Ontario Finances: 2013-14 First Quarter

Ontario Finances

2013–14 FIRST QUARTER

QUARTERLY UPDATE – JUNE 30, 2013

Ministry of Finance


Fiscal Summary     2013–14  
($ Millions) Interim
2012–13
Budget
Plan
Current
Outlook
In-Year
Change
Revenue 114,223 116,845 116,845
Expense        
Programs 113,633 116,983 116,983
Interest on Debt1 10,372 10,605 10,605
Total Expense 124,005 127,588 127,588
Reserve 1,000 1,000
Surplus / (Deficit) (9,782) (11,743) (11,743)
1 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $241 million in 2012–13 and $271 million in 2013–14.
Note: Numbers may not add due to rounding.

2013–14 FISCAL OUTLOOK

The government is projecting a $11.7 billion deficit for 2013–14, consistent with the 2013 Ontario Budget.  

Continued global economic uncertainty will remain a challenge to the Province’s fiscal plan. Since the 2013 Budget, expectations for global economic growth have weakened as there are considerable risks to growth, including a slowdown in several key emerging market economies. Forecasts of United States economic growth have also been reduced. However, recently there are encouraging signs that U.S. growth is picking up.

Managing growth in program spending remains a key component of the Province’s fiscal plan. The government has indicated that engaging the public on the future of their public services requires an ongoing dialogue and the government is committed to consulting the public in this regard.

Key changes to expense projections for the period through the end of June include funding for the operations of the Ontario Northland Transportation Commission at a level consistent with prior years and assistance to those communities impacted by flooding in April.  All these expense changes have been offset from elsewhere within the fiscal plan.  No change in overall expense is projected.

As the Province moves forward through a sensitive economic recovery, the government will continue its balanced approach towards eliminating the deficit. To this end, the 2013–14 outlook maintains a $1.0 billion reserve and the remaining contingency funds to protect the fiscal plan against any adverse changes in the Province’s revenue and expense.

Further details on the Province’s fiscal plan will be provided in future fiscal updates.

Details of In-Year Changes

FISCAL PERFORMANCE

Revenue

The 2013–14 revenue outlook, at $116,845 million, remains unchanged from the 2013 Budget. 

There are considerable risks around the revenue outlook. Since the 2013 Budget, average private sector economic forecasts for 2013 and 2014 have been revised downward slightly. In addition, early tax assessment information for income tax and sale tax revenues suggests both upside and downside risks with respect to 2012 revenue performance. The government will continue to monitor economic and revenue developments and will provide further details in future fiscal updates.

Total Expense

The 2013–14 total expense outlook, at $127,588 million, is unchanged from the projection in the 2013 Budget. Key changes to expense projections since the 2013 Budget include:

  • An increase of $75.0 million in Ministry of Northern Development and Mines expense, as a result of funding, consistent with prior years, to meet health and safety requirements, payroll and supplier obligations and to maintain operations for the Ontario Northland Transportation Commission. The government continues to transform the ONTC and will ensure that the voices of northern municipalities, Aboriginal communities and key industrial stakeholders are heard.
  • An increase in Ministry of Municipal Affairs and Housing expense of up to $18.0 million to provide financial assistance to a number of municipalities and victims affected by the spring flooding in Central, Eastern and Northern Ontario through the Ministry of Municipal Affairs and Housing’s Ontario Disaster Relief Assistance Program.
  • A decrease of up to $18.0 million in the contingency funds to offset the expense increase in the Ministry of Municipal Affairs and Housing.
  • A decrease of $75.0 million in the transition fund to offset the expense increase in the Ministry of Northern Development and Mines.
  • Interest on debt expense is unchanged from the 2013 Budget forecast.

Reserve at $1.0 Billion

The 2013 Budget included a $1.0 billion reserve in 2013–14 to protect the fiscal plan from the potential impact of external events that could deteriorate the Province’s fiscal performance and to help ensure the achievement of the government’s fiscal target. The full amount of the reserve remains available to protect the fiscal plan from any unforeseen events.


