2009 Ontario Budget
CHAPTER II
ONTARIO'S ECONOMIC OUTLOOK
AND FISCAL PLAN
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Section A: Overview
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2009 Budget — Numbers at a Glance Table 1
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Ontario's Economy: Provincial Finances:
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Projected Real GDP Growth, 2009 (2.5%) 2008-09 Interim Deficit $3.9 billion
Avg. Private-Sector Growth, 2009 (2.4%) 2009-10 Revenue Plan $96.0 billion
Projected Real GDP Growth, 2010 2.3% 2009-10 Expense Plan $108.9 billion
Jobs since October 2003 325,700 2009-10 Reserve $1.2 billion
Real GDP (2008 above 2003) 10.3% Debt(1)-to-GDP Ratio (2003-04) 25.2%
Real Disposable Income (2008 above 2003) 17.9% Debt-to-GDP Ratio (2008-09) 18.4%
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(1) Debt is defined as accumulated deficit.
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This chapter presents the outlook for the Ontario economy and the
government's fiscal plan.
[Chart 1, bar graph: Ontario Real GDP]
The global economic outlook has deteriorated significantly in recent
months. The U.S. economy — critically important to Ontario as the
destination for most of its exports — is in the midst of one of its
deepest downturns. Ontario is not immune to these broader forces and the
current recession is expected to persist through the first half of 2009.
Growth in the global economy is expected to resume within the next year,
mainly due to the aggressive fiscal and monetary actions of national
governments and central banks around the world. The Ontario economy is
expected to follow the same recovery pattern as the U.S. economy, with
growth in Ontario expected to resume during the latter half of 2009 and to
gain momentum in 2010 and 2011.
[Chart 2, bar graph: Ontario's Fiscal Plan]
Recognizing the economic challenges facing Ontario, the government chose to
reaffirm its commitment to provide and protect key public services. Taking
into account the impact of the sudden and unexpected global downturn on the
economic and revenue outlook, the Province is currently projecting a $3.9
billion deficit in 2008-09. In response to the downturn, the government is
committed to protecting and creating jobs, as well as investing in key
priority areas, while holding the average annual growth in core program
expense at 3.6 per cent, compared to 3.8 per cent projected revenue growth
between 2008-09 and 2011-12. As a result, the Province is projecting
steadily declining deficits of $14.1 billion in 2009-10, $12.2 billion in
2010-11 and $9.7 billion in 2011-12, and a balanced budget by 2015-16.
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Section B: 2008-09 Interim Fiscal Performance
Over two years ago, the government recognized the challenging global
economic environment facing the province and took action through
investments in skills, infrastructure and business tax cuts. Furthermore,
in response to the sudden and unexpected deterioration of the economic
environment in the fall of 2008, the government took immediate steps to
continue its responsible management of the Province's finances. Since then,
the Ontario economy has continued to experience the effects of global
economic challenges, resulting in significant revenue declines. The
government is now projecting a $3.9 billion deficit in 2008-09.
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2008-09 In-Year Fiscal Performance Table 2
($ Millions)
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Budget Plan Interim In-Year
Change
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Revenue 96,920 93,427 (3,493)
Expense
Programs 87,279 88,463 1,184
Interest on Debt 8,891 8,854 (37)
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Total Expense 96,170 97,317 1,147
Reserve 750 - (750)
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Surplus/(Deficit) 0 (3,890) (3,890)
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Changes in the 2008-09 fiscal outlook are primarily driven by revenue
declines of $3.5 billion, a decrease of 3.6 per cent from the 2008 Budget
forecast. Total expense, however, has been held to growth of only 0.8 per
cent compared to 2007-08, and only 1.2 per cent higher than the 2008 Budget
forecast — reflecting the government's commitment to contain spending
while protecting key public services during this time of economic
uncertainty.
The $750 million reserve was used to offset the effects of slower economic
growth on the Province's fiscal outlook.
Ontario's 2008-09 deficit relative to the size of its economy is one of the
lowest of the industrialized jurisdictions impacted by the global economic
crisis. This underscores the government's commitment to protect jobs and
encourage growth while continuing to prudently manage the Province's
finances.
These interim results for 2008-09 are based on the best information
available as of early March 2009. Given the preliminary nature of interim
forecasts, these projections are subject to change. Actual Provincial
revenue and expense will be presented in the 2008-09 Public Accounts.
[Chart 3, line graph: Accumulated]
Consistent with the Province's fiscal performance and with
slower-than-anticipated gross domestic product (GDP) growth this year, the
Province's accumulated deficit-to-GDP ratio is forecast at 18.4 per cent in
2008-09, down from 25.2 per cent in 2003-04.
IN-YEAR REVENUE PERFORMANCE
Total revenue in 2008-09 is estimated to be $93,427 million, $3,493 million
or 3.6 per cent lower than the 2008 Budget forecast. This is mainly due to
weaker economic growth in 2008 and 2009 than projected in the 2008 Budget.
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Summary of Revenue Changes Since 2008 Budget Table 3
($ Millions)
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Interim
2008-09
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Taxation Revenue
Corporations Tax (3,736)
Personal Income Tax 403
Land Transfer Tax (292)
Retail Sales Tax 247
Electricity Payments-in-Lieu of Taxes 216
All Other Taxes (370)
--------------
(3,532)
Government of Canada 108
Income from Government Business Enterprises
Ontario Power Generation Inc. and Hydro One Inc. (315)
Ontario Lottery and Gaming Corporation 123
All Other Government Business Enterprises (21)
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(213)
Other Non-Tax Revenue 144
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Total Revenue Change (3,493)
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Revenue Changes
Highlights of key 2008-09 revenue changes from the 2008 Budget forecast are
as follows:
o Corporations Tax (CT) revenues are estimated to be $3,736 million
below the 2008 Budget mainly due to the ongoing global financial
crisis and weaker 2008 corporate profit growth. Lower revenues from
processing of 2007 tax returns also contributed to the CT shortfall.
o Personal Income Tax (PIT) revenues are estimated to be $403 million
above the 2008 Budget projection mainly due to higher revenues from
processing 2007 tax returns, and wages and salaries and employment
growth in 2008. This more than offsets the negative impact of lower
wages and salaries growth in 2009 and the decrease in certain income
components such as capital gains income.
o Land Transfer Tax (LTT) revenues are estimated to be $292 million
below the 2008 Budget due mostly to the sharper-than-expected decline
in housing resale volumes and prices in 2008.
o Retail Sales Tax (RST) revenues are estimated to be $247 million above
the 2008 Budget, reflecting consumer spending that remained reasonably
robust through most of 2008 before the global economic and financial
crisis affected consumer spending.
o Electricity Payments-In-Lieu of Taxes (PILs) are estimated to be $216
million above the 2008 Budget projection, largely due to higher
payments from Ontario Power Generation (OPG) as a result of
better-than-expected operational performance. The negative impact on
OPG net income of losses in OPG's nuclear funds does not affect PILs
since losses in the funds are not deductible for tax purposes.
o All Other Taxes revenues are estimated to be $370 million lower due to
weaker-than-expected economic conditions, including lower Mining Tax
revenues as global commodity prices fell sharply in 2008-09, and lower
Gasoline and Fuel Tax revenues due to economic weakness and high
gasoline and diesel pump prices during the first half of fiscal
2008-09.
o Government of Canada transfers are estimated to be $108 million above
forecast. This is largely due to the $150 million federal payments
related to corporate tax harmonization being recorded in 2008-09
rather than in 2007-08. Funding under the Canada Health Transfer is
estimated to be $55 million above forecast, mainly due to a lower
estimated Ontario share of the Canada-wide tax base in 2008, boosting
Ontario's share of federal funding. The increase in federal transfer
payments is partially offset by lower-than-projected infrastructure
program payments and slightly lower funding under the Canada Social
Transfer.
o Net Income from Government Business Enterprises is projected to be
$213 million below the 2008 Budget forecast. The combined net income
of Hydro One Inc. and OPG is estimated to be $315 million below the
2008 Budget forecast, largely due to losses in OPG's nuclear funds
arising from lower-than-expected financial market performance,
partially offset by improved operational performance. The Ontario
Lottery and Gaming Corporation experienced higher revenue due to
better-than-projected performance across all major lines of business.
Net income of all other government business enterprises, including the
Liquor Control Board of Ontario, was slightly below the 2008 Budget
projection.
o Other Non-Tax Revenue is expected to be $144 million above the 2008
Budget forecast, largely due to higher-than-projected recoveries of
prior-year expenditures, power sales and other fees, licences and
permits. These increases are partially offset by lower revenue from
royalties, sales and rentals and the Electricity Debt Retirement
Charge. Revenue from power sales reflects current contracts with
non-utility generators and is fiscally neutral as it is fully offset
by higher expenses from Ontario Electricity Financial Corporation
(OEFC) power purchases from non-utility generators.
IN-YEAR EXPENSE PERFORMANCE
Total expense in 2008-09 is currently projected to be $97,317 million, an
increase of $1,147 million, or 1.2 per cent, from the 2008 Budget forecast.
This increase primarily reflects the government's continued action to
protect key public services.
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Summary of Expense Changes Since 2008 Budget Table 4
($ Millions)
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Interim
2008-09
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Program Expense Changes
Health 274.5
Children's and Social Services/Social Housing 259.7
Education 143.2
Infrastructure and Transportation 142.2
Justice 125.1
Other Program Expense Changes 239.7
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Total Program Expense Changes 1,184.4
Interest on Debt Savings (37.0)
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Total Expense Changes 1,147.4
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Expense Changes
Highlights of key 2008-09 expense changes from the 2008 Budget forecast are
as follows:
o Health expense increased by $274.5 million, primarily due to $540
million in additional funding for the Ontario Health Insurance Plan
(OHIP) program to address higher-than-planned utilization increases
and the impact of the new Ontario Medical Association (OMA) agreement.
The OHIP funding increase was partially offset by savings in the
Ontario Drug programs, public health and other Provincial health
programs.
o Children's and Social Services/Social Housing expense increased by a
net $259.7 million, largely to support the delivery of programs for
the vulnerable, including social assistance and child protection
services.
o Education expense increased by a net $143.2 million, largely due to a
$279.9 million increase to support salary increases for education
sector staff that were planned for in the 2008 Budget to be offset
from the Contingency Fund. Sector savings include higher-than-expected
education property taxes, as well as the expenditure restraint
measures announced in the 2008 Ontario Economic Outlook and Fiscal
Review, which deferred less urgent school capital improvement
projects.
o Infrastructure and transportation expense increased by $142.2 million,
primarily due to increased funding for audits and retrofits under the
Home Energy Savings Program, changes in the timing of transportation
infrastructure projects, additional spending on enhanced driver's
licence initiatives and road safety legislation introduced in the fall
of 2008.
o Justice expense increased by $125.1 million, primarily for the
Criminal Injuries Compensation Board, community safety, and public
inquiries.
o Other program expense increased by a net $239.7 million in 2008-09,
reflecting the balance of changes in program expense. These include
increases in the expenses of various consolidated organizations, as
well as Ontario Electricity Financial Corporation power purchases from
non-utility generators. The increase in power purchase expense from
contracts with non-utility generators is fiscally neutral as it is
fully offset by higher revenues from power sales. The Operating
Contingency Fund has been maintained at $250.0 million.
o Interest on Debt expense, at $8,854.0 million, is $37.0 million lower
than the 2008 Budget Plan. This amount reflects the impact of lower
interest rates and cost-effective management of the borrowing program,
partially offset by an increase in borrowing primarily to finance the
deficit.
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Section C: Ontario's Economic Outlook
OVERVIEW
This section outlines Ontario's current macroeconomic outlook, which
underlies the fiscal plan. The Ministry of Finance's key economic planning
assumptions are below the average private-sector forecasts that were
available when the economic assumptions were finalized on March 13, 2009.
Ontario's economy has been impacted by the global economic downturn, which
includes a recession in the United States, and heightened financial-market
turbulence.
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Ontario Economic Outlook Table 5
(Per Cent)
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2004 2005 2006 2007 2008 2009p 2010p 2011p
---------- ---------- ---------- ---------- --------- ----------- ---------- ----------
Real GDP Growth 2.6 2.8 2.6 2.3 (0.4e) (2.5) 2.3 3.3
Nominal GDP Growth 4.7 4.0 4.3 4.5 1.7e (2.4) 3.6 4.7
Employment Growth 1.7 1.3 1.5 1.6 1.4 (2.0) 0.8 1.6
CPI Inflation 1.9 2.2 1.8 1.8 2.3 0.4 1.9 2.0
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e = estimate; p = Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.
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An unusual degree of uncertainty remains regarding the outlook. The
strength and timing of the Ontario recovery largely depend on the depth and
duration of the current global economic downturn.
The Ministry of Finance outlook includes a 2.5 per cent decline in Ontario
real gross domestic product (GDP) in 2009. Real GDP declined in late 2008
and is expected to fall in the first two quarters of 2009. Growth is
expected to resume during the second half of 2009 and strengthen over the
next few years, with real GDP growth rates for planning purposes of 2.3 per
cent in 2010 and 3.3 per cent in 2011. Resumed U.S. economic growth,
government efforts to provide jobs for today and for the future, low
interest rates and actions taken to improve the functioning of global
credit markets are expected to bring about the mid-2009 turnaround. Job
creation is expected to pick up, with 161,000 net new jobs expected during
2010 and 2011.
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ONTARIO AUTO INDUSTRY FACING SIGNIFICANT CHALLENGES
The auto sector is an important part of the Ontario economy, generating
investments and providing numerous jobs in many communities in the
province. A vibrant and competitive auto sector will remain an important
part of Ontario's industrial mix in the future.
Ontario's auto industry is being hard hit by the sharp decline in demand,
with Ontario's exports of autos and parts dropping by 22.8 per cent in
2008. The auto industry accounted for about 3.7 per cent of Ontario GDP in
2008, down from 6.1 per cent in 1999. The industry employed about 150,000
Ontarians in 2008, accounting for 2.3 per cent of total employment, down
from a peak of 3.5 per cent in 2002. The Ontario auto sector is expected to
see continued challenges throughout 2009. According to the latest Blue Chip
Economic Indicators, U.S. light vehicle sales are expected to fall from
13.2 million units in 2008 to 10.3 million units in 2009. This represents a
decline of 22.0 per cent, and forecasts range from a low of 8.6 million
units to a high of 12.5 million units.
There are prospects for a recovery in the Ontario auto sector after 2009.
According to Blue Chip Economic Indicators, vehicle sales in the United
States are expected to rebound to 12.3 million units in 2010 and 14.0
million units in 2011.
