Quarterly Ontario Finances: First Quarter 2003-2004

ONTARIO FINANCES

 Ontario
2003-04 FIRST QUARTER QUARTERLY UPDATE - JUNE 30, 2003 Ministry of Finance

Fiscal Summary
($ Millions)
  2003-04
  Interim
2002-03		 Budget
Plan		 Current
Outlook		 In-Year
Change
Revenue 66,391 71,566 71,439 (127)  
Expenditure        
   Programs 55,271 59,390 59,243 (147)  
   Gross Capital Expenditure 2,467 3,170 3,170 --  
   Less: Net Investment in Capital Assets 576 702 702 --  
   Public Debt Interest        
      Provincial 8,225 8,188 8,135 (53)  
      Electricity Sector 520 520 520 --  
Total Expenditure 65,907 70,566 70,336 (200) 
Less: Reserve -- 1,000 1,000 --  
Add: Decrease/(Increase) in Stranded Debt from Electricity
Sector Restructuring to be Recovered from Ratepayers*		 40 --  --  -- 
SURPLUS / (DEFICIT) - (Excluding SARS impact) 524 0 73 73  
SARS Impact / No Federal Support        
  Expenditure     1,073  
  Other Actions : Reduce Contingency Fund     (400)  
  Reserve     (600)  
Surplus / (Deficit) Reported This Quarter 524 0 0 -- 
         
If Federal Support for SARS        
  Revenue (90 per cent of SARS Costs)     965  
  Expenditure     1,073  
 Contingency Fund     (35)  
Surplus / (Deficit) 524 0 0 -- 
*Reflects the estimated excess of revenue over expenditure of the Ontario Electricity Financial Corporation (OEFC). Consistent with the principles of electricity restructuring, OEFC debt is to be recovered from ratepayers, not taxpayers.
Note: An integrated fiscal summary that incorporates the impact of the SARS outbreak on Provincial finances is shown on page 4.

HIGHLIGHTS

2003-04 In-year Performance

Balanced Budget Outlook

  • The 2003-04 fiscal outlook is on track with the 2003 Budget Plan. As of June 30, 2003, a balanced budget is projected, unchanged from the Budget Plan.

Impact of Severe Acute Respiratory Syndrome (SARS)

  • Excluding the impact of the SARS outbreak on Provincial spending, Ontario would have posted a budget surplus of $73 million.

  • Ontario will incur an additional $1,073 million in directly related costs in 2003-04 due to SARS. In the absence of any federal financial support, the Province will offset these higher expenditures by allocating $600 million of the $1 billion reserve and reducing the Contingency Fund by $400 million to maintain the balanced budget. Additional measures may also be required if the federal government does not provide adequate support.

 



SARS

Expenditure impact of Severe Acute Respiratory Syndrome (SARS) and provincial response
($ Millions)
  2003-04 Costs Multi-Year Costs
Extraordinary Costs in the Health Sector 395 395
Compensation for Health Care Workers 330 330
Health Sector Short-Term Action Plan 120 120
Ancillary Revenue Losses (hospitals and other health agencies) 100 100
Compensation for Individuals 10 10
Support for Municipalities and Volunteer Organizations 10 10
Tourism Recovery Program 84 128
Ontario Investment Attraction Program 5 10
FitzGerald Infectious Diseases Network 2 10
Other Extraordinary Costs 17 17
Total 1,073 1,130


DETAILS OF IN-YEAR CHANGES

FISCAL PERFORMANCE

REVENUE

  • The revenue outlook, at $71,439 million, is down $127 million from the Budget Plan. Changes in the first quarter are:

    • The Personal Income Tax revenue forecast has been decreased by $90 million due to the unexpected weakness of the Ontario economy in the April to June quarter of 2003.

    • The Retail Sales Tax revenue forecast has been decreased by $210 million primarily due to the impact of SARS on the Ontario tourism industry.

    • The Corporations Tax revenue forecast has been increased by $200 million due to higher 2002 profit growth than previously estimated, which increases the 2002-03 revenue base and therefore revenues this year.

    • The Employer Health Tax revenue forecast has been decreased by $30 million largely due to the impact of SARS on Ontario job creation.