FISCAL PERFORMANCE

Review of Selected Financial and Economic Statistics1
($ Millions)
  2009–102 2010–11 2011–12 Interim
2012–13
Current
Outlook
2013–14
Revenue 96,313 107,175 109,773 114,223 116,845
Expense          
Programs 106,856 111,706 112,660 113,633 116,983
Interest on Debt3 8,719 9,480 10,082 10,372 10,605
Total Expense 115,575 121,186 122,742 124,005 127,588
Reserve 1,000
Surplus / (Deficit) (19,262) (14,011) (12,969) (9,782) (11,743)
Net Debt4 193,589 214,511 235,582 252,790 272,810
Accumulated Deficit 130,957 144,573 158,410 168,192 179,935
Gross Domestic Product (GDP) at Market Prices5 594,644 625,108 655,125 674,899 695,352
Household Income 410,859 423,685 441,639 455,947 468,636
Ontario Population (000s) – July 1 13,069 13,224 13,366 13,506 13,632
Net Debt per Capita (dollars) 14,813 16,222 17,625 18,717 20,012
Household Income per Capita (dollars) 31,438 32,040 33,041 33,759 34,377
Interest on Debt as a per cent of Revenue 9.1 8.8 9.2 9.1 9.1
Net Debt as a per cent of GDP5 32.6 34.3 36.0 37.5 39.2
Accumulated Deficit as a per cent of GDP5 22.0 23.1 24.2 24.9 25.9
1 Revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes, as described in the 2010 Ontario Budget, a fiscally neutral accounting change related to the reclassification of government agencies and organizations as described in the 2011 Ontario Economic Outlook and Fiscal Review, and a fiscally neutral reclassification of a number of tax measures that are transfers or grants, as described in the 2012 Ontario Budget.
2 Starting in 2009–10, investments in minor tangible capital assets owned by the Province were capitalized and amortized to expense. All capital assets owned by consolidated organizations are being accounted for in a similar manner.
3 Interest on debt is net of interest capitalized during construction of tangible capital assets of $148 million in 2009–10, $203 million in 2010–11, $234 million in 2011–12, $241 million in 2012–13 and $271 million in 2013-14.
4 Starting in 2009–10, Net Debt includes the net debt of hospitals, school boards and colleges consistent with Public Sector Accounting Board standards.
5 Gross Domestic Product amounts are based on Statistics Canada's new, revised international standard for economic accounts – the SNA 2008 (System of National Accounts), which includes major conceptual, classification and methodological improvements.
Sources: Ontario Ministry of Finance and Statistics Canada.

Ontario Economic Outlook

bar graph: Ontario Real GDP Growth

The Ontario economy continues to grow in a challenging global environment, although the pace of growth remains modest. Since the 2013 Budget, expectations for global economic growth have moderated.  The International Monetary Fund, in its July Global Outlook, lowered projected growth for the world economy from 3.3 per cent to 3.1 per cent. The average forecast for 2013 real GDP growth in the United States, Ontario’s largest trading partner, has fallen from 2.1 per cent at the time of the 2013 Budget to 1.5 per cent.

As of August 8, 2013, private-sector forecasters, on average, project Ontario real GDP will increase by 1.5 per cent in 2013, down slightly from a 1.6 per cent increase expected at the time of the 2013 Budget. Private-sector forecasts for Ontario real GDP growth in 2014 have eased slightly, now averaging 2.3 per cent, down from 2.4 per cent at the time of the Budget. While private-sector forecasts have eased since the time of the Budget, they remain in-line with the Ministry of Finance’s 2013 Budget planning projection.



Economic Performance

ONTARIO REAL GDP

  • In the first calendar quarter of 2013, Ontario’s real GDP increased at a 1.0 per cent annualized rate, after edging up at a 0.6 per cent annualized rate in the fourth quarter of 2012.  Ontario’s real GDP has increased 8.3 per cent since the recession ended in the second quarter of 2009 and is now 2.7 per cent above the pre-recession level set in the second quarter of 2008.

LABOUR MARKET

  • Ontario employment increased 0.5 per cent in the second (calendar) quarter of 2013, following a 0.2 per cent gain in the first quarter. As of July 2013, Ontario employment was 167,900 (+2.5 per cent) net jobs above the pre-recession peak reached in September 2008.
  • The unemployment rate was 7.6 per cent in July, well below the recessionary high of 9.4 per cent in June 2009.