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Ontario Affected by the Global Economic Downturn
[Chart 4, bar graph: G7 Economic Growth]
Ontario is experiencing the impact of a sudden synchronized slowdown in the
global economy. All G7 economies are now in a recession, with real GDP
contracting sharply in the fourth quarter of last year and further declines
expected in the first half of 2009. According to Consensus Economics, world
growth is expected to decline by 1.6 per cent in 2009, compared to growth
of 2.0 per cent in 2008. This would be the biggest decline since World War
II. All G7 economies are expected to post a decline in output in 2009. The
contraction is increasingly affecting emerging-market countries. China and
other emerging economies are experiencing lower exports due to declining
demand.
[Chart 5, bar graph: G7 Economic Growth]
Several factors are expected to support the recovery in the global economy
and result in strengthening economic growth. Significant fiscal stimulus
measures at the national level and lower interest rates will boost business
and household spending globally. Actions to stabilize the financial sector
should allow global credit conditions to improve. This will improve
confidence and increase the availability of credit to businesses and
consumers. Global growth is expected to rebound to 2.1 per cent in 2010.
Recent Ontario Economic Developments
Weaker U.S. and global demand, particularly for autos, combined with
ongoing global financial-market turbulence is having a negative impact on
economic activity in Ontario. These developments have resulted in declines
in net exports, higher unemployment and slower growth in both income and
consumer spending.
Ontario real GDP fell by an estimated 0.4 per cent in 2008, following
modest growth of 2.3 per cent in 2007. The main drag on growth was lower
export volumes — largely autos — which fell more than seven per
cent in 2008. Imports also declined — again largely reflecting
declines in auto-related imports — but at a slower pace than exports.
As a result, Ontario's international and interprovincial trade balance
deteriorated significantly in 2008, falling from a surplus of $12.4 billion
in 2007 to a deficit of $743 million in 2008.
[Chart 6, bar graph: Widespread Job]
Ontario's economic performance weakened in the fall of 2008, reflecting the
turbulence in global financial markets and a U.S. recession. Real consumer
spending fell by an estimated 1.0 per cent in the fourth quarter. The
housing market also weakened through the end of 2008 and into early 2009.
Housing starts declined by 9.5 per cent in the fourth quarter of 2008 and
by a further 25.0 per cent in the first two months of 2009. Sales of
existing Ontario homes dropped 23.6 per cent in the final quarter of 2008
and by a further 4.5 per cent in January.
Following a relatively modest decrease in the fourth quarter of 2008,
Ontario employment has declined further in the past two months, falling by
71,000 net jobs in January and 35,000 in February. As a result, the Ontario
unemployment rate rose to 8.7 per cent in February, from 7.2 per cent in
December 2008.
Private-Sector Forecasts
The Ministry of Finance surveys private-sector forecasts to determine
appropriate planning assumptions. Due to the rapid deterioration of the
global economic situation, private-sector forecasters have revised their
projections down significantly in recent months. Private-sector forecasters
are, on average, calling for Ontario real GDP to decline by 2.4 per cent in
2009. Only a few forecasters provide quarterly forecasts but the ones that
do expect the economy to contract for at least three quarters, with an
average peak-to-trough decline of 3.3 per cent. Forecasters expect growth
to improve in 2010, but there is a wide range of views. The Conference
Board of Canada is the most optimistic, calling for growth of 3.6 per cent
in 2010, while Desjardins Group is the most pessimistic, expecting growth
of only 1.0 per cent.
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Private-Sector Forecasts for Ontario Real GDP Growth Table 6
(Per Cent)
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2009 2010 2011
------------- ------------- -------------
Conference Board of Canada (February) (1.2) 3.6 4.1
IHS Global Insight (February) (2.9) 2.5 3.8
Centre for Spatial Economics (February) (1.2) 3.4 2.5
University of Toronto (February) (2.1) 3.4 3.8
RBC Financial Group (March) (1.9) 2.4 -
Scotiabank Group (March) (2.9) 1.4 -
TD Bank Financial Group (March) (2.7) 1.2 -
Desjardins Group (March) (3.3) 1.0 -
BMO Capital Markets (March) (2.9) 2.1 -
CIBC World Markets (March) (2.5) 2.0 -
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Private-Sector Survey Average (2.4) 2.3 3.6
Ontario's Planning Assumption (2.5) 2.3 3.3
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Sources: Ontario Ministry of Finance and Ontario Ministry of Finance Survey of Forecasts (March 13, 2009).
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To ensure reasonable and accountable economic projections, the Ministry of
Finance consults extensively with private-sector forecasters. The Ontario
Economic Forecast Council was established as part of the Fiscal
Transparency and Accountability Act, 2004 to provide advice on
macroeconomic forecasts and assumptions. The council members are Peter
Dungan from the University of Toronto, Glen Hodgson from the Conference
Board of Canada, Ernie Stokes from the Centre for Spatial Economics and
Dale Orr. The Minister of Finance met with Council members and other
private-sector forecasters in the process of preparing the 2009 Budget.
Council members were asked to review the Ministry of Finance's economic
assumptions in February 2009. The members who were able to respond to this
request provided letters stating that the forecast was reasonable, as of
February 27, 2009. Subsequent revisions to private-sector forecasts have
been reflected in Ontario's planning outlook up to March 13, 2009, the date
the economic assumptions for the Budget were finalized.
External Factors Affecting Ontario's Growth
Ontario's economic outlook is heavily influenced by external factors such
as U.S. economic growth, oil prices, the Canadian dollar exchange rate and
interest rates. Private-sector forecasts for these factors are summarized
in the table below.
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External Variables Table 7
Private-Sector Forecast
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2009 2010 2011
Low Avg. High Low Avg. High Low Avg. High
------- ------- ------- ------ ------- ------ ------ ------- ------
U.S. Real GDP Growth (Per Cent) (3.4) (2.6) (1.4) (0.2) 1.9 3.5 1.4 3.4 6.3
Crude Oil ($US per Barrel) 36.2 44.5 55.0 35.3 60.0 82.5 34.9 61.9 90.0
Canadian Dollar (Cents US) 75.4 79.5 83.5 77.6 84.8 94.3 78.2 87.5 94.3
Three-Month Treasury Bill Rate (Per Cent) 0.3 0.6 1.4 0.4 1.1 2.9 2.1 3.1 4.3
10-Year Government Bond Rate (Per Cent) 2.5 2.9 3.7 2.6 3.3 4.1 3.5 4.4 4.9
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Sources: Bank of Canada, Blue Chip Economic Indicators (March 2009) and Ontario Ministry of Finance Survey of
Forecasts (March 13, 2009).
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The U.S. Economy
The U.S. economy is in the midst of one of the deepest recessions on
record. The financial crisis that began in the U.S. subprime mortgage
market escalated in the fall of 2008, creating further credit tightening
and increasing global financial-market volatility. Housing starts and new
home sales have reached all-time lows, while existing home sales and prices
continue to decline. Foreclosure rates for residential mortgages continue
to climb, leading to a further tightening in bank lending standards. Job
losses and tighter credit conditions have led to reductions in consumer
spending, particularly on durable goods such as autos. Businesses are
reporting difficulty gaining access to credit to finance investment and
maintain working capital. In response to the deteriorating outlook and
ongoing financial-market turbulence, the Federal Reserve lowered its target
for its key policy rate from 5.25 per cent in September 2007 to a range of
zero to 0.25 per cent currently. The U.S. government has injected capital
into many U.S. banks through its Troubled Asset Relief Plan (TARP), and the
Federal Reserve has increased liquidity into the financial system. These
actions are helping improve credit flows, but credit markets remain
strained and it will take some time before they return to normal.
The U.S. government has taken strong steps to lift the economy out of
recession, including passing the American Recovery and Reinvestment Act.
The stimulus package includes infrastructure spending, personal tax cuts
for lower- and middle-income households, business tax cuts designed to
boost investment, as well as additional transfers to state governments. The
U.S. Treasury has also introduced the Homeowner Affordability and Stability
Plan that will reduce mortgage payments for many consumers as well as the
number of home foreclosures. With U.S. housing construction now at
extremely low levels, inventories of unsold houses should decrease. As
inventories are pared down, housing starts and house prices are expected to
stabilize. The eventual stabilization and recovery of the U.S. housing
market should help credit conditions return to normal.
As it will take time for these initiatives to take effect, the U.S. economy
is expected to decline through the first half of 2009, with consumption and
business investment continuing to contract and exports weakening. Overall,
U.S. GDP is expected to decline by 2.6 per cent in 2009. As the economic
recovery takes hold, growth is expected to improve to 1.9 per cent in 2010.
However, an unusually large degree of uncertainty remains surrounding the
outlook, particularly the ultimate size and timing of the recovery. It is
unclear when the U.S. housing market will stabilize and how long it will
take for credit conditions to improve. There is a wide range of views on
the U.S. outlook, with forecasts for growth in 2009 ranging from a low of
-3.4 per cent to a high of -1.4 per cent. The range of outcomes for 2010 is
even wider, with growth ranging from -0.2 per cent to 3.5 per cent.
Oil Prices
[Chart 7, line graph: Crude Oil]
Crude oil prices have declined sharply, from a record daily high of $145 US
per barrel in July 2008 to below $34 US per barrel in February 2009, a drop
of more than 75 per cent in just seven months — the sharpest decline
on record. The dramatic downturn of the U.S. and world economies has put
downward pressure on oil demand and prices. The plunge in oil prices has
prompted the Organization of the Petroleum Exporting Countries (OPEC) to
cut its production, and oil companies to cancel or postpone their capital
investments in oil exploration and development, reducing future oil supply.
As a result, production may be unable to respond quickly to meet increased
demand once global growth picks up steam, contributing to a rebound in
prices. Private-sector forecasters, on average, expect oil prices to climb
from $45 US per barrel in 2009 to $60 US per barrel in 2010 and $62 US per
barrel in 2011. There is a wide range of views on oil prices, reflecting
uncertainty about demand conditions and available supply.
Canadian Dollar
[Chart 8, line graph: Canadian]
The Canadian dollar depreciated sharply against the U.S. dollar last
October, dipping below 77.0 cents US in mid-March, reflecting the
heightened financial-market turmoil and dramatic deterioration in global
growth prospects, as well as falling commodity prices. Other currencies,
including the euro and British pound, also depreciated significantly
against the U.S. dollar in the last year. Private-sector forecasters expect
the dollar to average 79.5 cents US in 2009, with forecasts ranging from a
low of 75.4 cents US to a high of 83.5 cents US. As oil and other commodity
prices are expected to rise in 2010, this will once again place upward
pressure on the dollar. Private-sector forecasters project the Canadian
dollar will average 84.8 cents US in 2010 and 87.5 cents US in 2011.
Interest Rates and Credit Conditions
[Chart 9, line graph: Mortgage and Prime Loan]
Interest rates have been lowered by central banks around the world since
the financial turmoil intensified last autumn. The Bank of Canada has cut
the overnight interest rate target by 400 basis points since December 2007
to a current historic low of 0.5 per cent. The Bank of Canada has also
taken a number of extraordinary steps to provide liquidity to the financial
market, including extending the duration of its loans to eligible
institutions and expanding the type of collateral it accepts. In addition,
since the fall of 2008 the federal government has agreed to put in place a
number of programs to help ease the tension in financial markets, including
the purchase of up to $125 billion in insured mortgage pools from Canadian
financial institutions through the Canada Mortgage and Housing Corporation
(CMHC) and the provision of a guarantee for banks' borrowings through the
Canadian Lenders Assurance Facility.
Although central government interest rates are at record lows, the fall in
interest rates for central government debt has not been fully matched by
declines in interest rates for businesses, consumers and other levels of
government. The prime lending rate, which influences a broad range of
consumer loan rates, has declined by 375 basis points since December 2007.
Over this period, the one-year mortgage rate has decreased by 270 basis
points and the five-year mortgage rate by 160 basis points. Canadian
household credit continues to grow at a pace well above the historical
average, but the pace of activity has slowed. Canadian businesses have had
difficulty accessing capital markets for financing, and have had to rely
more on bank lending. However, the Bank of Canada's Senior Loan Officer
Survey reported ongoing tightening in both the pricing and availability of
credit.
[Chart 10, line graph: Canadian Business Lending]
Interest rates are expected to remain low throughout the year and rise over
the medium term. Private-sector forecasters project the three-month
treasury bill rate will average 0.6 per cent in 2009, down from 2.3 per
cent in 2008, and the 10-year Government of Canada bond rate will average
2.9 per cent, down from 3.6 per cent. As global financial conditions
improve and growth resumes, interest rates are projected to rise. The
three-month treasury bill rate is expected to increase to 1.1 per cent in
2010 and 3.1 per cent in 2011. The 10-year Government of Canada bond yield
is forecast to climb to 3.3 per cent in 2010 and 4.4 per cent in 2011.
Impacts of Changes in Key Assumptions on Ontario Real GDP Growth
As summarized in the following table, there is a wide range of views
regarding the future path of the key external factors influencing the
Ontario economy. In the past year, oil prices and the Canadian dollar have
experienced record swings in values. The ongoing volatility in exchange
rates and financial markets reflects the heightened uncertainty in the
rapidly changing global economic outlook. The following table shows the
typical range for the first- and second-year impacts of these external
factors on Ontario real GDP growth. These estimates are based on historical
relationships and illustrate the upper and lower limits for the average
response. They show the implications of changes in key assumptions in
isolation from changes to other external factors. The combination of
changing circumstances can also have a substantial bearing on the actual
outcome.
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Impacts of Changes in Key Assumptions on Ontario Real GDP Growth(1) Table 8
(Percentage Point Increase)
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First Year Second Year
Canadian Dollar Depreciates by Five Cents US 0.1 to 0.8 0.5 to 1.2
World Crude Oil Prices Decrease by $10 US per Barrel(2) 0.1 to 0.3 0.1 to 0.3
U.S. Real GDP Growth Increases by One Percentage Point 0.3 to 0.7 0.4 to 0.8
Canadian Interest Rates Decrease by One Percentage Point 0.1 to 0.5 0.2 to 0.6
----------------------------------------------------------------------------------------------------------------
(1) Impacts based on changes being sustained. The estimated impacts shown
in the table are most applicable to small changes in key assumptions.
Very large shocks are likely to have less predictable effects,
particularly due to their potential impact on confidence and
expectations.
(2) The impact estimates for lower world oil prices reflect the positive
effect of lower oil prices on Ontario alone, and exclude the
stimulative impact on U.S. and rest-of-world economic activity.
Source: Ontario Ministry of Finance.
----------------------------------------------------------------------------------------------------------------
Ontario Economy Expected to Rebound in 2010 and 2011
Ontario's economy is expected to recover as financial conditions continue
to improve and fiscal actions to provide jobs take hold. Exports are also
expected to recover next year, reflecting the competitive value of the
Canadian dollar and a rebound in the U.S. economy.
