Quarterly Ontario Finances: Third Quarter 1999-2000

ONTARIO FINANCES
1999-00 THIRD QUARTER QUARTERLY UPDATE - DECEMBER 31, 1999 Ministry of Finance


Fiscal Summary
($ Millions)
  1999-00
  Actual
1998-99		 Budget
Plan		 Current
Outlook		 In-Year
Change
Revenue 55,786 58,150 59,835 1,685
Expenditure
    Programs 46,752 47,025 48,058 1,033
    Restructuring Fund and Other Charges 76 -- 100 100
  Total Programs Expense 46,828 47,025 48,158 1,133
  Capital 1,944 2,883 2,930 47
  Public Debt Interest
    Provincial 9,016 9,298 9,228 (70)
    Ontario Hydro Successor Companies* -- 520 520 --
Total Expenditure 57,788 59,726 60,836 1,110
Reserve - 500 - (500)
DEFICIT 2,002 2,076 1,001 (1,075)

*  Debt service costs in 1999-00 related to the Province's equity ownership of Ontario Hydro successor companies are offset by increased income from Government Enterprises revenue, which reflects the net income from these corporations.



HIGHLIGHTS

1999-00 IN-YEAR PERFORMANCE

DEFICIT OUTLOOK AT $1.0 BILLION

  • The 1999-00 deficit is projected at $1,001 million, down $1,075 million from the Budget Plan and down $25 million from the Second Quarter Ontario Finances outlook of $1,026 million.

REVENUE AT $59.8 BILLION

  • The revenue outlook, at $59,835 million, is up $1,685 million from the Budget Plan, and up $745 million from the Second Quarter Ontario Finances, mainly due to increased tax revenue as a result of the strength of the economy, and increased federal transfers under the recently signed Canada-Ontario Social Housing Agreement.

EXPENDITURE AT $60.8 BILLION

  • Total expenditure, at $60,836 million, is up $1,110 million from the Budget Plan and up $720 million from the Second Quarter Ontario Finances. Major changes this quarter included a $200 million increase in Public Service/OPSEU Pension Plan expenditure; $196 million in additional funding for hospitals; $196 million resulting from the Canada-Ontario Social Housing Agreement; and $106 million for child welfare.

RESERVE APPLIED TO DEFICIT REDUCTION

  • The reserve, designed to protect the fiscal plan against unexpected and adverse changes in the economic and fiscal outlook, was not needed. Based on the improved revenue outlook and Ontario's strong economic performance for 1999-00, the $500 million reserve was applied to deficit reduction in the Second Quarter Ontario Finances.



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DETAILS OF IN-YEAR CHANGES



FISCAL PERFORMANCE

REVENUE

  • Total revenue is $59,835 million, $745 million above the Second Quarter Ontario Finances and up $1,685 million from the Budget projection. Major changes this quarter are:

    • Personal Income Tax revenue is $500 million higher, based on preliminary information on the processing of 1998 Ontario PIT returns.

    • The outlook for Employer Health Tax revenue is $50 million higher as a result of the strength of employment and income growth in Ontario in 1999.

    • Federal transfers are $194 million above second quarter, mainly due to a $264 million increase under the recently signed Canada-Ontario Social Housing Agreement. This increase is partially offset by a $70 million decrease in Canada Health and Social Transfer (CHST) payments, due to the effect of higher Ontario income tax revenues in the CHST allocation formula.

    • Miscellaneous Revenue is $1 million higher than in the second quarter due to additional non-tax revenue for Ontario Provincial Police services contracts.

OPERATING EXPENDITURE

  • Net operating expenditure, at $57,906 million, is up $1,063 million from the Budget Plan. Major changes totalling $734 million this quarter are as follows:

    • Ministry of Agriculture, Food and Rural Affairs: An additional $2 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of the Attorney General: Additional funding of $25 million for legally binding awards affecting Judges and Justices of the Peace, partially offset by $14 million from the Contingency Fund.

