialized nations. The jobs it is taking away from the US, Canada and the rest of the world so far are the lower paying, labour intensive ones. Over time it can be expected to successfully compete with North America and Europe in higher-value-added-per-worker activities. Furthermore, Chinas emergence on the world stage as a major consumer of raw materials has helped to elevate the price of oil and other commodities to record setting levels. On the positive side, however, the gradual engagement of China (and Russia, India and others) in competitive world markets has restrained the growth of unit labour costs worldwide, helping, therefore, to contain inflation even as real growth has been strong.

A necessary condition for future growth in Ontario is that its exports continue to grow. Ontarios exports can grow only if the economies of its major trading partners continue to grow. The trends described above bode well for Ontarios continued export expansion in the decades ahead.

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Appendix D The Macro-Economic Environment

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The Macro-Economic Environment


The Post-War Macro-Economic and Trade Policy Environment In the early post war era significant economic growth was achieved in the industrialized world in a low inflation, low interest rate environment. But by the late 1960s and early 1970s a host of factors including expansionary monetary and fiscal policies, US involvement in the Vietnam War, excessive public sector wage settlements in Canada, the emergence of the OPEC cartel and the convergence of business cycles among the industrialized nations combined to create stagflation, the unheard-of-to-that-point coexistence of high inflation and slow growth. Historical precedent confirms that sustained real rates of economic growth can be obtained only in a relatively low inflation environment. The industrialized countries came to that realization in the 1990s; since that time they have all pursued monetary and fiscal policies with that objective in mind. The adjustment costs associated with returning inflation to its current low pace were so great that policy makers are unlikely over the foreseeable horizon to repeat the mistakes of the 1960s and 1970s that permitted high inflation to take hold.

Since World War II, enormous shifts in trade arrangements have occurred. Those having the greatest direct impact on Canada over that period included the Canada-US Auto Pact, the Canada-US Free Trade Agreement and the North American Free Trade Agreement. The establishment of the European Union and the various trading blocks elsewhere on the globe also impacted Canadas trade relationships over this period, and, of course, by Chinas emergence as a major trade power. The current round of trade negotiations the Doha Round that began in November 2001 stalled once again during discussions in December 2005 in Hong Kong, with the main issue reflecting the huge divide between the wealthy and poor nations, and between the US and Europe, on how to open up farm markets. Trade negotiations have never been easy and have always dragged on for years. Comfort can be taken, therefore, from the fact that the Doha Round discussions continue, especially given that the divide being tackled today is much bigger than the divides tackled earlier which were primarily among already industrialized nations. Of greater concern to Canada at this point is the fact that significant trade disputes between Canada and the US on a several contentious issues continue to capture the headlines.

Despite the headlines it must be kept in mind that almost $2 billion of undisputed trade occurs each and every day between the two countries.
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Canada has always been a leader on the world stage when it comes to trade liberalization, and is likely to continue to play that role in the decades ahead. And though Canadas fiscal house was in terrible shape a decade ago, Canadians are now praised internationally for having fully dealt with our deficits and debts and for pursuing low inflation monetary policies.

The main report concludes that Ontarios best interests are being served by the current stance of Canadian monetary, fiscal and trade policies.

World Commodity Supplies and Prices Prices for all major commodities have risen sharply over the last couple of years. Oil, natural gas, metal, and mineral prices have all risen. The current bull market follows a protracted bear market in which many commodity prices were significantly depressed in the 1990s. While it is not unusual for commodity prices to rise and fall by comparatively large amounts over a business cycle, a growing numbers of analysts expect that a large proportion of the recent increase is likely to be permanent. They point to the substantial rise in demand for commodities that has accompanied the expansion of the Chinese economy. Sustained growth in that economy will help fuel continued high commodity prices.

Manufacturers throughout the world face these higher commodity prices. Prices for manufactured goods will eventually rise to reflect these higher costs. Consumers will continue to look for the lowest price, so manufacturers with the lowest costs will have an increasing advantage over time.

Part of the reason for the increase in overall commodity prices over the last two years is because of fears of energy supply disruptions both real and imagined. Beyond short-term fears, however, commodity prices tend to follow the international business cycle.

In most previous cycles of the past thirty years, after major slowdowns it took a protracted period of strong growth to boost commodity prices as excess capacity was exhausted. During this cycle the run up in commodity prices was coincident with the improvement in world demand and happened while the worlds economy was below its trend level of output.

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The trend growth path for commodities appears to have shifted to a higher trajectory compared with global growth, suggesting that a different dynamic is at work in the world economy.

China could be the answer.

On a purchasing power parity basis, the IMF estimates that China was responsible for close to one third of the worlds growth in recent years. Chinas demand for products tends to be more raw material intensive than that of advanced economies. A massive amount of investment is occurring in China, which tends to be relatively raw material intensive. As the economy expands, more people with low to medium levels of income are benefiting. These types of consumers tend to want cars and appliances, which are also raw material intensive. As a result of Chinas emergence on the global scene, the equilibrium price for commodities is likely higher today than a decade ago. For commodities, however, high prices do not last forever. A prolonged period of high commodity prices encourages consumers and businesses throughout the world to move away from expensive materials toward cheaper substitutes. This is, after all, one of the reasons why there was a period of prolonged relative weakness for commodities during the 1980s through to the mid 1990s. Over prolonged periods of time, historically, commodity prices have fallen in real terms as a result of this phenomenon. It should also be noted that commodity prices tend to move in exaggerated cycles.

After a peak, there is always a crash. This reflects not only swings in demand, but also the length of the supply response in boosting capacity. In the past, a crash has meant price declines in the neighbourhood of 15 to 20 per cent in real US dollar terms two to three years after the peak. So even with a higher equilibrium price and faster trend path for commodities, there will likely be a slide in commodity prices in the next few years.

Governments can do little to affect these price swings. The fact that the supplies and prices of oil, gas and other commodities are set internationally means all countries face the same variability in costs and supply availability. So while high commodity prices and reduced commodity supplies might be harmful to Ontarios economic potential, they are equally harmful to traded goods producers throughout the world.

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