[Chart 11, bar graph: Ontario Real GDP]
Due to the global economic downturn, Ontario's economy is expected to
remain weak throughout the first half of 2009. For the year as a whole,
real GDP is expected to decline by 2.5 per cent, because resumed growth
during the latter half of the year will only partially offset reduced
output during the first half.
The biggest drag on Ontario's economy in 2009 is expected to be exports,
which are projected to decline by 9.7 per cent. The decline in exports is
occurring worldwide, reflecting the interconnectivity of trade and weaker
global demand. Business investment in both machinery and equipment as well
as commercial and industrial construction is expected to weaken in 2009,
reflecting falling corporate profits, the weak economic climate and tighter
lending conditions. Lower profits and sales are expected to lead to a two
per cent decline in employment and an increase in the unemployment rate to
8.8 per cent in 2009. Consumer spending is expected to fall by 0.6 per cent
in 2009 due to declining employment, lower consumer confidence and reduced
personal wealth due to lower stock and home prices. Inflation is expected
to remain low over the forecast horizon. Ontario's consumer price index
(CPI) inflation rate is expected to fall to 0.4 per cent in 2009, from 2.3
per cent in 2008, reflecting lower oil prices and weak domestic demand.
Inflation is expected to average 1.9 per cent in 2010 and 2.0 per cent in
2011. The number of home resales is expected to decline by 25 per cent in
2009. As the inventory of unsold homes remains higher than normal, housing
prices are projected to soften. New home construction is also being
affected by weak demand and tighter credit conditions, with housing starts
expected to fall to 50,000.
The recovery is expected to begin in the latter half of 2009, with growth
resuming at a strengthening pace over 2010 and 2011, led by improving
global economic conditions — most importantly, resumed growth in the
U.S. economy. Improving U.S. demand should lead to a turnaround for
Ontario's exports in 2010 and 2011. As economic growth strengthens and
corporate profits rebound, businesses are expected to take advantage of low
financing costs to expand operations and upgrade their technology and
equipment. As economic growth rebounds, job creation will resume. In 2010
and 2011, 161,000 net new jobs are expected to be created. Job creation
will contribute to stronger income and spending in 2010 and 2011. Housing
activity is expected to recover in 2010 as confidence rebounds, incomes
improve and households take advantage of low interest rates.
Ontario's Longer-Term Economic Outlook
[Chart 12, line graph: Ontario Real]
The economy tends to return to long-run trend GDP after a recession. During
economic downturns, demand falls faster than supply, resulting in an
unintentional buildup in inventories. Businesses are then forced to cut
back production, reduce employment and scale back investment plans, all of
which lead to lower labour income and reduced household spending.
Particularly hard hit are housing, cars, furniture and other large-ticket
items where purchasing decisions can be delayed. As a result, prices for
these items soften.
Eventually during a downturn, inventories are run down and businesses need
to replenish stocks. As well, prices for big-ticket items reach a point at
which the improved affordability leads a rebound in household spending. As
population increases, the demand for housing and other durable items such
as autos and furniture outpaces the inventory of supply, leading to firmer
prices, an increase in housing construction and accelerating sales of
durable goods such as autos and furniture. All of these factors lead to
increased employment and income, fuelling stronger spending and investment.
In addition, since households and businesses are cautious, innovations are
not adopted as quickly during downturns. As the economic recovery takes
hold, new products and processes are introduced and demand accelerates.
Past experience indicates that Ontario has always recovered from economic
downturns and returned to long-term trend real GDP growth. The 1982
recession was followed by very strong real GDP growth of 4.5 per cent in
1983 and 7.9 per cent in 1984 — a recovery to long-term trend GDP in
two years. The economy recovered less quickly from the recession of 1990 to
1992. Real GDP growth averaged 4.0 per cent over the 1993 to 1999 period,
resulting in the economy recovering to trend GDP in seven years. The fiscal
recovery plan outlined in this Budget is based on the assumption that the
Ontario economy will recover to trend GDP in 2015-16, with Ontario's real
GDP growth averaging 3.8 per cent and nominal GDP growth averaging 5.6 per
cent over the 2012 to 2016 period.
In recent recessions, the Bank of Canada has helped boost the economy
through downturns by lowering interest rates. This helps generate
investment and spending activity by lowering the cost of borrowing.
However, with the Bank of Canada's key policy rate currently near zero,
there is an increased need for governments to support economic activity
through fiscal action. This action helps support demand for goods and
services and helps generate a recovery in employment and investment.
Actions being taken by the Ontario government to stimulate the economy are
outlined in Chapter I: Confronting the Challenge: Building Ontario's
Economic Future.
Details of the Ontario Economic Outlook
The following table shows details of the Ministry of Finance's economic
outlook for 2009 to 2011.
- ----------------------------------------------------------------------------------------------------------------
The Ontario Economy, 2006 to 2011 Table 9
(Per Cent Change)
- ----------------------------------------------------------------------------------------------------------------
Actual Projected
------------------------------------ -----------------------------------
2006 2007 2008 2009 2010 2011
----------- ------------ ----------- ----------- ------------- ---------
Real Gross Domestic Product 2.6 2.3 (0.4e) (2.5) 2.3 3.3
Personal Consumption 3.5 3.8 3.0e (0.6) 1.8 2.4
Residential Construction 0.9 2.0 (1.0e) (7.0) 0.7 1.5
Non-residential Construction 10.3 14.1 (0.5e) (6.1) 3.5 4.0
Machinery and Equipment 9.0 7.8 (1.0e) (9.0) 4.3 5.9
Exports 0.6 0.9 (7.4e) (9.7) 3.0 4.0
Imports 2.9 3.8 (3.8e) (8.4) 3.1 3.3
Nominal Gross Domestic Product 4.3 4.5 1.7e (2.4) 3.6 4.7
Other Economic Indicators
Retail Sales 4.1 3.9 3.3 (1.0) 3.8 4.0
Housing Starts (000s) 73.4 68.1 75.1 50.0 55.0 65.0
Personal Income 5.3 5.2 4.1e 0.6 3.6 4.6
Labour Income 5.0 4.7 4.2e 0.3 3.2 4.2
Corporate Profits 5.9 (0.4) (4.5e) (24.8) 9.5 8.2
Consumer Price Index 1.8 1.8 2.3 0.4 1.9 2.0
Labour Market
Employment 1.5 1.6 1.4 (2.0) 0.8 1.6
Job Creation (000s) 95 101 94 (135) 54 107
Unemployment Rate (per cent) 6.3 6.4 6.5 8.8 8.9 8.2
- ----------------------------------------------------------------------------------------------------------------
e = estimate.
Sources: Statistics Canada, Canada Mortgage and Housing Corporation and Ontario Ministry of Finance.
- ----------------------------------------------------------------------------------------------------------------
Comparison to the 2008 Ontario Budget
Ontario's real GDP declined by 0.4 per cent in 2008 — 1.5 percentage
points lower than the Ministry of Finance's 2008 Budget forecast. Nominal
GDP rose by 1.7 per cent — 1.1 percentage points lower than the Budget
forecast. The labour market performed better than projected, with
employment growing by 1.4 per cent — 0.4 percentage points above the
Budget forecast and resulting in 26,000 more jobs than expected — and
labour income growth was 4.2 per cent in 2008 — 0.8 percentage points
higher than the Budget forecast. Corporate profits, however, were weaker
than expected, declining by 4.5 per cent — 8.5 percentage points below
the Budget forecast.
Forecasts for growth in 2009 and 2010 are lower than projected at the time
of the 2008 Budget, reflecting significant deterioration in global economic
conditions. Real GDP growth has been revised down 4.6 percentage points in
2009 and 0.4 percentage points in 2010. Nominal GDP has been lowered by 6.3
percentage points in 2009 and 1.0 percentage point in 2010. Growth in
labour income and retail sales, key revenue drivers, is projected to be
lower than in the 2008 Budget. Corporate profits are expected to decline
sharply in 2009 and rebound in 2010; however, the level of profits in both
2009 and 2010 is lower than expected in the 2008 Budget.
----------------------------------------------------------------------------------------------------------------
Changes in Key Economic Forecast Assumptions, Table 10
2009 Budget Compared to 2008 Budget (Per Cent Change)
----------------------------------------------------------------------------------------------------------------
2008 2009 2010
---------------------------- ------------------------- -----------------------
2008 2008 2009 2008 2009
Budget Actual Budget Budget Budget Budget
------------ --------------- ------------- ----------- ----------- -----------
Real Gross Domestic Product 1.1 (0.4e) 2.1 (2.5) 2.7 2.3
Nominal Gross Domestic Product 2.8 1.7e 3.9 (2.4) 4.6 3.6
Retail Sales 3.4 3.3 3.7 (1.0) 4.1 3.8
Housing Starts (000s) 64.0 75.1 63.0 50.0 66.0 55.0
Personal Income 3.1 4.1e 4.0 0.6 4.4 3.6
Labour Income 3.4 4.2e 3.9 0.3 4.1 3.2
Corporate Profits 4.0 (4.5) 4.9 (24.8) 4.5 9.5
Employment 1.0 1.4 1.1 (2.0) 1.3 0.8
Job Creation (000s) 68 94 76 (135) 87 54
Key External Variables
Crude Oil ($ US per Barrel) 85.0 99.6 80.0 47.3 80.0 55.5
U.S. Real Gross Domestic Product 1.7 1.1 2.6 (2.6) 2.8 1.9
Canadian Dollar (Cents US) 100.0 93.7 98.0 80.0 98.0 85.0
3-month Treasury Bill Rate 3.3 2.3 3.8 0.6 4.5 1.1
10-year Government Bond Rate 3.9 3.6 4.5 2.9 5.2 3.3
----------------------------------------------------------------------------------------------------------------
e = estimate.
Sources: Statistics Canada, Canada Mortgage and Housing Corporation, Bank of Canada, New York Mercantile
Exchange, U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators and Ontario Ministry of Finance.
----------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Section D: Ontario's Revenue Outlook
The medium-term revenue forecast is based on the Ministry of Finance
economic outlook and reflects the estimated impacts of government policy
decisions. Total revenues are projected to increase at an annual average
rate of 3.8 per cent from 2008-09 to 2011-12.
----------------------------------------------------------------------------------------------------------------
Summary of Medium-Term Outlook Table 11
($ Billions)
-------------------------------------------------- --------------- ---------------- ----------------------------
Interim Plan Outlook
Revenue 2008-09 2009-10 2010-11 2011-12
--------------- ---------------- ------------- --------------
Taxation Revenue 65.4 64.9 68.6 71.8
Personal Income Tax 25.6 25.2 25.0 26.1
Sales Tax(1) 17.5 17.6 21.0 22.9
Corporations Tax 8.6 8.5 8.8 8.4
Ontario Health Premium 2.8 2.8 2.9 3.1
All Other Taxes 11.0 10.7 11.0 11.4
Government of Canada 16.6 19.2 23.0 20.5
Income from Government Business Enterprises 3.9 4.3 4.5 4.8
Other Non-Tax Revenue 7.5 7.6 7.6 7.4
-------------------------------------------------- --------------- ---------------- ------------- --------------
Total Revenue 93.4 96.0 103.6 104.4
----------------------------------------------------------------------------------------------------------------
(1) Includes temporary restrictions on input tax credits on businesses On 2010-11 and 2011-12.
Note: Numbers may not add due to rounding.
Source: Ontario Ministry of Finance.
----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
REFORMING ONTARIO'S TAX SYSTEM
The total tax package proposed in this Budget, net of federal transitional
assistance of $4.3 billion, would reduce Ontario revenue by $2.3 billion
over four years.
-------------------------------------------------------------------------------------------------------------
Personal Income Tax (PIT) revenue is projected to decline in 2009-10 and
2010-11, mainly due to the impact of measures proposed in this Budget.
These tax measures are outlined in detail in Chapter III: Reforming
Ontario's Tax and Pension Systems. The underlying PIT revenue base growth
forecast is consistent with the economic outlook for wages and salaries
growth. The PIT revenue base tends to grow at a faster rate than incomes
due to the progressive structure of the tax system.
----------------------------------------------------------------------------------------------------------------
Personal Income Tax Revenue Outlook Table 12
($ Billions)
------------------------------------------------------ ---------------- ------------- --------------------------
Interim Plan Outlook
2008-09 2009-10 2010-11 2011-12
---------------- ------------- ------------- ------------
Total Projected Revenue 25.6 25.2 25.0 26.1
Measures Included in Total(1) - (0.3) (2.0) (2.4)
Adjustments for Prior Years 0.5 - - -
------------------------------------------------------ ---------------- ------------- ------------- ------------
Base Revenue(2) 25.0 25.5 27.0 28.6
Base Revenue Growth (Per Cent) 3.3 1.7 5.8 5.9
Wages and Salaries Growth (Per Cent) 4.2 0.3 3.2 4.2
----------------------------------------------------------------------------------------------------------------
1 Represents the incremental revenue impact of all tax measures,
announced previously and in this update, relative to their impact
on revenue in 2008-09.
2 "Total projected revenue" less the impact of tax measures or
other one-time factors such as prior-year adjustments. Base
revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.
----------------------------------------------------------------------------------------------------------------
This Budget introduces a proposal to replace the Retail Sales Tax with a
new value-added sales tax starting on July 1, 2010. For a detailed
discussion, see Chapter III: Reforming Ontario's Tax and Pension Systems.
After adjusting for this and other tax measures, total sales tax revenue
base growth is consistent with the underlying growth in consumer spending.
- -----------------------------------------------------------------------------------------------------------------
Sales Tax Revenue Outlook Table 13
($ Billions)
- ------------------------------------------------------------- ------------- ------------ ------------------------
Interim Plan Outlook
2008-09 2009-10 2010-11 2011-12
------------- ------------ ------------ -----------
Total Projected Retail Sales Tax (RST) 17.5 17.6 4.7 -
Total Projected New Sales Tax - - 16.3 22.9
Measures Included in Total(1)
New Sales Tax Measures - - 1.7 2.2
Temporary Restriction of Input Tax Credits for Businesses - - 0.9 1.3
Other - 0.1 0.1 0.1
- ------------------------------------------------------------- ------------- ------------ ------------ -----------
RST Base Revenue(2) 17.5 17.5 18.4 19.3
RST Base Revenue Growth (Per Cent) 2.8 0.5 4.6 5.3
Nominal Consumption Growth (Per Cent) 4.6 0.1 3.3 4.1
- -----------------------------------------------------------------------------------------------------------------
1 Represents the incremental revenue impact of all tax measures, announced
previously and in this update, relative to their impact on revenue in
2008-09.