    • Ministry of Citizenship, Culture and Recreation: An additional $3 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Community and Social Services: An in-year increase of $106 million to address higher volume as well as transitional costs associated with child welfare reform, and an additional $8 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Education: An additional $7 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of the Environment: An additional $3 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Finance: An additional $3 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Health and Long Term Care: An additional $196 million to hospitals for front-line patient care and to assist hospitals with transitional issues, and an additional $45 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Management Board Secretariat: An in-year increase of $200 million in Public Service/OPSEU Pension Plan expenditure mainly due to the impact on Provincial expenditure of OPSEU's decision to use the members' share of actuarial gains in the pension plan towards benefit enhancements and a contribution holiday; an additional $8 million for necessary Year 2000 computer system changes and an additional $5 million for the Year 2000 Corporate Management Project Office, both fully offset from the Contingency Fund; less $23 million savings in Realty Services Program operations mainly due to lower-than-expected payments-in-lieu of property taxes.

    • Ministry of Municipal Affairs and Housing: An additional $196 million resulting from the recently signed Canada-Ontario Social Housing Agreement, fully offset by federal revenues; an increase of $54 million in assistance to municipalities related to business education property taxes, including $2 million fully offset from the Contingency Fund for administrative costs related to the Fairness for Property Taxpayers Act; an additional $22 million to reflect the interest concession on a $100 million interest-free loan to the City of Toronto; and an additional $1 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Natural Resources: An additional $8 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund; $4 million reallocated from capital to operating spending for the GeoSmart initiative; less $10 million savings in forest fire-fighting expenditure.

    • Ministry of the Solicitor General: Additional funding of $30 million for the Integrated Justice project, partially offset by $11 million from the Contingency Fund; additional funding of $1 million for Ontario Provincial Police services contracts; and an additional $12 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of the Training, Colleges and Universities: An additional $1 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

    • Ministry of Transportation: An additional $4 million for necessary Year 2000 computer system changes, fully offset from the Contingency Fund.

PUBLIC DEBT INTEREST

  • The revised Public Debt Interest forecast of $9,748 million consisting of $9,228 million related to the Province's borrowing on its own behalf and $520 million related to the Province's equity ownership of Ontario Hydro successor companies, is $70 million below the Budget forecast. The decline of $40 million in the third quarter is due to lower financing requirements than projected at the time of the Budget.

CAPITAL EXPENDITURE

  • Capital expenditure at $2,930 million is up $47 million from the Budget Plan, and down $14 million from second quarter. The major changes this quarter are:

    • Ministry of the Attorney General: Savings of $6 million in courthouses construction.

    • Ministry of Natural Resources: Savings of $4 million as a result of the reallocation from capital to operating spending for the GeoSmart initiative.

    • Ministry of Northern Development and Mines: Savings of $4 million in the Community Infrastructure Program which funds community facilities, and water and sewage projects.



SELECTED FISCAL INDICATORS



Ontario's real GDP growth has been steady, with 4.4% in 1997, but jumped to 4.3% in 1998 and 5.0% in 1999. In 2000, growth is projected to be 3.7% by private sector organizations. The Ontario economy has continued to grow at a healthy pace. Consumer spending, business investment, housing and exports are all contributing to economic growth. Tax cuts, solid job creation and income gains are providing the basis for a sustained expansion. Private-sector economists are, on average, forecasting real growth of 3.7 per cent in 2000. Ontario's economy is expected to grow faster than any of the other economies of the G-7 industrialized nations in 2000, according to private-sector forecasters.
By controlling spending and cutting taxes to promote economic growth, the Government has made progress towards restoring Ontario's finances and improving the Province's business climate. In 1998-99, the Provincial deficit dropped below one per cent of GDP for the first time this decade. In 1999-00, the deficit is projected to fall to 0.3 per cent of GDP. Ontario's deficit as a precentage of GDP grew to a high of 4.4% in 1992-1993, but has steadily dropped to 0.3% in 1999-2000 and should reach zero by fiscal year 2000-2001.
Ontario's deficit remains ahead of its predicted amount. In 1995-1996, the actual deficit was 8.8 billion based on a predicted $11.3 billion, was $6.9 on a predicted $8.2 billion in 96-97, $4.0 billion on a predicted $6.6 billion in 97-98, and $2.0 billion on a predicted $4.8 billion in 1998-1999. Deficits should continue to decline until the deficit is eliminated by 2000-2001. In the fall of 1995 the Government set out its Balanced Budget Plan to eliminate the deficit by the year 2000-01. Ontario remains on track to meet the declining annual deficit targets outlined in the Plan. At $2.0 billion, the 1998-99 deficit is more than $2.2 billion below the 1998 Budget target of $4.2 billion, and $2.8 billion below the original 1998-99 Balanced Budget Plan deficit target of $4.8 billion. Due to improved fiscal performance, the 1999-00 deficit target of $2.6 billion was cut by $0.5 billion in the 1999 Budget and set at $2.1 billion. With the deficit now forecast at $1.0 billion for 1999-00, Ontario is on track to overachieve its deficit target for the fifth consecutive year.