RETAIL SALES

  • Ontario retail sales over the first two months of the second quarter grew 1.3 per cent above the first quarter average. Over the first five months of 2013, retail sales are up 0.5 per cent compared to the same period in 2012.

INFLATION

  • The Ontario Consumer Price Index (CPI) rose 0.7 per cent (year-over-year) in the second quarter of 2013, the slowest rate of inflation since the third quarter of 2009. Lower prices for gasoline and clothing contributed to the slower overall rate of inflation for the quarter.

HOUSING MARKET

  • Ontario home resales advanced by 5.3 per cent in the second quarter, after edging up by 0.4 per cent in the previous quarter. On a year-to-date basis, Ontario home resales were down 6.8 per cent in the first half of 2013 compared to the same period in 2012.
  • Ontario housing starts increased 2.1 per cent in the second quarter, following a decline of 18.2 per cent in the previous quarter.

MANUFACTURING SALES AND INTERNATIONAL EXPORTS

  • Ontario manufacturing sales over the first two months of the second quarter advanced by 1.6 per cent above the first quarter average.  On a year-to-date basis, manufacturing sales were down 2.4 per cent compared to the first five months of 2012.
  • Ontario international goods exports (on a customs basis1) increased 4.0 per cent in the second quarter of 2013 following a 1.4 per cent advance in the previous quarter. Ontario international goods imports rose by 2.3 per cent in the second quarter, following a 2.0 per cent rise in the first quarter.

1Seasonally adjusted by the Ontario Ministry of Finance.


Economic Trends and Performance

Key Economic Indicators
(Seasonally adjusted per cent change from previous period, unless indicated otherwise)
    Annual
2011
Annual
2012
Quarterly
    2012:Q1 2012:Q2 2012:Q3 2012:Q4 2013:Q1
Gross Domestic Product              
Real GDP Ontario 1.8 1.5 0.3 0.5 0.2 0.1 0.2
Nominal GDP Ontario 4.8 3.0 0.8 0.6 0.6 0.1 0.8
                 
    Annual
2011
Annual
2012
Monthly 2013
    Mar Apr May June July
Other Indicators (Seasonally Adjusted)              
Labour Markets                
Labour Force (Change in 000s)   65.1 55.5 -21.3 4.4 22.9 4.3 3.4
Employment (Change in 000s)   121.3 52.4 -17.4 3.8 50.6 -8.2 -10.6
Unemployment Rate (%)   7.8 7.8 7.7 7.7 7.3 7.5 7.6
Household Sector                
Retail Sales   3.6 1.6 0.3 -0.1 1.8 N/A N/A
Housing Starts1   12.2 13.2 -14.2 -12.4 44.9 -11.4 -1.2
MLS Home Resales   2.6 -2.1 0.9 1.8 3.5 1.7 N/A
Manufacturing Sales   6.3 5.3 -0.2 -0.8 1.9 N/A N/A
Transportation Equipment   5.8 17.2 -0.4 -1.1 1.1 N/A N/A
Consumer Price Index2   3.1 1.4 1.0 0.4 0.5 1.3 N/A
1 Monthly housing starts are expressed at a seasonally adjusted annual rate.
2 Per cent change from a year earlier, data not seasonally adjusted.
N/A = Data not available.
Sources: Statistics Canada, Ontario Ministry of Finance, Canada Mortgage and Housing Corporation and Canadian Real Estate Association.