2 "Total projected revenue" less the impact of tax measures or other one-time
factors such as prior-year adjustments. Base revenue reflects the impact of
underlying macroeconomic factors.
Note: Numbers may not add due to rounding.
- -----------------------------------------------------------------------------------------------------------------
Corporations Tax (CT) revenues are projected to decline over the medium
term, largely due to the impact of measures proposed in this Budget. These
tax measures are discussed in detail in Chapter III: Reforming Ontario's
Tax and Pension Systems. After adjusting for tax measures and one-time
revenue impacts in 2008-09, CT revenue base growth is consistent with the
outlook for corporate profits. The one-time revenue impacts in 2008-09
include an adjustment for variances from estimates in past Public Accounts
and the expectation that much of the 2008-09 shortfall is attributable to
writedowns and income losses related to the global financial crisis.
- -----------------------------------------------------------------------------------------------------------------
Corporations Tax Revenue Outlook Table 14
($ Billions)
- ------------------------------------------------------------- ------------- ------------ ------------------------
Interim Plan Outlook
2008-09 2009-10 2010-11 2011-12
------------- ------------ ------------ -----------
Total Projected Revenue 8.6 8.5 8.8 8.4
Measures Included in Total(1)
2009 Budget Measures - (0.1) (0.7) (1.6)
All Previous Measures - (0.2) (0.8) (1.1)
Adjustments for Prior Years (0.8) - - -
Other One-Time Impacts (1.6) - - -
- ------------------------------------------------------------- ------------- ------------ ------------ -----------
Base Revenue(2) 11.0 8.9 10.3 11.1
Base Revenue Growth (Per Cent) (3.6) (19.4) 16.2 7.6
Corporate Profit Growth (Per Cent) (4.5) (24.8) 9.5 8.2
- -----------------------------------------------------------------------------------------------------------------
1 Represents the incremental revenue impact of all tax measures, announced
previously and in this fiscal update, relative to their impact on revenue
in 2008-09.
2 "Total projected revenue" less the impact of tax measures or other one-time
factors such as prior-year adjustments. Base revenue reflects the impact of
underlying macroeconomic factors.
Note: Numbers may not add due to rounding.
- -----------------------------------------------------------------------------------------------------------------
The Ontario Health Premium (OHP) forecast is based on the outlook for
employment and personal income, both of which begin to recover in 2010.
Ontario Health Premium revenues are projected to increase by an annual
average of 3.2 per cent over the forecast period, roughly consistent with
the outlook for personal incomes.
The forecast for All Other Taxes is projected to decline in 2009-10 and
then increase moderately, reflecting the economic outlook discussed in
Section C: Ontario's Economic Outlook. The forecast is developed on an
item-by-item basis. For example, the forecast for Gasoline and Fuel Taxes
is based on the outlook for gasoline and diesel pump prices, disposable
income, and real gross domestic product (GDP) growth. The forecast reflects
estimated impacts of all previously announced measures and those proposed
in this Budget as discussed in Chapter III: Reforming Ontario's Tax and
Pension Systems.
The forecast for Government of Canada transfers is based on existing
federal-provincial funding arrangements. The outlook includes funding from
the new infrastructure and training initiatives announced in the 2009
federal budget. Equalization payments, the Canada Health Transfer (CHT) and
the Canada Social Transfer (CST) are all projected to increase in the
medium term according to their respective funding formulas and the forecast
for demographic, economic and government fiscal information applied in the
formulas. Also included in this outlook are federal transition payments to
Ontario in moving to a single sales tax. This is discussed in detail in
Chapter III: Reforming Ontario's Tax and Pension Systems.
The forecast for Income from Government Business Enterprises is based on
information provided by each of these government enterprises. Revenues from
government enterprises are projected to increase by $0.9 billion, or at an
annual average rate of 6.9 per cent, from 2008-09 to 2011-12. Net incomes
from Ontario Power Generation (OPG) and Hydro One Inc. (HOI) are projected
to increase, primarily due to expected new generation, transmission and
distribution investments coming into service. The projected increase in
Ontario Lottery and Gaming Corporation (OLG) net income is largely due to
planned strategic initiatives and expansions at a number of facilities. Net
Income of the Liquor Control Board of Ontario (LCBO) is projected to
decrease in 2009-10 due to the economic downturn before resuming growth in
2011-12.
The forecast for Other Non-Tax Revenue is based on information provided by
government ministries and provincial agencies. Between 2008-09 and 2011-12,
other non-tax revenues are projected to decrease by $0.1 billion.
Reimbursements from municipalities decline due to the government's
previously announced decision to upload the municipal share of Ontario
Disability Support Program and Ontario Drug Benefit costs. This is
partially offset by projected increases in Sales and Rentals; Other Fees,
Licences and Permits; and Miscellaneous revenues.
- -----------------------------------------------------------------------------------------------------------------
Summary of Medium-Term Revenue Changes Since 2008 Budget Table 15
($ Billions)
- -----------------------------------------------------------------------------------------------------------------
Interim Plan Outlook
2008-09 2009-10 2010-11
------------ ------------ -----------
Slower Economic Growth (1.4) (6.1) (5.2)
Past-Year Tax Return Processing - Ongoing (0.3) (0.4) (0.5)
Past-Year Tax Return Processing - One Time (0.4) 0.0 0.0
Corporations Tax, Financial Markets - One Time (1.6) 0.0 0.0
Tax Policy Measures (0.0) (0.3) (0.1)
2009 Federal Budget (0.0) 2.1 2.1
Equalization 0.0 0.3 0.7
Federal Transition Payment 0.0 0.0 3.0
Other Changes 0.2 (0.2) (0.1)
- --------------------------------------------------------------------------- ------------ ------------ -----------
Total Revenue Changes (3.5) (4.6) (0.1)
- --------------------------------------------------------------------------- ------------ ------------ -----------
Note: Numbers may not add due to rounding.
- -----------------------------------------------------------------------------------------------------------------
The medium-term forecast for total revenues is lower in each year compared
to the 2008 Budget.
The deterioration in the economic growth outlook in 2008 and over the
forecast period significantly lowers revenues over the 2008-09 to 2011-12
period. The economic outlook is discussed in detail in Section C: Ontario's
Economic Outlook.
Since the 2008 Budget, processing of PIT and CT past years' tax returns has
lowered the estimated 2007-08 revenue base upon which growth is applied for
2008-09 and beyond. In addition, there is a one-time net revenue decrease
in 2008-09 because variances from past Public Accounts are picked up in the
current year.
Much of the shortfall in 2008-09 Corporations Tax revenues is attributable
to writedowns and other income losses related to the global financial
crisis.
New tax measures announced since the 2008 Budget are discussed in detail in
Chapter III: Reforming Ontario's Tax and Pension Systems.
The net impact of measures announced in the 2009 federal budget increases
revenues over the medium term. This includes new funding for infrastructure
and training that boosts revenues, particularly in 2009-10 and 2010-11, and
changes to the CHT funding formula. This is partially offset by the impact
of tax measures announced in the 2009 federal budget.
Since the 2008 Budget, Ontario has qualified under the Equalization program
to receive a payment of $0.3 billion in 2009-10, and is projected to be
entitled to receive $0.7 billion in 2010-11. This is largely due to a
decline in Ontario's fiscal capacity relative to other provinces,
particularly with respect to resource revenues. Under the Equalization
program, entitlements are based on a three-year weighted average of the
Province's fiscal capacity relative to all of Canada, using data that are
lagged by two years. For example, Ontario's 2010-11 entitlement is based on
data from the federal government for 2006-07 and 2007-08, and projections
for 2008-09.
As part of moving to a single sales tax, Ontario would receive transitional
payments from the federal government in 2010-11 and 2011-12. This is
discussed in detail in Chapter III: Reforming Ontario's Tax and Pension
Systems.
Other changes result in a net reduction in the revenue outlook over the
forecast period. The 2008 Budget assumed that the federal government would
continue to fund previously announced time-limited transfers at 2008-09
levels. This assumption is no longer being made, given other funding
announced in the 2009 federal budget. This revenue decline is partially
offset by higher miscellaneous Non-Tax Revenue. Also included in other
changes are increased revenues due to tax audit and collection improvements
being implemented, beginning in 2009-10.
RISKS TO THE REVENUE OUTLOOK
There is currently an unusual degree of uncertainty regarding Ontario's
economic and revenue outlook given the global economic slowdown,
particularly in the United States, and ongoing turmoil in global financial
markets. This section highlights some of the key sensitivities and risks to
the fiscal plan that could arise from unexpected changes in economic
conditions. These estimates are only guidelines and actual results can vary
depending on the composition and interaction of the various factors. The
risks are those that could have the most material impact on the largest
revenue sources. There is a broader range of additional risks that are not
included because they are either not as material or are difficult to
quantify. For example, Income from Government Enterprises, representing
roughly four per cent of total revenues, could be affected by changes in
each business's particular business environment; for instance, by economic,
market, policy and regulatory developments. Likewise, the outlook for
Government of Canada transfers is subject to future negotiations and
legislation.
- ---------------------------------------------------------------------------------------------------------------------
Selected Economic and Revenue Risks and Sensitivities Table 16
- ---------------------------------- ----------------------------------- ----------------------------------------------
Item/Key Components 2009-10 Assumption 2009-10 Sensitivities
- ---------------------------------- ----------------------------------- ----------------------------------------------
Total Revenues
- - Real GDP 2.5 per cent decline in 2009 $725 million revenue change for each
- - GDP Deflator 0.1 per cent increase in 2009 percentage point change in real GDP growth.
Can vary significantly, depending on
composition and source of changes in GDP growth.
- ---------------------------------- ----------------------------------- ----------------------------------------------
Total Taxation Revenues
- - Revenue Base(1) 2.8 per cent decline in 2009-10 $470 million revenue change for each percentage
- - Nominal GDP 2.4 per cent decline in 2009 point change in nominal GDP growth. Can vary
significantly, depending on composition and
source of changes in GDP growth.
- ---------------------------------- ----------------------------------- ----------------------------------------------
Personal Income Tax (PIT) Revenues
- - Revenue Base 1.7 per cent growth in 2009-10
Key Economic Assumptions
- - Wages and Salaries 0.3 per cent growth in 2009 $314 million revenue change for each
percentage point change in wages and
salaries growth.
- - Employment 2.0 per cent decline in 2009
- - Unincorporated Business Income 2.7 per cent growth in 2009 $31 million revenue change for each
percentage point change in unincorporated
business income growth.
Key Revenue Assumptions
- - Net Capital Gains Income 42.0 per cent decrease in 2009 $10 million revenue change for each
percentage point change in net capital gains
income growth.
- - RRSP Deductions 0.9 per cent growth in 2009 $16 million revenue change in the opposite
direction for each percentage point change
in RRSP deductions growth.
- - 2008 Tax-Year Assessments(2) $23.7 billion $237 million revenue change for each
percentage point change in 2008 PIT
assessments.(3)
- - 2007 Tax-Year and Prior $1.3 billion $13 million revenue change for each
Assessments(2) percentage point change in 2007 and prior
PIT assessments.(3)
- ---------------------------------- ----------------------------------- ----------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Selected Economic and Revenue Risks and Sensitivities
- ---------------------------------------------------------------------------------------------------------------------
Item/Key Components 2009-10 Assumption 2009-10 Sensitivities
- ---------------------------------------------------- --------------------------------- ------------------------------
Retail Sales Tax Revenues
- - Revenue Base 0.5 per cent growth in 2009-10
Includes:
- - Taxable Household Spending 0.6 per cent growth in 2009-10
- - Other Taxable Spending 0.3 per cent growth in 2009-10
Key Economic Assumptions
- - Retail Sales 1.0 per cent decline in 2009
- - Nominal Consumption Expenditure 0.1 per cent growth in 2009 $110 million revenue change
for each percentage point
change in nominal
consumption expenditure
growth.
- ---------------------------------------------------- --------------------------------- ------------------------------
Corporations Tax Revenues
- - Revenue Base 19.4 per cent decline in 2009-10
- - Corporate Profits 24.8 per cent decline in 2009 $65 million revenue change
for each percentage point
change in pre-tax corporate
profit growth.
- - 2008-09 Tax Assessment Refunds(4) $2.6 billion payable in 2009-10 $26 million revenue change
in the opposite direction
for each percentage point
change in 2008-09 refunds.(3)
- - 2008-09 Tax Payments upon Filing(4) $0.9 billion receivable in $9 million revenue change
2009-10 for each percentage point
change in 2008-09 payments
upon filing.(3)
- - 2008-09 Tax Assessment Payments(4) $1.2 billion receivable in $12 million revenue change
2008-09 and 2009-10 for each percentage point
change in 2008-09 assessment
payments.(3)
- ---------------------------------------------------- --------------------------------- ------------------------------
Employer Health Tax Revenues
- - Revenue Base 0.2 per cent growth in 2009-10
- - Wages and Salaries 0.3 per cent growth in 2009 $40 million revenue change
for each percentage point
change in wages and salaries
growth.
- ---------------------------------------------------- --------------------------------- ------------------------------
Ontario Health Premium (OHP) Revenues
- - Revenue Base 1.4 per cent growth in 2009-10
- - Personal Income 0.6 per cent growth in 2009 $26 million revenue change
for each percentage point
change in personal income
growth.
- - 2008 Tax-Year Assessments $2.6 billion $26 million revenue change
for each percentage point
change in 2008 OHP
assessments.
- ---------------------------------------------------- --------------------------------- ------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Selected Economic and Revenue Risks and Sensitivities
- ---------------------------------------------- ------------------------------------ ---------------------------------
Item/Key Components 2009-10 Assumption 2009-10 Sensitivities
- ---------------------------------------------- ------------------------------------ ---------------------------------
Gasoline Tax Revenues
- - Revenue Base 0.3 per cent growth in 2009-10
- - Gasoline Pump Prices 86.0 cents per litre in 2009 $4 million revenue change in
the opposite direction for each
cent per litre change in
gasoline pump prices.
- ---------------------------------------------- ------------------------------------ ---------------------------------
Fuel Tax Revenues
- - Revenue Base 1.9 per cent growth in 2009-10
- - Real GDP 2.5 per cent decline in 2009 $5 million revenue change for
each percentage point change in
real GDP growth.
- ---------------------------------------------- ------------------------------------ ---------------------------------
Land Transfer Tax Revenues
- - Revenue Base 16.2 per cent decline in 2009-10
- - Housing Resales 25.0 per cent decline in 2009 $12 million revenue change for
each percentage point change in
both the number and prices of
housing resales.
- - Resale Prices 8.0 per cent decline in 2009
- ---------------------------------------------- ------------------------------------ ---------------------------------
Canada Social Transfer(5)
- - Ontario Population Share 38.9 per cent in 2009-10 $11 million revenue change for
each tenth of a percentage
point change in population
share.