    • The Reimbursement revenue forecast has been increased by $3 million due to new OPP municipal policing contracts for the City of Elliot Lake and the Towns of Carlton Place, South Bruce and South Huron, offsetting higher expenditures.

OPERATING EXPENDITURE

  • Net operating expenditure including the expenditure impacts of the SARS outbreak, at $68,571 million, is up $473 million from the Budget Plan. Changes this quarter include:

    • Ministry of the Attorney General: An additional $16 million for courts to help ensure that criminal trials proceed within a reasonable period of time, fully offset from the Contingency Fund, and $3 million for SARS-related extraordinary costs for an investigation into the occurrence and spread of SARS.

    • Ministry of Enterprise, Opportunity and Innovation: An additional $7 million in SARS-related expenditure for the FitzGerald Infectious Diseases (FIND) Network and the Ontario Investment Attraction Program.

    • Ministry of Health and Long-Term Care: An expenditure increase of $945 million for SARS-related costs including exceptional operating costs, financial assistance to frontline health workers for lost income, ancillary revenue losses at hospitals and other agencies, and ongoing SARS-related expenditures, partially offset by savings of $150 million from the Contingency Fund; an additional $10 million for other SARS-related administrative costs; and an additional $13 million, fully offset from the Contingency Fund, to enhance the West Nile Virus Larvicide Program.

    • Ministry of Labour: An additional $1 million for SARS-related extraordinary costs to implement legislation to protect the jobs of quarantined workers.

    • Management Board Secretariat: To mitigate the impact of SARS and in the absence of any federal support, the Contingency Fund was reduced by $400 million.

    • Ministry of Municipal Affairs and Housing: An expenditure increase of $20 million for SARS-related expenditures to assist municipalities, volunteer organizations and individuals; and $1 million for SARS-related extraordinary costs for the establishment of the SARS Assistance Office.

    • Ministry of Natural Resources: An additional $27 million for forest fire-fighting costs, fully offset from the Contingency Fund.

    • Ministry of Public Safety and Security: An additional $3 million for OPP municipal policing contracts for the City of Elliot Lake and for the Towns of Carlton Place, South Bruce and South Huron, offset by revenue; and an additional $2 million for SARS-related extraordinary costs for the operation of Emergency Management Ontario and SARS screening in provincial correctional institutions.

    • Ministry of Tourism and Recreation: An additional $84 million in SARS-related expenditure for the Tourism Recovery Plan.

  • The Public Debt Interest forecast of $8,655 million, consisting of $8,135 million related to the Province's borrowing on its own behalf and $520 million related to the interest on debt issued for investment in the electricity sector is down $53 million due to lower interest rates and cost-effective debt management.

CAPITAL EXPENDITURE

  • Gross capital expenditure and net capital expenditure, at $3,170 million and $2,468 million respectively, are unchanged from the Budget Plan.

FISCAL PERFORMANCE

Statement of Financial Transactions (including SARS impact)
($ Millions)

  Actual
1999-00 		Actual
2000-01		 Actual
2001-02		 Interim
2002-03		 Q1
2003-04
Revenue 62,931 63,824 63,886 66,391 71,439
Expenditure  
   Programs 47,525 50,401 52,523 55,271 59,916
   Gross Capital Expenditure 4,887 2,123 1,890 2,467 3,170
   Less: Net Investment in Capital Assets* -- -- -- 576 702
   Public Debt Interest  
      Provincial 8,977 8,896 8,509 8,225 8,135
      Electricity Sector 520 520 520 520 520
Total Expenditure 61,909 61,940 63,442 65,907 71,039
Less: Reserve -- -- -- -- 400
Add: Decrease/(Increase) in Stranded Debt from Electricity
Sector Restructuring to be Recovered from Ratepayers**		 (354) 18 (69) 40 --
SURPLUS / (DEFICIT)*** 668 1,902 375 524 0
Net Provincial Debt - after Provisional Adjustment for
CCRA Error; and Accounting Changes º		 113,715 112,480 112,036 98,352 98,352
Accounting Changes (included in Net Provincial Debt above)  
   Provisional Adjustment for CCRA Error   (2,043) (2,043) (2,043)  
   Retirement Benefits   197 197 197  
   Tangible Capital Assets ºº       13,200  
Net Impact of Accounting Changes   (1,846) (1,846) 11,354 11,354
NET PROVINCIAL DEBT - BEFORE PROVISIONAL ADJUSTMENT
FOR CCRA ERROR; AND ACCOUNTING CHANGES		 113,715 110,634 110,190 109,706 109,706