ECONOMIC PERFORMANCE



ONTARIO RECORDS STRONG ECONOMIC GROWTH IN THIRD QUARTER OF 1999

  • Real Ontario GDP increased 7.1% in the third quarter of 1999, compared to the same period a year earlier, the fastest gain in eleven years.

STRONG JOB GROWTH IN FOURTH QUARTER OF 1999

  • In the fourth quarter of 1999 (October-December), Ontario's employment rose 70,000. All of the job creation was full time.

ROBUST JOB CREATION CONTINUES IN 1999

  • For 1999, Ontario employment is up 173,000 following a record gain of 200,000 net new jobs in 1998.

  • In December 1999, Ontario's unemployment rate was 5.6%, down substantially from 6.9% a year earlier.

STRONG CONSUMER SPENDING GROWTH IN 1999

  • Over the first eleven months of 1999, Ontario retail sales were up 7.5% from a year earlier.

  • Over the same period, unit auto sales in Ontario jumped 12.1%.

HOUSING MARKET REMAINS STRONG

  • Housing starts in Ontario rose 24.9% in 1999.

  • Ontario home resales rose 8.0% over the first eleven months of 1999, compared to a year ago.

  • Toronto new home sales increased 33.1% in 1999.

MANUFACTURING SHIPMENTS GROWING

  • Over the first eleven months of 1999, Ontario manufacturing shipments rose 12.1% from a year earlier.

AUTO PRODUCTION SOARS IN 1999

  • For the year 1999, Ontario auto production rose 19.5% to reach a new record production level of 3 million units.

ONTARIO EXPORTS RISING IN 1999

  • Over the first eleven months of 1999, Ontario international merchandise exports increased 14.2% from a year earlier.

ONTARIO INFLATION REMAINS LOW IN 1999

  • For the year 1999, Ontario's inflation rate as measured by the Consumer Price Index (CPI) was 1.9%.



RECENT ECONOMIC DEVELOPMENTS



KEY ECONOMIC INDICATORS
(% Change from previous period, unless indicated otherwise)
  Annual Annual Quarterly
  1998 1999 98:3 98:4 99:1 99:2 99:3
Output (Seasonally Adjusted)
  Real GDP Ontario 4.3 N/A 0.2 2.5 1.3 1.4 1.7
  Nominal GDP Ontario 4.3 N/A (0.1) 2.5 2.2 2.0 2.4
  Annual Annual Monthly 1999
  1998 1999 Aug Sept Oct Nov Dec
Other Indicators (Seasonally Adjusted)  
Labour Markets
  Labour Force (Change in 000s) Ontario 135 132 (12) 33 17 (29) 34
  Employment (Change in 000s) Ontario 200 173 2 29 44 (7) 35
     Private Sector Ontario 154 193 (1) 36 30 (18) 39
     Public Sector Ontario 46 (20) 2 (7) 14 11 (4)
  Unemployment Rate (%) Ontario 7.2 6.4 6.4 6.4 6.0 5.6 5.6
Household Sector
  Retail Sales Ontario 6.9 N/A 2.4 (1.3) (0.6) 0.6 N/A
  Urban Housing Starts (000s) Ontario 50.1 62.9 62.0 60.3 59.5 67.0 68.6
  New Home Sales* Toronto 4.6 33.1 27.5 41.6 44.4 62.1 46.8
  MLS Home Resales* Ontario (1.5) N/A (0.7) (2.0) (8.1) 1.5 N/A
Manufacturing Shipments Ontario 4.8 N/A 4.2 0.1 (2.1) 0.7 N/A
  Transportation Equipment Ontario 6.8 N/A 7.9 (0.2) (5.3) 0.6 N/A
Consumer Price Index* Ontario 0.9 1.9 2.5 2.6 2.3 2.3 2.9

Statistics Canada, Ontario Ministry of Finance, Canada Mortgage and Housing Corporation, Greater Toronto Home Builders Association, Canadian Real Estate Association and Ward's Automotive.