- ---------------------------------------------------------------------------------------------------------------------
1 Revenue base is revenue excluding the impact of measures, adjustments for
past Public Accounts estimate variances and other one-time factors.
2 Ontario 2008 Personal Income Tax (PIT) is a forecast estimate because 2008
tax returns are yet to be assessed by the Canada Revenue Agency. Some tax
amounts for 2007 and prior years are also yet to be assessed in 2009, and
estimates of these amounts are included in the revenue outlook.
3 Any changes in the 2008 or prior-year PIT assessments or 2008-09
Corporation Tax revenues will have an effect on 2009-10 revenues through a
change in the revenue base upon which that year's growth is applied.
4 Corporations Tax revenues for 2008-09 are still subject to uncertainty
because a high proportion of corporations have until June 30, 2009 to file
their 2008 tax returns and much of the activity that arises from that
(payments on filing, refunds, assessment payments) will occur after this
Budget.
5 2009-10 sensitivities for Canada Health Transfer and Equalization amounts
are not included in the table as these amounts are fixed by federal
legislation.
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Section E: Ontario's Medium-Term Expense Outlook
The Province's total expense outlook is projected to grow from $97.3
billion in 2008-09 to $112.9 billion by 2011-12.
Total program spending is projected to increase from $88.5 billion in
2008-09 to $101.9 billion in 2011-12, reflecting the government's
commitment to preserve vital services and to protect and create jobs
through focused and timely investments in areas such as infrastructure and
skills training.
o Total health sector spending is proposed to increase from $40.7
billion in 2008-09 to $47.4 billion in 2011-12. The government will
continue to support essential programs such as the Ontario Health
Insurance Plan (OHIP) and the Ontario Drug programs, while investing
strategically to continue transforming the health care sector to meet
the needs of Ontarians.
o Total education sector spending, including the net expense of the
Province's school boards, will increase by $2.1 billion, or 15.6 per
cent, from $13.3 billion in 2008-09 to $15.4 billion in 2011-12,
primarily due to increased Provincial grants to school boards to
support improved student achievement, as well as salary increases for
education sector staff that were planned for in the 2008 Budget to be
offset from the Contingency Fund.
o Total children's and social services sector funding will increase by
$0.4 billion, or 3.4 per cent, from $12.1 billion in 2008-09 to $12.5
billion in 2011-12, primarily due to the acceleration of the phase-in
of the Ontario Child Benefit, and a further two per cent increase in
social assistance benefits.
o Total postsecondary education and training sector spending, including
the net expense of the Province's 24 colleges of applied arts and
technology, will grow by $0.5 billion, from $6.1 billion in 2008-09 to
$6.6 billion in 2009-10 and 2010-11. This increase is primarily
related to spending on labour market and training initiatives, as well
as new spending in the postsecondary sector to improve the skills of
Ontarians. Total sector spending will decrease to $6.4 billion by
2011-12 when time-limited federal funding for labour market training
comes to an end.
o Justice sector spending will increase by $0.7 billion from $3.8
billion in 2008-09 to $4.5 billion in 2011-12. This level of spending
includes investments for various justice and community safety
initiatives, including courthouses and correctional facilities.
o Other Programs spending will increase from $12.4 billion in 2008-09 to
$15.7 billion in 2011-12. This increase includes the proposed
temporary relief for Ontarians through the Sales Tax Transition
Benefit, and the Small Business Transitional Credit to help ensure a
smooth transition to the new sales tax system. Spending in other
programs will peak at $21.1 billion in 2010-11, largely reflecting the
impact of time-limited investments in infrastructure.
Holding the average annual growth of program spending to less than that of
revenue growth is a key element of the government's fiscal plan. Core
program spending growth is expected to average 3.6 per cent annually
between 2008-09 and 2011-12, which is lower than the 3.8 per cent average
annual growth projected for revenue during this period.
Included in the total expense outlook is interest on Provincial debt, which
is expected to increase over the medium term from $8.9 billion in 2008-09
to $11.1 billion in 2011-12, mainly due to additional borrowings to fund
the projected deficits and investments in capital assets.
RISKS TO EXPENSE OUTLOOK
An unusual degree of uncertainty remains regarding Ontario's economic
outlook, and the impact it could have on the Province's overall fiscal
plan, including the expense outlook. Key cost drivers within the Province's
expense outlook are demand-driven programs and services that arise from
changes in the economic outlook, utilization or enrolment rates. These
pressures are especially evident in the health, education and social
services sectors, which make up over two-thirds of total Provincial
expense, and include assumptions about expected utilization, enrolment
rates and caseloads.
Ontario's economy has been hit hard by the global economic downturn, which
includes a recession in the United States, heightened financial market
turmoil, and a sharp contraction in manufacturing. Given the high level of
uncertainty arising from the global economic slowdown, particularly in the
short run, the government's 2009-10 expense plan includes contingency funds
totalling $3.4 billion. The contingency funds will provide the government
with the needed flexibility to respond immediately to further changes
resulting from ongoing global economic turbulence in a way that maintains
public services while protecting and creating jobs for Ontarians.
The following table provides a summary of key expense risks and
sensitivities that could result from unexpected changes in economic
conditions and program demands. A change in these factors could impact
total expense, causing variances in the overall fiscal forecast. It should
be cautioned that these sensitivities and risks are illustrative and can
vary, depending on the nature and composition of potential risks.
- -----------------------------------------------------------------------------------------------------------------
Selected Expense Risks and Sensitivities Table 17
- -----------------------------------------------------------------------------------------------------------------
Program/Sector 2009-10 Assumption 2009-10 Sensitivity
- -----------------------------------------------------------------------------------------------------------------
Health Sector Annual growth of 4.5 per cent. One per cent change in health spending:
$426 million.
Hospitals' Net Expense Annual growth of 3.5 per cent. One per cent change in hospitals' net
expense: $192 million.
Drug Programs Annual utilization growth of One per cent change in program expenditure
less than 5.0 per cent. of all drug programs: $43 million (seniors
and social assistance recipients).
Long-Term Care Homes 75,866 long-term care home beds. One per cent change in number of beds:
Average Provincial annual approximately $32 million.
operating cost per bed in a
long-term care home is $41,600.
Home Care Approximately 17 million hours One per cent change in hours of homemaking
of homemaking and support and support services: approximately
services. $5 million.
One per cent change in nursing and
Approximately 10 million nursing professional visits: approximately
and professional visits. $7 million.
- -----------------------------------------------------------------------------------------------------------------
University Students(1) 331,339 full-time undergraduate One per cent enrolment change: $34 million.
and graduate students.
Ontario Works 225,482 average annual caseload. One per cent caseload change: $19 million.
Ontario Disability Support 259,874 average annual caseload. One per cent caseload change: $32 million.
Program
College Students 162,070 full-time students. One per cent enrolment change: $13 million.
Interest on Debt Average cost of 2009-10 The 2009-10 impact of a 100 basis-point
borrowing is forecast to be change in borrowing rates is forecast to
approximately 4.5 per cent. be approximately $480 million.
Correctional System 3.3 million adult inmate days One per cent change in inmate days:
per year. Average cost $164 per $5.3 million.
inmate per day.
(1) Based on 2008-09 estimates.
- -----------------------------------------------------------------------------------------------------------------
Compensation costs and wage settlements are also key cost drivers and could
have a substantial impact on the finances of both broader public-sector
partners and the Province.
- -----------------------------------------------------------------------------------------------------------------
Selected Compensation Costs Table 18
- -----------------------------------------------------------------------------------------------------------------
Sector Cost of 1% Salary Size of Sector
Increase
- -----------------------------------------------------------------------------------------------------------------
OHIP Payments to Physicians(1) $95 million Just over 23,800 physicians in Ontario, comprising 11,300
family doctors and 12,500 specialists.
Hospital Nurses(2) $52 million Over 58,500 full-time equivalent nurses in hospitals.
Elementary and Secondary $150 million Almost 203,000 full-time equivalent staff including
School Staff(3) teachers, principals, administrators, and support and
maintenance staff.
College Staff(4) $17 million About 37,200 staff including faculty, administrators, and
support and maintenance staff.
Ontario Public Service(5) $59 million Over 68,000 public servants.
- -----------------------------------------------------------------------------------------------------------------
(1) Dollar values based on 2009-10 allocation; physician count based on full year 2007-08 (most current available).
(2) Based on 2008-09.
(3) One per cent increase in salary benchmarks in Grants for Student Needs based on 2008-09 school year.
(4) Based on 2007-08 costs.
(5) Based on 2007-08, reflects total compensation costs.
- -----------------------------------------------------------------------------------------------------------------
Contingent Liabilities
In addition to the key demand sensitivities and economic risks to the
fiscal plan, there are additional risks stemming from the government's
contingent liabilities. Whether these contingencies will result in actual
liabilities for the Province is beyond the direct control of the
government. Losses could result from legal settlements, defaults on
projects, and loan and funding guarantees. Provisions for losses that are
likely to occur and can be reasonably estimated are expensed and reported
as liabilities in the Province's financial statements. Significant
contingent liabilities are described as follows.
Ontario Nuclear Funds Agreement
The Province has certain responsibilities with respect to nuclear used fuel
waste management and nuclear station decommissioning. The Province, Ontario
Power Generation Inc. (OPG), a wholly owned subsidiary, and certain
subsidiaries of OPG are parties to the Ontario Nuclear Funds Agreement
(ONFA), to establish, fund and manage segregated funds to ensure sufficient
funds are available to pay the costs of nuclear station decommissioning and
nuclear used fuel waste management. Under ONFA, the Province is liable to
make payments should the cost estimate for nuclear used fuel waste
management rise above specified thresholds for a fixed volume of used fuel.
As well, under ONFA, the Province guarantees a return of 3.25 per cent over
the Ontario consumer price index for the nuclear used fuel waste management
fund. Ontario has also provided a direct Provincial guarantee to the
Canadian Nuclear Safety Commission on behalf of OPG for up to $760 million
(effective January 1, 2008), which relates to the portion of the
decommissioning and waste management obligations not funded by the
segregated funds.
Obligations Guaranteed by the Province
Ontario provides guarantees on loans on behalf of various parties. The
authorized limit for loans guaranteed by the Province as at March 31, 2008,
was $2.4 billion. The outstanding loans guaranteed and other contingencies
amounted to $2.3 billion at March 31, 2008.
Social Housing — Loan Insurance Agreements
The Province is liable to indemnify and reimburse the Canada Mortgage and
Housing Corporation for any net costs, including any environmental
liabilities incurred as a result of project defaults, for all non-profit
housing projects in the Provincial portfolio. At March 31, 2008, there were
$8.0 billion of mortgage loans outstanding.
Claims Against the Crown
There are claims outstanding against the Crown arising from legal action,
either in progress or threatened, in respect of Aboriginal land claims,
breach of contract, damages to persons and property, and like items. At
March 31, 2008, there were 72 claims outstanding against the Crown that
were for amounts over $50 million.
Canadian Blood Services
The provincial and territorial governments of Canada have entered into a
Canadian Blood Services Excess Insurance Captive Support Agreement (the
"Captive Support Agreement") with Canadian Blood Services (CBS) and
Canadian Blood Services Captive Insurance Company Limited (CBSI), a wholly
owned subsidiary of CBS established under the laws of British Columbia.
Under the Captive Support Agreement, each government indemnifies CBSI for
its pro rata share of any payments that CBSI becomes obliged to make under
a comprehensive blood risks insurance policy it provides to CBS. The policy
has an overall limit of $750 million, which may cover settlements,
judgments and defence costs. The policy is in excess of, and secondary to,
a $250 million comprehensive insurance policy underwritten by CBS Insurance
Company Limited, a subsidiary of CBS domiciled in Bermuda. Given current
populations, Ontario's maximum potential liability under the Captive
Support Agreement is approximately $376 million. The Province is not aware
of any proceedings that could lead to a claim against it under the Captive
Support Agreement.
- -------------------------------------------------------------------------------------------------------------------
Section F: Ontario's Fiscal Plan
MEDIUM-TERM FISCAL OUTLOOK
Ontario's medium-term fiscal outlook reflects the impact of the global
economic downturn on Ontario's revenues, as well as the immediate measures
the government is taking to position Ontario to be more competitive, so
families and businesses can take advantage of the next generation of jobs
and growth.
The government is currently projecting deficits of $14.1 billion in
2009-10, $12.2 billion in 2010-11 and $9.7 billion in 2011-12. The Province
is projected to return to a balanced budget no later than 2015-16 by
holding the average annual growth of core program expense to less than the
average annual growth of revenue.
----------------------------------------------------------------------------------------------------------------
Medium-Term Fiscal Plan and Outlook Table 19
($ Billions)
----------------------------------------------------------------------------------------------------------------
Outlook
Interim Plan ------------------------------
2008-09 2009-10 2010-11 2011-12
-------------- -------------- --------------- --------------
Total Revenue 93.4 96.0 103.6 104.4
Expense
Programs
Health Sector 40.7 42.6 45.2 47.4
Education Sector(1) 13.3 14.2 14.6 15.4
Postsecondary Education and Training Sector 6.1 6.6 6.6 6.4
Children's and Social Services Sector 12.1 12.7 12.9 12.5
Justice Sector 3.8 3.9 4.4 4.5
Other Programs 12.4 19.6 21.1 15.7
-------------- -------------- --------------- --------------
Total Programs 88.5 99.6 104.7 101.9
Interest on Debt 8.9 9.3 9.9 11.1
-------------- -------------- --------------- --------------
Total Expense 97.3 108.9 114.6 112.9
Reserve - 1.2 1.2 1.2
-------------- -------------- --------------- --------------
Surplus/(Deficit) (3.9) (14.1) (12.2) (9.7)
----------------------------------------------------------------------------------------------------------------
(1) Excludes Teachers' Pension Plan.
Note: Numbers may not add due to rounding.
----------------------------------------------------------------------------------------------------------------
Total Provincial revenue is projected to increase from $93.4 billion in
2008-09 to $104.4 billion in 2011-12 — an annual average growth rate
of 3.8 per cent over this period.
Total expense over the medium term is projected to increase from $97.3
billion in 2008-09 to $112.9 billion in 2011-12 — reflecting the
immediate measures the government is taking in this Budget to protect and
create jobs.
In recognition of the ongoing uncertainty in the global economic
environment, the fiscal plan includes prudence in the form of a reserve of
$1.2 billion each year. In addition, the fiscal plan also includes
contingency funds totalling $3.4 billion in 2009-10 to provide flexibility
to respond to the impact of further global economic challenges.
