Commission on the Reform of Ontario's Public Services

Chapter 1: The Need for Strong Fiscal Action
This trajectory is our Status Quo outlook for program spending: it incorporates the increases
that are likely to take place if current programs are retained in their current form, if no new
programs are introduced, and if nothing further is done to restrain spending. This Status
Quo outlook is not just a mechanistic extension into the future of past trends in total program
spending. Rather, it is based on what are called the drivers of spending growth — the forces
that determine how much the government would have to spend in the future to maintain
current services. Two of those drivers — inflation and population growth — are common to
many programs, but most programs have their own additional unique pressures that drive
up costs.
Four blocks of spending accounted for over 77 per cent of all program expenses in 2010–11:
health; education (kindergarten through Grade 12); children’s and social services; and postsecondary
education. Left on their own, they would approach 83 per cent of program spending
in 2017–18. These programs will command ever-growing shares, squeezing out spending on
the government’s other programs — justice, transportation, economic development, tourism,
agriculture, natural resources and others.
Here is how some of the cost drivers work in those four major areas of government spending.
Health care expenses accounted for 40.3 per cent of program spending in 2010–11 —
$44.8 billion out of $111.2 billion spent on programs. A continuation of current practices would
require the province to increase spending on health care by an average of 4.7 per cent
annually through 2013–14 and 5.0 per cent annually from then until 2017–18, when it would
reach $62.5 billion. A look at the drivers in the three biggest components of health care
funding shows why.
The cost of running hospitals, the single biggest item in the overall health care budget at
$15.5 billion in 2010–11, is driven primarily by three factors — inflation, population growth
and aging (older people need hospitals more than younger people). Population growth will
add 1.2 per cent to costs each year through the whole period to 2017–18 and aging another
1 per cent. Inflation, the rising cost of buying the goods and services needed to operate
hospitals, is expected to add 3.0 per cent to costs this year and about another 2.0 per cent in
the next four years. Most of what hospitals buy are the services of their employees, so the
inflation driver is primarily the cost of compensation — wages, salaries and benefits. Whether
hospitals can hold this 2.0 per cent line on inflation over such a long period is open to
question. Note, however, that population aging — which in much of the public debate has
become the major “source” of future cost pressures — accounts for less than a quarter of the
cost drivers for hospital spending. All told, hospital spending in our Status Quo Scenario would
rise by an average of 4.1 per cent annually over seven years to $20.5 billion in 2017–18.
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