* Starting in 2002-03, major tangible capital assets owned by Provincial ministries (land, buildings and transportation infrastructure) are accounted for on a full accrual accounting basis. Other tangible capital assets owned by Provincial ministries will continue to be accounted for as expenditure in the year of acquisition or construction. All capital assets owned by consolidated government organizations are accounted for on a full accrual basis.
** Reflects the estimated excess of revenue over expenditure of the Ontario Electricity Financial Corporation (OEFC). Consistent with the principles of electricity restructuring, OEFC debt is to be recovered from ratepayers, not taxpayers.
*** Includes provisional adjustment for Canada Customs and Revenue Agency error; retirement benefits accounting policy change in accordance with new Public Sector Accounting Board recommendations; and adjustment to decrease in stranded debt from electricity sector restructuring to be recovered from ratepayers.
º Starting in 2002-03 Net Provincial Debt has been adjusted to include Investment in Capital Assets. For all other years, Net Provincial Debt represents total liabilities less financial assets.
ººEstimated opening net book value at April 1, 2002.

Selected Economic and Fiscal Statistics

  Actual
1999-00		 Actual
2000-01 		Actual
2001-02		 Interim
2002-3		 Q1
2003-04
Gross Domestic Product (GDP) at Market Prices
   ($ Millions)		 410,350 438,092 449,780 475,243 499,956
Ontario Population (000s) - July 1

 11,528

 11,698

 11,895

 12,068

 12,226
Ontario Revenue as a per cent of GDP 15.3 14.6 14.2 14.0 14.3
Ontario Revenue Growth (%)

 12.8

 1.4

 0.1

 3.9

 7.6
Ontario Total Expenditure as a per cent of GDP 15.1 14.1 14.1 13.9 14.2
Ontario Total Expenditure Growth (%)

 7.1

 0.1

 2.4

 3.9

 7.8
Ontario PDI as a Share of Revenue (%) 15.1 14.8 14.1 13.2 12.1
Ontario PDI as a Share of Total Expenditure (%) 15.3 15.2 14.2 13.3 12.2
Ontario PDI as a per cent of GDP

 2.3

 2.1

 2.0

 1.8

 1.7
Ontario Surplus / (Deficit) as a per cent of GDP

 0.2

 0.4

 0.1

 0.1

 0.0
Net Provincial Debt per capita ($) 9,864 9,615 9,419 8,150 8,044
Net Provincial Debt as a per cent of GDP 27.7 25.7 24.9 20.7 19.7

Sources: Ontario Ministry of Finance and Statistics Canada.



ECONOMIC PERFORMANCE

Ontario Economic Growth Continues in First Quarter

  • Ontario's real GDP grew by 0.7 per cent (2.9 per cent annualized) in the first quarter of 2003, up from 0.4 per cent (1.7 per cent annualized) growth in the fourth quarter of 2002.

  • Ontario's economy outperformed both the Canadian economy which advanced 2.4 per cent and the U.S. economy which grew 1.4 per cent at annualized rates in the first quarter.

Job Growth Continues in 2003

  • Ontario employment is up 0.9 per cent since the beginning of 2003, a gain of 53,000 jobs. This represents 75 per cent of all job creation in Canada this year.

  • Ontario's unemployment rate was 7.2 per cent in June, below the Canadian average of 7.8 per cent

Consumer Spending Rising

  • Ontario retail sales grew by 1.6 per cent in May. Over the first five months of 2003, retail sales were 4.1 per cent ahead of the same period last year.

Housing Market Remains Strong

  • Ontario housing starts rose 12.6 per cent in June, from May, to a level of 86,900 units. Over the first half of 2003, housing starts were 2.4 per cent lower than the same period last year. However, this still represents a very high level of starts, as 2002 was the strongest year in 13 years.