*  % change from a year earlier



FINANCIAL TABLES


REVENUE



($ Millions) 1999-00
  Actual
1998-99		 Budget
Plan		 Current
Outlook		 In-Year
Change
TAXATION REVENUE
  Personal Income Tax 17,190 15,670 16,575 905
  Retail Sales Tax 11,651 12,110 12,460 350
  Corporations Tax 7,447 7,820 7,820 --
  Employer Health Tax 2,882 2,990 3,040 50
  Gasoline Tax 2,068 2,155 2,155 --
  Fuel Tax 592 595 595 --
  Tobacco Tax 447 470 470 --
  Land Transfer Tax 470 480 540 60
  Mining Profits Tax 23 30 30 --
  Race Tracks Tax 6 5 5 --
  Preferred Share Dividends Tax 50 35 35 --
  Other Taxation 251 225 225 --
  TOTAL 43,077 42,585 43,950 1,365
GOVERNMENT OF CANADA
  Canada Health and Social Transfer 3,553 3,727 3,623 (104)
    Increase in CHST Allocation -- 190 190 --
    CHST Health Supplement -- 755 755 --
  Bilingualism Development 55 55 55 --
  Young Offenders Act 57 58 58 --
  Employability Assistance for People with Disabilities 71 65 65 --
  Canada-Ontario Infrastructure Works 71 29 29 --
  Social Housing 358 370 634 264
  Other 350 307 463 156
  TOTAL 4,515 5,556 5,872 316
INCOME FROM GOVERNMENT ENTERPRISES
  Ontario Lottery Corporation 682 930 930 --
  Liquor Control Board of Ontario 809 830 830 --
  Ontario Casino Corporation 1,082 995 995 --
  Ontario Hydro Successor Companies -- 527 527 --
  Other (26) (35) (35) --
  TOTAL 2,547 3,247 3,247 --
OTHER REVENUE
  Vehicle and Driver Registration Fees 890 880 880 --
  Other Fees and Licences 661 625 625 --
  Liquor Licence Revenue 519 515 515 --
  Royalties 289 225 225 --
  Sales and Rentals 640 2,230 2,230 --
  Fines and Penalties 50 57 57 --
  Local Services Realignment - Reimbursement of Expenditure 2,109 1,794 1,794 --
  Miscellaneous 489 436 440 4
  TOTAL 5,647 6,762 6,766 4
TOTAL REVENUE 55,786 58,150 59,835 1,685



OPERATING EXPENSE



($ Millions) 1999-00
MINISTRY Actual
1998-99		 Budget
Plan		 Current
Outlook		 In-Year
Change
Agriculture, Food and Rural Affairs 309 365 369 4
Attorney General 751 816 841 25
Board of Internal Economy 117 121 121 --
Citizenship, Culture and Recreation 345 393 405 12
  Office Responsible for Women's Issues 20 26 26 --
Community and Social Services 7,648 7,677 7,819 142
Consumer and Commercial Relations 136 126 128 2
Correctional Services * 540 502 502 --
Economic Development and Trade * 88 111 113 2
Education * 7,717 7,891 7,906 15
  Teachers' Pension Plan 67 (85) (85) --
Energy, Science and Technology 333 146 146 --
Environment 162 165 170 5
Executive Offices 17 20 23 3
Finance - Own Account 999 731 742 11
  Public Debt Interest        
    Provincial 9,016 9,298 9,228 (70)
    Ontario Hydro Successor Companies -- 520 520 --
  Community Reinvestment Fund 678 543 543 --
  Restructuring and Other Charges – Unallocated -- -- 100 100
Health and Long Term Care 18,868 20,173 20,444 271
  Health Care Restructuring 50 -- -- --
  Major One-time Health Care Costs 639 -- -- --
Intergovernmental Affairs 4 4 4 --
Labour 108 95 96 1
Management Board Secretariat 358 432 441 9
  Public Service/OPSEU Pension Plan (219) (223) (23) 200
  Contingency Fund -- 694 377 (317)
  Special Circumstances Fund 180 -- -- --
Municipal Affairs and Housing 1,611 1,546 1,867 321
Native Affairs Secretariat 10 12 12 --
Natural Resources 542 364 449 85
Northern Development and Mines 82 127 127 --
Office of Francophone Affairs 3 3 3 --
Solicitor General * 746 741 799 58
Tourism * 70 64 64 --
Training, Colleges and Universities * 3,215 3,306 3,463 157
Transportation 607 539 566 27
  Restructuring (17) -- -- --
  Ottawa-Carleton Regional Transit Commission Transit Bus Subsidy Agreement 44 -- -- --
Year-End Savings -- (400) (400) --
TOTAL OPERATING EXPENDITURE 55,844 56,843 57,906 1,063