- ----------------------------------------------------------------------------------------------------------------
Core Program Expense Table 20
($ Billions)
- ----------------------------------------------------------------------------------------------------------------
Outlook
Interim Plan ------------- ------------
2008-09 2009-10 2010-11 2011-12
------------- ------------ ------------- ------------
Total Program Expense 88.5 99.6 104.7 101.9
Less: Non-Core Program Expense
Pension Expense 1.7 2.3 2.9 3.7
Sales Tax Transitional Support - - 3.1 1.3
Labour Market and Skills Training Investments - 0.3 0.3 -
Infrastructure Investments(1) - 3.2 3.4 0.5
------------- ------------ ------------- ------------
Total Non-Core Program Expense 1.7 5.8 9.7 5.5
------------- ------------ ------------- ------------
Total Core Program Expense 86.8 93.7 95.0 96.4
- ---------------------------------------------------------- ------------- ------------ ------------- ------------
(1) Includes Provincial matching of federal short-term stimulus funding.
Note: Numbers may not add due to rounding.
- ----------------------------------------------------------------------------------------------------------------
A key element of the government's plan to eliminate the deficit by 2015-16
is ensuring that core program expense growth is lower than growth in
revenue. Excluding the impact of non-core program expense such as
time-limited infrastructure investments and labour market and skills
training funding, core Provincial program expense will only grow by an
annual average rate of 3.6 per cent between 2008-09 and 2011-12, which is
lower than the 3.8 per cent growth projected for revenue over the same
period.
Non-core program expense totals $1.7 billion in 2008-09, $5.8 billion in
2009-10, $9.7 billion in 2010-11 and $5.5 billion in 2011-12.
o Pension expense increases from $1.7 billion in 2008-09 to $2.3 billion
in 2009-10, to $2.9 billion in 2010-11 and $3.7 billion in 2011-12.
These increases mainly reflect the accounting for the decline in the
market value of pension fund assets in 2008.
o Temporary relief of $3.1 billion in 2010-11 and $1.3 billion in
2011-12 is proposed for Ontarians in the form of a Sales Tax
Transition Benefit, and for Ontario small businesses in the form of a
Small Business Transition Credit to help ensure a smooth transition to
the new sales tax system.
o Spending on targeted labour market and skills training will increase
by $0.3 billion in 2009-10 and 2010-11 due to proposed enhancements to
the Canada-Ontario Labour Market Agreement and Labour Market
Development Agreement. This funding will support several new and
expanded employment and training initiatives, including increased
support for literacy and basic skills training, an expansion of summer
employment opportunities for youth, and enhanced support for newcomers
to improve their employability and attachment to the labour market.
o Infrastructure Investments totalling $3.2 billion in 2009-10, $3.4
billion in 2010-11 and $0.5 billion in 2011-12 will, in the short
term, preserve and create jobs in Ontario, while making the
infrastructure improvements necessary for economic growth in the
future.
KEY CHANGES SINCE THE 2008 ONTARIO BUDGET
The 2008 Budget projected balanced budgets over the medium term. Since that
time, however, the global economic downturn has significantly impacted
Ontario's economy and, in turn, Provincial revenues. The government is now
projecting deficits of $3.9 billion in 2008-09, $14.1 billion in 2009-10,
and $12.2 billion in 2010-11. These deficits mainly reflect decreases in
the revenue forecast resulting from the global economic downturn as well as
the impact of time-limited investments the government is making in key
priority areas such as infrastructure and skills training to help protect
and create jobs.
The following table provides an overview of key changes to the medium-term
revenue and expense outlooks, and the reserve since the release of the 2008
Budget.
----------------------------------------------------------------------------------------------------------------
Impact of Key Changes to the Medium-Term Fiscal Outlook Since the 2008 Budget Table 21
($ Billions)
----------------------------------------------------------------------------------------------------------------
Interim Plan Outlook
2008-09 2009-10 2010-11
---------------- --------------- ---------------
Surplus/(Deficit) as per 2008 Budget Fiscal Plan 0.0 0.0 0.0
Total Revenue Changes Since 2008 Budget (3.5) (4.6) (0.1)
Expense Changes Since 2008 Budget:
Changes to Core Program Expense
Investments in Children's and Social Services 0.3 0.7 0.8
Investments in Health 0.2 0.0 0.3
Increased Education Funding 0.1 0.8 1.2
Investments in Justice 0.1 0.0 0.3
All Other Core Program Expense Changes 0.4 3.1 0.4
---------------- --------------- ---------------
Total Change in Core Program Expense 1.2 4.7 3.0
Changes to Non-Core Program Expense
Infrastructure Investments(1) - 3.2 3.4
Higher Pension Expense 0.0 0.8 1.5
Labour Market and Skills Training Investments - 0.3 0.3
Sales Tax Transitional Support - - 3.1
---------------- --------------- ---------------
Total Change in Non-Core Program Expense 0.0 4.3 8.3
Change in Interest on Debt Expense (0.0) 0.3 0.8
---------------- --------------- ---------------
Total Expense Changes 1.1 9.3 12.1
Change in Reserve (0.8) 0.2 0.0
---------------- --------------- ---------------
2009 Budget Surplus/(Deficit) (3.9) (14.1) (12.2)
--------------------------------------------------------------- ---------------- --------------- ---------------
(1) Includes Provincial matching of federal short-term stimulus funding.
Note: Numbers may not add due to rounding.
----------------------------------------------------------------------------------------------------------------
Total revenue has decreased by $3.5 billion in 2008-09, $4.6 billion in
2009-10 and $0.1 billion in 2010-11, mainly as a result of the challenges
presented by the global economic downturn and the estimated impact of
government policy decisions. Specific details of the revenue forecast can
be found in Section D: Ontario's Revenue Outlook.
The majority of changes in Provincial program spending since the 2008
Budget are related to non-core program expense — mainly time-limited
investments being made to protect and create jobs for Ontarians while also
maintaining key public services.
Core program expense has increased by $1.2 billion in 2008-09, $4.7 billion
in 2009-10 and $3.0 billion in 2010-11. Key changes include:
o Increased spending in children's and social services of $0.3 billion
in 2008-09, $0.7 billion in 2009-10 and $0.8 billion in 2010-11. These
are largely due to additional support for social assistance, including
a further two per cent rate increase in 2009-10 and the accelerated
phase-in of the Ontario Child Benefit.
o An increase in health expense largely reflects higher projected
Ontario Health Insurance Plan (OHIP) spending to provide health care
services to Ontarians.
o Total education spending, including the net expense of the Province's
school boards, will be $0.1 billion higher in 2008-09, $0.8 billion
higher in 2009-10 and $1.2 billion higher in 2010-11. The increase in
spending is primarily due to provincial grants to school boards to
support improved student achievement, as well as salary increases for
education sector staff that were planned for in the 2008 Budget to be
offset from the Contingency Fund.
o Justice expense increased by $0.1 billion in 2008-09, primarily for
the Criminal Injuries Compensation Board, community safety and public
inquiries. In 2010-11, the sector will also see an increase of
approximately $0.3 billion, primarily for infrastructure investments.
o All other core program expense changes of $0.4 billion in 2008-09,
$3.1 billion in 2009-10 and $0.4 billion in 2010-11 reflect various
investments in key priority areas to help protect and create jobs,
including maintaining contingency funds of $0.3 billion in 2008-09 and
$3.4 billion in 2009-10 in recognition of ongoing global economic
uncertainty.
Non-core program expense will increase by $4.3 billion in 2009-10 and $8.3
billion in 2010-11. These include:
o Infrastructure Investments totalling $3.2 billion in 2009-10 and $3.4
billion in 2010-11 reflect the importance of making substantial
infrastructure investments in the short term that will not only
preserve and create jobs in Ontario, but will also make the
infrastructure improvements necessary for economic growth in the
future.
o Pension expense is $0.8 billion higher in 2009-10 and $1.5 billion
higher in 2010-11 compared to what was projected at the time of the
2008 Budget. The increases mainly reflect the accounting for the
decline in the market value of pension fund assets in 2008.
o Labour Market and Skills Training Investments will increase by $0.3
billion in 2009-10 and 2010-11 due to proposed enhancements to the
Canada-Ontario Labour Market Agreement and the Labour Market
Development Agreement. This funding will support several new and
expanded employment and training initiatives, including increased
support for literacy and basic skills training, an expansion of summer
employment opportunities for youth, and enhanced support for newcomers
to improve their employability and attachment to the labour market.
o Temporary relief of $3.1 billion in 2010-11 is proposed for Ontarians
in the form of a Sales Tax Transition Benefit, and for Ontario small
businesses in the form of a Small Business Transition Credit to help
ensure a smooth transition to the new sales tax system.
Interest on Debt increases by $0.3 billion in 2009-10 and $0.8 billion in
2010-11, mainly from higher borrowings to fund the projected deficits and
net investments in capital assets.
The $0.8 billion reserve in 2008-09, included to protect the fiscal plan
against adverse changes in the Province's fiscal outlook, was used to
offset the effects of slower economic growth on the Province's fiscal
performance. The 2009-10 reserve has been increased to $1.2 billion from
the 2008 Budget, in recognition of the increased uncertainty arising from
the deteriorating global economic outlook.
THE PLAN TO ELIMINATE THE DEFICIT
When the government took office in 2003, it inherited a hidden fiscal
deficit of $5.5 billion as well as deficits in key areas such as health
care, education and infrastructure. The challenges were significant. But,
over the last five years, the government has made major investments in the
public services that matter most to Ontarians, while eliminating the fiscal
deficit in less than three years.
[Chart 13, bar graph: Jurisdictional Comparison: 2009-10]
Since the fall of 2008, the Ontario economy has experienced the effects of
global economic challenges, resulting in significant revenue declines. The
government is now projecting a $3.9 billion deficit in 2008-09. The global
economic crisis continues to affect Ontario in the short term, resulting in
a projected deficit of $14.1 billion in 2009-10.
Similar to 2008-09, Ontario's deficit relative to the size of its economy
in 2009-10, at 2.4 per cent, is low among industrialized jurisdictions
impacted by the global economic crisis. This reflects the government's
commitment to preserve vital services and to protect and create jobs
through focused and timely investments in areas such as infrastructure and
skills training, while continuing to prudently manage the Province's
finances.
The Fiscal Transparency and Accountability Act, 2004 requires the
government to outline a recovery plan to balance the budget.
[Chart 14, bar graph: Ontario's Plan to Eliminate the Deficit]
The government's recovery plan will steadily reduce the Provincial deficit
from the $14.1 billion forecasted in 2009-10 to a balanced budget no later
than 2015-16.
Key elements of the government's fiscal plan to eliminate the deficit by
2015-16 include:
o holding the average annual rate of growth in core program expense to
less than the average annual rate of growth in total revenue over the
medium term and throughout the period of the recovery plan;
o adopting efficiency practices and managing overall expenditures,
including a $1.0 billion efficiency target in 2011-12;
o promoting principled and sustainable federal-provincial fiscal
arrangements;
o maintaining a prudent debt-to-GDP ratio; and
o maintaining a cautious and prudent fiscal plan, including contingency
funds and a reserve.
Adopting efficiency practices and managing overall expenditures are key to
achieving a balanced budget. Excluding the impact of non-core program
expense such as time-limited infrastructure investments and other funding
for immediate measures to protect and create jobs, core Provincial program
expense is expected to grow by 3.6 per cent a year on average between
2008-09 and 2011-12 — lower than the 3.8 per cent annual average
growth forecast for revenue over the same period.
Past experience indicates Ontario has always recovered from economic
downturns and returned to long-term trend real gross domestic product (GDP)
growth. The fiscal recovery plan is based on the forecast that the Ontario
economy will recover to its historical trend GDP in 2015-16, with Ontario's
real GDP growth averaging 3.8 per cent and nominal GDP growth averaging 5.6
per cent over the 2012 to 2016 period. Consistent with these GDP planning
data, revenue growth is projected to increase to an average annual rate of
4.6 per cent between 2011-12 and 2015-16. Growth in the Ontario economy and
revenue alone, however, cannot bring the Province back to balance —
program expense must also grow at a sustainable rate, and must grow at a
rate less than the average annual growth in revenue. For this reason,
during this same period, program expense growth will be held to an average
annual growth rate of 2.3 per cent in order to achieve balance while
protecting core public services.
- ----------------------------------------------------------------------------------------------------------------
Ontario's Fiscal Recovery Plan Table 22
($ Billions)
- ----------------------------------------------------------------------------------------------------------------
Plan Medium-Term Outlook Extended Outlook
------------------------ -------------------------------------------------
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
----------- ------------ ----------- ------------ ----------- ------------ -----------
Revenue 96.0 103.6 104.4 109.3 114.3 119.6 125.2
Expense
Programs 99.6 104.7 101.9 104.2 106.6 109.0 111.5
Interest on Debt 9.3 9.9 11.1 11.6 12.0 12.2 12.2
----------- ------------ ----------- ------------ ----------- ------------ -----------
Total Expense 108.9 114.6 112.9 115.8 118.5 121.2 123.7
Reserve 1.2 1.2 1.2 1.5 1.5 1.5 1.5
----------- ------------ ----------- ------------ ----------- ------------ -----------
Surplus/(Deficit) (14.1) (12.2) (9.7) (8.0) (5.8) (3.1) 0.0
- ------------------------- ----------- ------------ ----------- ------------ ----------- ------------ -----------
Note: Numbers may not add due to rounding.
- ----------------------------------------------------------------------------------------------------------------
FISCAL PRUDENCE
In addition to maintaining a prudent approach in response to the impacts of
the global economic downturn, the fiscal plan includes other key elements
of prudence each year to help protect the government's overall fiscal
objectives and contribute to the achievement of fiscal targets.
In keeping with sound fiscal practices, the Province's revenue outlook is
based on prudent economic assumptions.
Consistent with requirements under the Fiscal Transparency and
Accountability Act, 2004, the fiscal plan incorporates prudence in the form
of a reserve to protect the fiscal outlook against adverse changes in the
Province's revenue and expense, including those resulting from changes in
Ontario's economic performance. The fiscal plan includes a reserve of $1.2
billion each year over the medium term, and $1.5 billion each year over the
extended outlook. The reserve is larger for the extended outlook period to
reflect the uncertain nature of longer-term revenue and expense
projections.
The fiscal plan also includes contingency funds (both operating and
capital) totalling $3.4 billion in 2009-10 to help mitigate expense risks
that may otherwise have a negative impact on results. The level of the
2009-10 contingency funds — set at about three per cent of total
expense — reflects the unusual degree of economic and fiscal
uncertainty in 2009-10.