  • The value of building permits issued for Ontario residential construction projects rose 2.0 per cent in the second quarter, following a 2.9 per cent advance in the first quarter.

External markets soft

  • Ontario merchandise exports dropped 4.8 per cent over the first five months of 2003 compared to the same period of 2002. Over the same period the value of Ontario manufacturing shipments increased 1.2 per cent.


RECENT ECONOMIC DEVELOPMENTS

KEY ECONOMIC INDICATORS
(% Change from previous period, unless indicated otherwise)

    Annual Annual Quarterly
    2001 2002 02:1 02:2 02:3 02:4 03:1
Output (Seasonally Adjusted at Annual Rates)*
   Real GDP Ontario 1.8 3.8 1.7 0.8 1.0 0.4 0.7
   Nominal GDP Ontario 2.7 5.7 2.6 2.5 1.7 1.4 1.8
    Annual Annual Monthly 2003
2001 2002 Mar Apr May June July
Other Indicators (Seasonally Adjusted)
Labour Markets
   Labour Force (Change in 000s) Ontario 137 167 8 (12) 24 36 (17)
   Employment (Change in 000s) Ontario 91 105 17 (27) (1) 17 (8)
   Unemployment Rate (%) Ontario 6.3 7.1 6.5 6.8 7.1 7.3 7.2
Household Sector
   Retail Sales Ontario 2.6 5.6 (0.7) (2.3) 1.6 N/A N/A
   Urban Housing Starts (000s) Ontario 70.8 79.6 72.6 71.1 71.6 81.3 N/A
   New Home Sales** Toronto 2.4 29.0 (45.3) (36.1) (13.2) 0.8 N/A
   MLS Home Resales** Ontario 10.3 9.3 (6.4) (13.4) (1.4) 18.2 N/A
Manufacturing Shipments Ontario (6.4) 3.4 2.0 (3.5) 0.0 N/A N/A
   Transportation Equipment Ontario (10.5) 6.5 4.1 (3.7) (0.5) N/A N/A
Consumer Price Index** Ontario 3.1 2.0 3.3 2.3 2.7 2.5 N/A

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

* Annual growth rates reflect April 28, 2003, release of Statistics Canada Provincial Economic Accounts.
** % change from a year earlier
N/A = Data not available



ONTARIO FINANCES
FINANCIAL TABLES

REVENUE


($ Millions)   2003-04
  Interim
2002-03		 Budget
Plan		 Current
Outlook		 In-Year
Change
TAXATION REVENUE    
   Personal Income Tax 18, 800 19,905 19,815 (90)  
   Retail Sales Tax 14,090 14,885 14,675 (210)  
   Corporations Tax 6,520 6,845 7,045 200  
   Employer Health Tax 3,590 3,805 3,775 (30)  
   Gasoline Tax 2,300 2,365 2,365 -  
   Fuel Tax 685 710 710 -  
   Tobacco Tax 1,215 1,260 1,260 -  
   Land Transfer Tax 825 785 785 -  
   Other Taxation 376 195 195 -  
Total Taxation Revenue 48,401 50,755 50,625 (130)  
GOVERNMENT OF CANADA        
   Canada Health and Social Transfer (CHST) 7,386 7,146 7,146 -  
   New CHST Supplements 967 771 771 -  
   Social Housing 526 643 643 -  
   Health Reform Fund --  386 386 -  
   Infrastructure 118 285 285 -  
   Diagnostic and Medial Equipment Fund --  193 193 -  
   Other 697 753 753 -  
Total Government of Canada Revenue 9,694 10,177 10,177 -  
INCOME FROM GOVERNMENT ENTERPRISES        
   Ontario Lottery and Gaming Corporation 2,275 2,406 2,406 -  
   Liquor Control Board of Ontario 953 1,123 1,123 -  
   Ontario Power Generation Inc. and Hydro One Inc. 650 884 884 -  
   Other 11 3 3 -  
TOTAL INCOME FROM GOVERNMENT ENTERPRISES 3,889 4,416 4,416 --  
OTHER REVENUE        
   Sales and Rentals 321 2,207 2,207 -  
   Vehicle and Driver Registration Fees 963 952 952 -  
   Local Services Realignment - Reimbursement of Expenditure 707 711 711 -  
   Other Fees and Licences 671 677 677 -  
   Reimbursements 470 503 506 3  
   Liquor Licence Revenue 528 477 477 -  
   Royalties 237 225 225 -  
   Independent Electricity Market Operation Revenue 171 153 153 -  
   Other Miscellaneous Revenue 339 313 313 -  
Total Other Revenue 4,407 6,218 6,221 3  
TOTAL REVENUE 66,391 71,566 71,439 (127)  