*  Interim allocation pending finalization of new ministry structure.




CAPITAL EXPENSE



($ Millions) 1999-00
MINISTRY Actual
1998-99		 Budget
Plan		 Current
Outlook		 In-Year
Change
Agriculture, Food and Rural Affairs 1 -- -- --
Attorney General 73 56 50 (6)
Citizenship, Culture and Recreation 6 16 16 --
Community and Social Services 38 22 22 --
Correctional Services * 30 133 133 --
Education * 229 54 54 --
Energy, Science and Technology 23 17 17 --
Environment 19 23 23 --
  Water Protection Fund 15 185 185 --
Finance 3 6 6 --
Health and Long Term Care 187 504 504 --
Management Board Secretariat 39 16 16 --
Municipal Affairs and Housing 62 -- -- --
Native Affairs Secretariat 10 12 12 --
Natural Resources 62 46 101 55
Northern Development and Mines 177 225 221 (4)
Solicitor General * 8 -- -- --
Tourism * 1 2 2 --
Training, Colleges and Universities * 69 742 742 --
Transportation 892 824 826 2
TOTAL CAPITAL EXPENDITURE 1,944 2,883 2,930 47

Interim allocation pending finalization of new ministry structure.



STATEMENT OF FINANCIAL TRANSACTIONS



($ Millions) 1999-00
  Actual
1998-99		 Budget
Plan		 Current
Outlook		 Change
from
Budget
Deficit 2,002 2,076 1,001 (1,075)
Cash Timing Adjustment* 4,147 3,192 961 (2,231)
Borrowing on Behalf of Agencies (92) (1,375) (1,375) --
Increase (Decrease) in Liquid Reserves (2,634) (600) (600) --
Net Cash Requirements 3,423 3,293 (13) (3,306)
Maturing Debt 7,139 8,050 8,050 --
Early Redemptions and Debt Buybacks -- -- 1,074 1,074
Total Financing Requirements 10,562 11,343 9,111 (2,232)
Financed by:
   Canada Pension Plan -- 917 870 (47)
   Increase in Short-term Borrowing 440 1,800 600 (1,200)
   Long-term Borrowing** 10,122 8,626 7,641 (985)
TOTAL FINANCING 10,562 11,343 9,111 (2,232)

*  Includes Balance Sheet Items
**  Includes Ontario Savings Bonds



1999-00 FINANCING ACTIVITIES TO DATE
($ Millions) Issued
(as of December 31)		 Remaining % Completed
LONG-TERM PUBLIC BORROWING 6,426 1,215 84.1%
  • Long-term financing undertaken in this quarter totalled $2,423 million as follows:

  ($ Million)
Canadian Dollar Issues 1,948
Yen Issues 267
Canada Pension Plan 208
Total 2,423
  • The amount of $1,074 million under the heading “Early Redemptions and Debt Buybacks” consists of $955 million in early redemptions of Ontario Savings Bonds in June and December, and $119 million from the repurchase and retirement of Province of Ontario bonds.

  • The Province's total direct debt is forecast to be $118.0 billion at March 31, 2000, up from $109.2 billion at March 31, 1999. The increase includes $8.9 billion as a result of the debt-for-equity swap with each of the Ontario Power Generation and Ontario Hydro Services Company, slightly offset by the small negative net cash requirements.

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