RISKS AND THE FISCAL OUTLOOK
The fiscal outlook for each fiscal year is subject to change and reflects a
continuum of information that begins with the Budget and ends with the
Public Accounts. As new information affecting the economic, revenue and
expense assumptions arises throughout the year, the fiscal forecast
changes. For example, the 2008 Budget forecasted real GDP growth of 1.1 per
cent in 2008. However, since then, 2008 real GDP has declined by 0.4 per
cent, or 1.5 percentage points, compared to the 2008 Budget forecast. Given
the current global economic uncertainty, it is important to note that the
forecast presented in economic and fiscal updates, including this Budget,
represents a point in time along this continuum and is based on the best
available information at that time.
The revenue forecast includes assumptions about tax-return filings and
growth of key factors such as wages, salaries, disposable income and
housing prices. It also takes into account current federal-provincial
funding arrangements and funding formulas for major health and social
transfers. Developing revenue estimates also requires highly detailed
economic forecasts, which include assumptions about factors such as the
U.S. economic outlook, Canadian dollar exchange rate, oil prices and
economic growth in the rest of Canada.
Variances from revenue estimates arise due to inherent uncertainties
involved in predicting the future and lags in information flows. A variance
in any of the key factors underlying the revenue assumptions could result
in a change to the revenue forecast, as was observed in 2008-09 when
unforeseen changes in the economic outlook contributed to a $3.5 billion
decline in revenue.
The total expense forecast includes assumptions about program growth and
demands, as well as additional planned spending in key priority areas. As
many ministries' expense forecasts are based on assumptions about
utilization, enrolment and caseloads for government programs and services,
a change in these factors could affect total expense — causing changes
in the Province's overall fiscal performance.
It is due to this type of uncertainty that the fiscal plan includes a
revenue forecast based on prudent economic assumptions, contingency funds
and a reserve. These forms of prudence exist to help offset any negative
impact to the fiscal plan that could result from even a small variance in
the revenue and expense forecast.
As the factors and assumptions comprising the revenue and expense forecasts
interact and shift, fiscal and economic updates at various times of the
fiscal cycle may include adjustments to the revenue and expense forecasts
to reflect these changes. Updates such as those provided in this Budget are
based on the best available information, and provide transparency around
the changes to the fiscal forecast and information on key risks and
sensitivities that may affect the fiscal plan.
- -------------------------------------------------------------------------------------------------------------------
Section G: Accountability, Transparency and Financial Management
The government is committed to enhancing accountability, strengthening
transparency and improving financial management. The Fiscal Transparency
and Accountability Act, 2004 sets standards for how the Province presents
financial reports to Ontarians. With this Budget, the Province is
introducing a number of improvements to further strengthen accountability
and transparency in its financial reporting, and enhance its financial
management.
Investments in Tangible Capital Assets
In response to changes in Public Sector Accounting Board (PSAB) standards,
the government began accounting for investments in land, buildings and
transportation infrastructure as tangible capital assets in 2003. Since the
adoption of this accounting treatment, investments in depreciable assets,
including provincial buildings, roads and bridges have been amortized to
expenses over their estimated useful lives instead of being expensed in the
years they were purchased or constructed. Starting in the 2009-10 fiscal
year, this policy is being extended to building leasehold improvements,
assets acquired through capital leases and other tangible capital assets
owned by the Province, including vehicles, aircraft, and information
technology infrastructure and systems.
In addition, starting with the Province's 2009-10 fiscal year, the
government is modifying its existing tangible capital asset accounting
policy to include interest costs incurred during construction as part of
the cost of constructing assets. With the adoption of this accounting
treatment, interest costs incurred during construction will be amortized
over the estimated useful lives of tangible capital assets along with other
costs of construction rather than being expensed during the period of
construction.
Municipalities and school boards in Ontario will also be adopting tangible
capital asset accounting consistent with a recent change in PSAB standards
for local governments. The government has been working closely with its
municipal and school board partners on the transition to these new
accounting standards. With the introduction of these changes, the
government is proposing amendments to the Education Act, Municipal Act,
2001 and City of Toronto Act, 2006 to improve consistency in public-sector
financial reporting and better align financial accountability structures.
For municipalities, changes to legislation will be proposed to meet new
PSAB standards while maintaining current financial accountability
provisions. For school boards, changes will be proposed in the Education
Act to modernize the financial accountability framework and improve
consistency with provincial financial reporting.
Interjurisdictional Joint Working Group
It is important that government accounting standards support fiscal
accountability, transparency and sound public policy decision-making. To
better align the development of accounting standards with these public
policy objectives, a Joint Working Group of representatives from Ontario,
the federal government and other provinces has been meeting with PSAB
representatives for over a year. The Joint Working Group reviewed:
o the consistency of PSAB's conceptual accounting framework with sound
public policy decision-making, fiscal accountability and public
understanding of government financial information;
o the nature of PSAB's governance structure and its standard-setting
process; and
o changes in government accounting standards proposed by PSAB for
financial instruments, government transfers, government business
enterprises and broader public sector organizations.
Following this extensive collaboration, the Joint Working Group provided
its recommendations to PSAB and the Accounting Standards Oversight Council
(AcSOC) in January 2009. The PSAB and AcSOC are currently reviewing the
Joint Working Group's recommendations.
Consolidation of Hospitals, School Boards and Colleges
The government provides over $30 billion annually to Ontario hospitals,
school boards and colleges. To comply with PSAB standards, the government
began including the financial results of these organizations on a one-line
basis with those of the Province, starting with the 2006 Budget and 2005-06
annual financial statements.
In January 2009, PSAB extended the transition period for the consolidation
of these organizations on a line-by-line basis by one year. In the
government's view, a one-line consolidation format for these sectors best
represents the bottom-line fiscal accountability of these organizations to
the Province for managing these public funds. It provides a more easily
understood presentation of financial results and better respects the fiscal
accountability of school boards, hospital boards and boards of governors of
colleges to the communities they serve.
In its recent report, the interjurisdictional Joint Working Group
recommended that PSAB consider amending its existing accounting standard to
permit a one-line net expense presentation for inclusion of the financial
results of these major public-sector organizations in government financial
statements. The PSAB is currently reviewing the Joint Working Group's
recommendations.
Financial Management Improvements
As part of continuing efforts to improve the financial management of
provincial accounts receivable, the government is proposing an amendment to
the Financial Administration Act to ensure the recognition of uncollectible
accounts is consistent with the Province's accounting policies as set out
in the Public Accounts and to clarify that any future obligations to a
debtor continue to be eligible for offsets against any outstanding
uncollectible amounts.
To effect the change in accounting policy to include interest during
construction as part of the cost of constructing assets, the government is
proposing to further amend the Financial Administration Act to add a new
class of non-cash expenses that requires statutory authority.
To strengthen financial management of fees and other charges, the
government is proposing to amend the Treasury Board Act, 1991 to clarify
that Treasury Board of Cabinet may require Ministers to seek Board approval
before exercising their powers related to fees or other charges.
The government will also introduce amendments to the Interim Appropriation
for 2009-2010 Act, 2008 and introduce the Supplementary Interim
Appropriation for 2009-2010 Act, 2009, proposing the authorization of
government spending for 2009-10 before the enactment of supply for 2009-10.
In addition, to strengthen rights of access to financial information from
organizations included in the Public Accounts of the Province, the
government is proposing to amend the Ministry of Treasury and Economics
Act.
- -------------------------------------------------------------------------------------------------------------------
Section H: Details of Ontario's Finances
This section provides information on the Province's historical performance,
key fiscal indicators, as well as details on Ontario's fiscal plan and
outlook.
- ----------------------------------------------------------------------------------------------------------------
Medium-Term Fiscal Plan and Outlook Table 23
($ Billions)
- ----------------------------------------------------------------------------------------------------------------
Outlook
Interim Plan ------------------------------
2008-09 2009-10 2010-11 2011-12
------------------------------------------------------------
Revenue 93.4 96.0 103.6 104.4
Expense
Programs 88.5 99.6 104.7 101.9
Interest on Debt(1) 8.9 9.3 9.9 11.1
------------------------------------------------------------
Total Expense 97.3 108.9 114.6 112.9
Reserve - 1.2 1.2 1.2
------------------------------------------------------------
Surplus/(Deficit) (3.9) (14.1) (12.2) (9.7)
- ----------------------------------------------------------------------------------------------------------------
Net Debt(2) 149.4 169.8 189.5 205.4
Accumulated Deficit(2) 109.5 123.6 135.8 145.5
- ----------------------------------------------------------------------------------------------------------------
(1) Interest on debt expense is net of interest capitalized during construction
of tangible capital assets of $0.1 billion in 2009-10, $0.3 billion in
2010-11, and $0.5 billion in 2011-12.
(2) Net Debt is calculated as the difference between liabilities and financial
assets. The annual change in Net Debt is equal to the surplus/deficit of
the Province plus the change in tangible capital assets; the change in net
assets of hospitals, school boards and colleges; and the change in the fair
value of the Ontario Nuclear Funds. Accumulated Deficit is calculated as
the difference between liabilities and total assets, including tangible
capital assets and net assets of hospitals, school boards and colleges. The
annual change in the Accumulated Deficit is equal to the surplus/deficit
plus the change in the fair value of the Ontario Nuclear Funds.
Note: Numbers may not add due to rounding.
- ----------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Revenue Table 24
($ Millions)
--------------------------------------------------------------------------------------------------------------------
2005-06 2006-07 Actual Interim Plan
2007-08 2008-09 2009-10
----------------------------------------------------------
Taxation Revenue
Personal Income Tax 21,041 23,655 24,538 25,574 25,170
Retail Sales Tax 15,554 16,228 16,976 17,453 17,600
Corporations Tax 9,984 10,845 12,990 8,603 8,518
Employer Health Tax 4,197 4,371 4,605 4,664 4,687
Ontario Health Premium 2,350 2,589 2,713 2,799 2,829
Gasoline Tax 2,281 2,310 2,360 2,353 2,367
Land Transfer Tax 1,159 1,197 1,363 1,051 895
Tobacco Tax 1,379 1,236 1,127 1,041 995
Fuel Tax 729 723 733 716 732
Electricity Payments-In-Lieu of Taxes 951 757 546 816 685
Other Taxes 292 399 481 373 378
----------------------------------------------------------
59,917 64,310 68,432 65,443 64,856
Government of Canada
Canada Health Transfer 7,148 7,702 8,487 8,881 9,722
Canada Social Transfer 3,324 3,478 3,778 4,081 4,213
Equalization - - - - 347
Infrastructure Programs 285 191 207 168 1,746
Labour Market Programs 127 289 664 863 1,193
Social Housing 520 532 525 514 509
Wait Times Reduction Fund 243 467 468 235 97
Other Federal Payments 1,604 1,377 2,468 1,823 1,419
----------------------------------------------------------
13,251 14,036 16,597 16,565 19,246
Income from Investment in Government Business Enterprises
Ontario Lottery and Gaming Corporation 2,027 1,945 1,857 1,895 1,966
Liquor Control Board of Ontario 1,197 1,307 1,374 1,410 1,326
Ontario Power Generation Inc. and Hydro One Inc. 1,107 947 1,214 615 983
Other Government Enterprises (23) (3) (8) (11) (8)
----------------------------------------------------------
4,308 4,196 4,437 3,909 4,267
Other Non-Tax Revenue
Reimbursements 1,295 1,415 1,464 1,365 1,297
Vehicle and Driver Registration Fees 763 970 1,051 1,044 1,065
Electricity Debt Retirement Charge 1,021 991 982 968 955
Power Sales 779 863 929 936 964
Sales and Rentals 465 1,108 553 609 619
Other Fees and Licences 550 624 668 656 815
Liquor Licence Revenue 516 467 475 458 457
Net Reduction of Power Purchase Contract Liability 396 412 398 373 348
Royalties 191 215 193 197 211
Miscellaneous Other Non-Tax Revenue 773 790 943 904 880
----------------------------------------------------------
6,749 7,855 7,656 7,510 7,611
----------------------------------------------------------
Total Revenue 84,225 90,397 97,122 93,427 95,980
--------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total Expense Table 25
($ Millions)
- ---------------------------------------------------------------------------------------------------------------------
Ministry Expense 2005-06 2006-07 Actual Interim Plan 2009-10
2007-08 2008-09
---------------------------------------------------------------
Aboriginal Affairs(1) 50 25 33 55.1 71.1
Agriculture, Food and Rural Affairs(1) 861 796 731 899.9 1,116.1
Attorney General 1,282 1,343 1,648 1,681.3 1,650.8
Board of Internal Economy 150 163 257 198.3 173.3
Children and Youth Services 3,284 3,277 3,733 4,102.3 4,406.5
Citizenship and Immigration 89 112 90 88.5 106.7
Community and Social Services 6,714 7,178 7,544 8,003.1 8,327.3
Community Safety and Correctional Services 1,728 1,856 1,982 2,146.6 2,260.0
Culture(1) 478 414 350 363.9 476.7
Economic Development(1) 136 151 242 195.6 326.8
Education(1) 440 423 446 445.5 492.9
School Boards' Net Expense 10,886 11,290 11,830 12,839.9 13,693.5
Energy and Infrastructure(1) 325 525 401 343.1 764.7
Environment(1) 274 314 349 365.6 367.2
Executive Offices 31 37 36 35.6 35.9
Finance(1) 578 564 455 571.4 669.6
Francophone Affairs, Office of 4 4 5 5.5 5.1
Government Services(1) 749 978 950 1,093.1 1,313.4
Health and Long-Term Care 17,797 19,119 20,373 21,776.0 22,955.4
Hospitals' Net Expense 14,816 16,145 17,381 18,567.4 19,214.4
Health Promotion 290 391 364 379.0 395.9
International Trade and Investment 40 48 55 67.2 72.2
Labour 141 146 170 167.0 174.1
Municipal Affairs and Housing(1) 926 843 744 751.7 703.9
Natural Resources 626 731 794 788.6 788.2
Northern Development and Mines 332 314 341 349.9 378.4
Research and Innovation(1) 332 316 301 313.5 482.7
Revenue 442 563 554 593.1 821.2
Small Business and Consumer Services 39 39 46 47.1 48.8
Tourism 210 204 234 183.4 216.4
Training, Colleges and Universities(1) 3,509 4,115 4,384 4,657.6 4,736.7
Colleges' Net Expense(1) 1,185 1,273 1,403 1,445.7 1,549.5
Transportation(1) 1,795 1,787 1,892 2,032.1 2,112.6
Interest on Debt(2) 9,019 8,831 8,914 8,854.0 9,301.0
Other Expense(1) 4,369 3,813 7,490 2,909.6 9,821.1
Year-End Savings(3) - - - - (1,150.0)
---------------------------------------------------------------
Total Expense 83,927 88,128 96,522 97,317.1 108,880.0
- ---------------------------------------------------------------------------------------------------------------------
1 Details on other ministry expense can be found in Table 26, Other Expense.
2 Interest on debt is net of interest capitalized during construction of
tangible capital assets of $78 million in 2009-10.