OPERATING EXPENDITURE

($ Millions)   2003-04
MINISTRY Interim
2002-03		 Budget
Plan		 Current
Outlook		 In-Year
Change
Agriculture and Food 602 622 622 --  
   One-Time and Extraordinary Costs 28 -- -- --  
Attorney General * 1,030 1,024 1,043 19  
Board of Internal Economy 138 129 129 --  
Citizenship 72 76 76 --  
Community, Family and Children's Services 7,969 8,281 8,281 --  
Consumer and Business Services 179 179 179 --  
Culture 263 269 269 --  
Education 9,058 9,716 9,716 --  
   Teachers' Pension Plan (TPP) 296 306 306 --  
Energy 120 127 127 --  
Enterprise, Opportunity and Innovation * 231 309 316 7  
Environment 250 266 266 --  
Executive Offices 21 20 20 --  
Finance - Own Account 500 612 612 --  
   Public Debt Interest        
      Provincial 8,225 8,188 8,135 (53)  
      Electricity Sector 520 520 520 --  
   Support for Children and Seniors 282 674 674 --  
   Community Reinvestment Fund 624 649 649 --  
   Provision for Electricity Sector 130 23 23 --  
Health and Long-Term Care 25,888 27,595 27,608 13  
   SARS-Related Health Costs * -  -  955 955  
Intergovernmental Affairs 4 5 5 --  
Labour * 118 120 121 1  
Management Board Secretariat 223 336 336 --  
   Retirement Benefits (131) 218 218 --  
   Contingency Fund -- 762 156 (606)  
Municipal Affairs and Housing * 646 688 709 21  
Native Affairs Secretariat 17 15 15 --  
Natural Resources 464 450 477 27  
Northern Development and Mines 76 77 77 --  
Office of Francophone Affairs 3 4 4 --  
Public Safety and Security * 1,782 1,601 1,606 5  
Tourism and Recreation * 140 147 231 84  
Training, Colleges and Universities 3,451 3,994 3,994 --  
Transportation 797 796 796 --  
Program Review and Evaluation --  (500) (500) --  
Year-End Savings -- (200) (200) --  
TOTAL OPERATING EXPENDITURE 64,016 68,098 68,571 473  

* Includes increased expenditure related to the $1,130 million multi-year impact of Severe Acute Respiratory Syndrome (SARS).



CAPITAL EXPENDITURE

($ Millions)   2003-04
MINISTRY Interim
2002-03		 Budget
Plan		 Current
Outlook		 In-Year
Change
Agriculture and Food 67 1 1 --  
Attorney General 51 35 35 --  
Community, Family and Children's Services 24 13 13 --  
Consumer and Business Services 1 1 1 --  
Culture 49 106 106 --  
Education 10 16 16 --  
Energy 40 30 30 --  
Enterprise, Opportunity and Innovation 25 46 46 --  
Environment 14 14 14 --  
   Water Protection Fund 1 1 1 --  
Finance - Own Account 8 6 6 --  
   SuperBuild Millennium Partnerships 4 52 52 --  
   Contingency Fund -- 200 200   
Health and Long-Term Care 335 504 504 --  
Management Board Secretariat 44 15 15 --  
Municipal Affairs and Housing 26 304 304 --  
Native Affairs Secretariat 3 3 3 --  
Natural Resources 78 91 91 --  
Northern Development and Mines 391 347 347 --  
Public Safety and Security 67 53 53   
Tourism and Recreation 58 50 50 --  
Training, Colleges and Universities 74 98 98 --  
Transportation 1,097 1,284 1,284 --  
Year-End Savings -- (100) (100) --  
TOTAL GROSS CAPITAL EXPENDITURE* 2,467 3,170 3,170 --  
Less: Net Investment in Capital Assets** 576 702 702 --  
Net Capital Expenditure 1,891 2,468 2,468 --  

* Gross Capital Expenditure includes the following: i) acquisition or construction of major tangible capital assets owned by the Province (land, buildings and transportation infrastructure) and other tangible capital assets; ii) repairs and maintenance; and iii) transfers for capital purposes. Total gross capital expenditure in 2003-04 includes $429 million in flow-through funds. Gross capital expenditure excluding flow-through funds is $2.7 billion.
** Starting in 2002-03, major tangible capital assets owned by Provincial ministries (land, buildings and transportation infrastructure) are accounted for on a full accrual accounting basis. Other tangible capital assets owned by Provincial ministries will continue to be accounted for as expenditure in the year of acquisition or construction. All capital assets owned by consolidated government organizations are accounted for on a full accrual basis.



($ Millions) Current Outlook 2003-04
SCHEDULE OF NET INVESTMENT IN CAPITAL ASSETS Land and Buildings Transportation Infrastructure Government Organizations' Capital Assets Total
Acquisition/Construction of Major Tangible Capital Assets 133 1,042 346   1,521 
Amortization of Provincially Owned Major Tangible Capital Assets (110) (546) (163)   (819) 
Net Investment in Capital Assets** 23 496 183   702 

** Starting in 2002-03, major tangible capital assets owned by Provincial ministries (land, buildings and transportation infrastructure) are accounted for on a full accrual accounting basis. Other tangible capital assets owned by Provincial ministries will continue to be accounted for as expenditure in the year of acquisition or construction. All capital assets owned by consolidated government organizations are accounted for on a full accrual basis.



ONTARIO'S 2003-04 FINANCING PROGRAM

($ Millions)   2003-04
  Interim
2002-03		 Budget
Plan		 Current
Outlook		 In-Year Change
Surplus / (Deficit) 524 -- -- --  
Adjustments for:
   Non-Cash Items Included in Surplus (4,227) (1,293) (1,893) (600)  
   Amortization of Tangible Capital Assets 763 819 819 --  
Acquisitions of Tangible Capital Assets (1,339) (1,521) (1,521) --  
Maturities of Debt (11,588) (10,146) (10,146) --  
Early Redemptions of Debt (1,094) (1,000) (1,000) --  
Canada Pension Plan Borrowing -- 1,201 666 (535)  
Decrease / (Increase) in Cash and Cash Equivalents (150) 3,000 2,000 (1,000)  
Increase / (Decrease) in Short-Term Borrowing 1,300 250 -- (250)  
Other Sources / (Uses) of Cash* --  (3,156) (3,156) --  
Long-Term Public Borrowing Requirement 15,811 11,846 14,231 2,385  
   of which: Completed 9,687 --  
                    Remaining     4,544 --  

* Includes net repayment from, or loans to agencies and the transfer of all deposits with the Province of Ontario Savings Office (POSO) to Desjardins Credit Union on April 1, 2003.



  • The $600 million change in Non-Cash Items Included in Surplus assumes no federal financial support for the impact of SARS. The associated increase in borrowing will not affect the plan to maintain the balanced budget.

  • Planned Canada Pension Plan (CPP) borrowing is down $535 million from the Budget Plan because the Province was able to borrow long-term funds from the public markets at lower interest rates than those available from the CPP.

  • Other changes in the manner that the Province will borrow (smaller decrease in Cash and Cash Equivalents and no Increase in Short-Term Borrowing) are the result of the Province being able to take advantage of the strong public demand for Ontario bonds, including Ontario Savings Bonds, to lock in the lowest long-term interest rates in 40 years.

  • Long-term public borrowing undertaken in the first quarter is estimated at $9,687 million as follows:
  ($ Millions)
Ontario Savings Bonds 3,770
Domestic Issues 2,429
Euro Medium Term Notes 1,573
Global Issues 1,915
Total 9,687
  • The 2003 Ontario Savings Bonds campaign raised a total of $3.8 billion, the second highest sales in the history of Canadian provincial bond issues. During the past nine years, more than one million Ontario residents have invested a total of $22 billion in Ontario Savings Bonds.
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