3 As in past years, the Year-End Savings provision reflects anticipated
underspending that has historically arisen at year-end due to factors such
as program efficiencies, and changes in project startups and implementation
plans.
Note: Numbers may not add due to rounding.
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Other Expense Table 26
($ Millions)
- ---------------------------------------------------------------------------------------------------------------------
Ministry Expense 2005-06 2006-07 Actual Interim Plan
2007-08 2008-09 2009-10
-------------------------------------------------------------
Aboriginal Affairs
One-Time Expense for the First Nations Gaming - - 201 - -
Agreement
Agriculture, Food and Rural Affairs
One-Time Extraordinary Assistance 125 259 274 - -
Time-Limited Assistance 157 19 76 15.7 164.0
Culture
One-Time Investments - - 57 - -
Economic Development
One-Time Investments - - 152 - -
Education
Teachers' Pension Plan(1) 295 345 342 49.0 259.0
Energy and Infrastructure
Capital Contingency Fund - - - - 200.0
One-Time Investments in Municipal Infrastructure - 140 450 - -
Time-Limited Investments in Infrastructure - - - - 2,647.3
Environment
One-Time Investments - - - 68.5 -
Finance
Investing in Ontario Act Investments - - 1,149 - -
Ontario Municipal Partnership Fund 714 758 907 905.4 782.9
Operating Contingency Fund - - - 250.0 3,210.0
Power Purchases 803 863 929 936.0 964.1
Government Services
Pension and Other Employee Future Benefits 729 557 531 685.0 932.0
Municipal Affairs and Housing
One-Time Investment in Municipal Social Housing Stock - - 100 - 352.2
Research and Innovation
One-Time Investments - - 87 - 20.0
Training, Colleges and Universities
Time-Limited Investments - Training, Colleges and - - 699 - 212.4
Universities
Time-Limited Investments - Colleges' Net Expense - - - - 77.3
Transportation
One-Time Transit and Infrastructure Investments 1,546 872 1,536 - -
-------------------------------------------------------------
Total Other Expense 4,369 3,813 7,490 2,909.6 9,821.1
- ---------------------------------------------------------------------------------------------------------------------
1 Numbers reflect PSAB pension expense. Ontario's matching contributions to
the plan grow from $740 million in 2005-06 to $1,070 million in 2008-09 and
$1,249 million in 2009-10.
Note: Numbers may not add due to rounding.
- ---------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Infrastructure Expenditures Table 27
($ Millions)
- ----------------------------------------------------------------------------------------------------------------------
2009-10 Plan 2010-11 Plan
Total ------------------------------------------------------------------------
Infrastructure Transfers and Total Total
Expenditures Investment in Other Expenditures Infrastructure Infrastructure
Sector 2008-09 Interim Capital Assets on Infrastructure(1) Expenditures Expenditures
------------------ ----------------- ------------------- ----------------- ----------------
Transportation
Transit 1,204.0 1,316.0 371.1 1,687.1 1,505.9
Highway Construction 1,460.7 1,718.3 0.0 1,718.3 2,034.2
Windsor Gateway 157.3 186.9 60.2 247.1 715.0
Other 375.8 524.5 51.5 576.0 558.9
Transportation(2)
Health
Hospitals 1,753.2 2,542.8 0.0 2,542.8 3,438.0
Other Health 325.5 468.2 166.4 634.6 474.3
Education
School Boards 1,413.6 1,473.6 30.0 1,503.6 1,608.1
Colleges 276.6 239.9 0.0 239.9 248.1
Universities 50.0 0.0 105.6 105.6 72.7
Water/Environment 285.4 37.1 221.9 259.0 274.2
Municipal and Local 267.9 19.5 399.0 418.5 431.5
Infrastructure(3)
Justice 393.9 318.6 37.1 355.6 819.3
Other 572.5 1,066.1 810.9 1,877.0 2,350.4
New Short-Term Stimulus 0.0 702.0 2,728.6 3,430.6 3,449.8
Investments
------------------ ----------------- ------------------- ----------------- ----------------
Total 8,536.3 10,613.5 4,982.2 15,595.7 17,980.3
Less: Other Partner 706.5 501.0 0.0 501.0 526.0
Funding(4)
------------------ ----------------- ------------------- ----------------- ----------------
Total Excluding Partner 7,829.8 10,112.5 4,982.2 15,094.7 17,454.3
Funding
Less: Flow-Throughs(5) 215.4 613.3 1,776.7 2,390.0 2,693.2
------------------ ----------------- ------------------- ----------------- ----------------
Total Provincial 7,614.4 9,499.2 3,205.5 12,704.7 14,761.1
Expenditure
- ----------------------------------------------------------------------------------------------------------------------
1 Mainly consists of transfers for capital purposes to municipalities and
universities, and expenditures for capital repairs. These expenditures are
included in the Province's total expense in Table 25.
2 Other transportation includes planning activities, property acquisition,
and other infrastructure programs (e.g., municipal/local roads/remote
airports).
3 Municipal and local water and wastewater infrastructure investments are
included in the Water/Environment sector. 4 Third-party contributions to
capital investment in the consolidated sectors (schools, colleges and
hospitals). (5) Mostly federal government transfers for capital
investments.
Note: Numbers may not add due to rounding.
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Ten-Year Review of Selected Financial and Economic Statistics
($ Millions)
- ----------------------------------------------------------------------------------------------------------------------
2000-01 2001-02 2002-03(1)
-------------------------------------------------
Financial Transactions
Revenue 66,294 66,534 68,891
Expense
Programs 53,519 55,822 59,080
Interest on Debt 10,873 10,337 9,694
-------------------------------------------------
Total Expense 64,392 66,159 68,774
Reserve - - -
-------------------------------------------------
Surplus/(Deficit) 1,902 375 117
- ----------------------------------------------------------------------------------------------------------------------
Net Debt(3,4) 132,496 132,121 132,647
Accumulated Deficit(5) 132,496 132,121 118,705
- ----------------------------------------------------------------------------------------------------------------------
Gross Domestic Product (GDP) at Market Prices 440,759 453,701 477,763
Personal Income 347,653 361,187 369,420
- ----------------------------------------------------------------------------------------------------------------------
Population — July (000s) 11,683 11,897 12,091
Net Debt per Capita (dollars) 11,341 11,106 10,971
Personal Income per Capita (dollars) 29,756 30,360 30,553
- ----------------------------------------------------------------------------------------------------------------------
Total Expense as a per cent of GDP 14.6 14.6 14.4
Interest on Debt as a per cent of Revenue 16.4 15.5 14.1
Net Debt as a per cent of GDP 30.1 29.1 27.8
Accumulated Deficit as a per cent of GDP 30.1 29.1 24.8
- ----------------------------------------------------------------------------------------------------------------------
(1) Starting in 2002-03, investments in major tangible capital assets owned by
the Province (land, buildings, and transportation infrastructure) have been
capitalized and amortized to expense over their useful lives. Starting in
2009-10, investments in minor tangible capital assets owned by the Province
(information technology infrastructure and systems, vehicles and marine
fleet and aircraft) will also be capitalized and amortized to expense. All
capital assets owned by consolidated organizations are being accounted for
in a similar manner.
(2) Starting in 2005-06, the Province's financial reporting was expanded to
include hospitals, school boards and colleges using one-line consolidation.
Total expense prior to 2005-06 has not been restated to reflect expanded
reporting.
(3) Net Debt is calculated as the difference between liabilities and financial
assets. The annual change in Net Debt is equal to the surplus/deficit of
the Province plus the change in tangible capital assets; the change in net
assets of hospitals, school boards and colleges; and, effective April 1,
2007, the change in the fair value of the Ontario Nuclear Funds.
(4) Net Debt is restated in 2003-04, 2004-05 and 2005-06 to reflect the value
of hydro corridor lands transferred to the Province from Hydro One Inc.
(5) Accumulated Deficit is calculated as the difference between liabilities and
total assets, including tangible capital assets and net assets of
hospitals, school boards and colleges. The annual change in the Accumulated
Deficit is equal to the surplus/deficit plus, effective April 1, 2007, the
change in the fair value of the Ontario Nuclear Funds. For fiscal 2005-06,
the change in the Accumulated Deficit includes the opening combined net
assets of hospitals, school boards and colleges that were recognized upon
consolidation of these Broader Public Sector entities. For fiscal 2006-07,
the change in the Accumulated Deficit includes an adjustment to the
unfunded liability of the Ontario Electricity Financial Corporation made at
the beginning of the year. For fiscal 2007-08, a $1.2 billion decrease in
the Accumulated Deficit is made up of $0.6 billion in the Province's
operating surplus, with the remainder resulting from a change in accounting
policy. Under this change, Ontario Nuclear Funds Agreement funds are
reported at fair value on Ontario Power Generation Inc. books and, upon
consolidation, on the Province's consolidated financial statements.
Sources: Ontario Ministry of Finance and Statistics Canada.
- ----------------------------------------------------------------------------------------------------------------------
[Chart 15, pie chart: Composition of Revenue]
[Chart 16, pie chart: Composition of Total Expense]
[Chart 17, pie chart: Composition of Program Expense]
- ---------------------------------------------------------------------------------------------------------------------
Table 28
- ---------------------------------------------------------------------------------------------------------------------
Actual Interim Plan
2003-04 2004-05 2005-06(2) 2006-07 2007-08 2008-09 2009-10(1)
- ---------------------------------------------------------------------------------------------------------------------
68,400 77,841 84,225 90,397 97,122 93,427 95,980
64,279 70,028 74,908 79,297 87,608 88,463 99,579
9,604 9,368 9,019 8,831 8,914 8,854 9,301
- ---------------------------------------------------------------------------------------------------------------------
73,883 79,396 83,927 88,128 96,522 97,317 108,880
- - - - - - 1,200
- ---------------------------------------------------------------------------------------------------------------------
(5,483) (1,555) 298 2,269 600 (3,890) (14,100)
- ---------------------------------------------------------------------------------------------------------------------
138,816 140,921 141,928 141,100 142,418 149,357 169,830
124,188 125,743 109,155 106,776 105,617 109,507 123,607
- ---------------------------------------------------------------------------------------------------------------------
493,081 516,106 536,844 559,778 584,957 594,962 580,703
381,127 400,994 419,078 441,338 464,257 483,344 486,138
- ---------------------------------------------------------------------------------------------------------------------
12,242 12,391 12,528 12,665 12,794 12,929 13,051
11,339 11,373 11,328 11,141 11,132 11,552 13,013
31,132 32,363 33,450 34,846 36,288 37,384 37,250
- ---------------------------------------------------------------------------------------------------------------------
15.0 15.4 15.6 15.7 16.5 16.4 18.7
14.0 12.0 10.7 9.8 9.2 9.5 9.7
28.2 27.3 26.4 25.2 24.3 25.1 29.2
25.2 24.4 20.3 19.1 18.1 18.4 21.3
- ---------------------------------------------------------------------------------------------------------------------
Support from Gaming for Health Care, the Ontario Trillium Foundation and
Communities
Provincial proceeds from gaming activities continue to support Provincial
priorities, including the operation and support of hospitals, charities,
amateur sports, communities and the agricultural sector.
----------------------------------------------------------------------------------------------------------------
Support for Health Care, Charities, and Problem Gambling and Related Programs Table 29
($ Millions)
----------------------------------------------------------------------------------------------------------------
Interim Plan
2008-09 2009-10
-----------------------------------
Revenue from Lotteries, Charity Casinos and Slot Machines at Racetracks:
Operation of Hospitals 1,567 1,634
Ontario Trillium Foundation 110 120
Problem Gambling and Related Programs 39 40
Ontario Amateur Sports 10 10
Revenue from Commercial Casinos:
General Government Priorities 169 162
-----------------------------------
Total 1,895 1,966
----------------------------------------------------------------------------------------------------------------
Sources: Ontario Ministries of Energy and Infrastructure, and Finance.
----------------------------------------------------------------------------------------------------------------
Revenue from Lotteries, Charity Casinos and Slot Machines at Racetracks
The Ontario Lottery and Gaming Corporation Act, 1999 requires that net
Provincial revenue generated from lotteries, charity casinos and racetrack
slot machines support services such as the operation of hospitals, problem
gambling and related programs, amateur sports, and funding for charitable
and not-for-profit organizations through the Ontario Trillium Foundation.
An estimated $1,634 million in net revenue from lotteries, charity casinos
and slot machines at racetracks will be applied to support the operation of
hospitals in 2009-10.
In 2009-10, the Ontario Trillium Foundation will receive $120 million to
help build strong and healthy communities through contributions to
charitable and not-for-profit organizations in the arts and culture, sports
and recreation, human and social services, and environment sectors.
Two per cent of gross slot-machine revenue, estimated at $40 million for
2009-10, is allocated for problem gambling prevention, treatment and
research programs.
The Quest for Gold lottery will provide an estimated $10 million in 2009-10
for direct financial support to Ontario's high-performance amateur
athletes.
Benefits from Commercial Casinos
In 2009-10, net Provincial revenue from commercial casinos, estimated at
$162 million, will be used to support general government priorities,
including health care, education and public infrastructure. In addition to
the support for general government priorities, commercial casino operations
support approximately 11,600 direct jobs in Ontario and provide vital
tourism and economic development attractions for their respective
communities.
Other Beneficiaries of Charity Casinos and Slot Machines at Racetracks
- -----------------------------------------------------------------------------
Support for Agricultural Sector and Municipalities Table 30
($ Millions)
- -----------------------------------------------------------------------------
Interim Plan
2008-09 2009-10
-----------------------------
Agricultural Sector(1) 345 349
Municipalities 79 81
-----------------------------
Total 424 430
- -----------------------------------------------------------------------------
(1) The agricultural sector's share of racetrack slot-machine revenue and
municipalities' share of slot-machine revenue from charity casinos or
racetrack slot facilities is received directly from the Ontario Lottery and
Gaming Corporation.
Source: Ontario Ministry of Energy and Infrastructure.
- -----------------------------------------------------------------------------
Approximately 20 per cent of gross revenue from slot machines at racetracks
is used to promote the economic growth of the horse-racing industry. Since
1998, this initiative has provided over $2.6 billion to the horse-racing
industry in Ontario, a key component of the Province's agricultural sector.
For 2009-10, additional support is estimated at $349 million.
A portion of gross slot-machine revenue, estimated at $81 million in
2009-10, will be provided to municipalities that host charity casinos and
slot operations at racetracks. These revenues will help offset local
infrastructure and service costs.