ONTARIO FINANCES

Financial Tables

Revenue

($ Millions)   2013–14
  Interim 2012–13 Budget
Plan
Current
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 26,147 27,578 27,578 -
Sales Tax 21,107 21,856 21,856 -
Corporations Tax 11,993 11,269 11,269 -
Education Property Tax1 5,678 5,694 5,694 -
Employer Health Tax 5,184 5,318 5,318 -
Ontario Health Premium 3,093 3,226 3,226 -
Gasoline Tax 2,367 2,377 2,377 -
Land Transfer Tax 1,459 1,382 1,382 -
Tobacco Tax 1,143 1,123 1,123 -
Fuel Tax 707 719 719 -
Beer and Wine Tax 569 574 574 -
Electricity Payments-In-Lieu of Taxes 362 366 366 -
Other Taxes 475 493 493 -
Total 80,282 81,975 81,975 -
Government of Canada        
Canada Health Transfer 11,396 12,067 12,067 -
Canada Social Transfer 4,591 4,727 4,727 -
Equalization 3,261 3,169 3,169 -
Infrastructure Programs 138 145 145 -
Labour Market Programs 912 905 905 -
Social Housing 476 468 468 -
Wait Times Reduction Fund 97 97 97 -
Other Federal Payments 839 897 897 -
Total 21,710 22,475 22,475 -
Government Business Enterprises        
Ontario Lottery and Gaming Corporation 1,798 2,020 2,020 -
Liquor Control Board of Ontario 1,706 1,747 1,747 -
Ontario Power Generation Inc. and Hydro One Inc. 968 712 712 -
Total 4,472 4,479 4,479 -
Other Non-Tax Revenue        
Reimbursements 948 973 973 -
Vehicle and Driver Registration Fees 1,163 1,273 1,273 -
Electricity Debt Retirement Charge 957 957 957 -
Power Supply Contract Recoveries 1,262 1,274 1,274 -
Sales and Rentals 1,124 1,075 1,075 -
Other Fees and Licences 761 821 821 -
Net Reduction of Power Purchase Contract Liability 263 243 243 -
Royalties 242 242 242 -
Miscellaneous Other Non-Tax Revenue 1,039 1,058 1,058 -
Total 7,759 7,916 7,916 -
Total Revenue 114,223 116,845 116,845 -
1 Education Property Tax revenue is net of the property tax credit component of the Ontario Energy and Property Tax Credit and the Ontario Senior Homeowners' Property Tax Grant.
Note: Numbers may not add due to rounding.

Total Expense

($ Millions)    2013–14
  Interim
2012–13
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs1 66.2 64.7 64.7 -
Agriculture and Food / Rural Affairs1 1,028.7 1,034.5 1,034.5 -
Attorney General 1,698.2 1,751.3 1,751.3 -
Board of Internal Economy 200.0 200.0 200.0 -
Children and Youth Services 4,007.2 4,160.9 4,160.9 -
Citizenship and Immigration 121.7 104.0 104.0 -
Community and Social Services 9,769.5 10,173.1 10,173.1 -
Community Safety and Correctional Services 2,294.7 2,326.1 2,326.1 -
Consumer Services 20.4 24.0 24.0 -
Economic Development Trade and Employment / Research and Innovation1 972.9 911.0 911.0 -
Education1 23,548.4 24,147.0 24,147.0 -
Energy1 382.6 339.6 339.6 -
Environment1 486.0 495.2 495.2 -
Executive Offices 30.2 30.8 30.8 -
Finance1 911.3 1,043.8 1,043.8 -
Francophone Affairs, Office of 5.2 5.0 5.0 -
Government Services1 1,150.7 1,064.4 1,064.4 -
Health and Long-Term Care 47,774.2 48,854.9 48,854.9 -
Infrastructure1 43.2 351.0 351.0 -
Labour 286.9 305.7 305.7 -
Municipal Affairs and Housing1 809.0 789.6 789.6 -
Natural Resources1 711.3 715.6 715.6 -
Northern Development and Mines 770.8 724.6 799.6 75.0
Tourism, Culture and Sport1 1,441.0 1,193.3 1,193.3 -
Training, Colleges and Universities1 7,363.5 7,664.7 7,664.7 -
Transportation 2,533.9 2,767.1 2,767.1 -
Interest on Debt2 10,372.0 10,605.0 10,605.0 -
Other Expense 5,206.0 6,741.2 6,666.2 (75.0)
Year-End Savings3 (1,000.0) (1,000.0) -
Total Expense 124,005.5 127,588.1 127,588.1 -
1 Details on other ministry expense can be found in the Other Expense table.
2 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $241 million in 2012–13 and $271 million in 2013–14.
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 start-ups and implementation plans.
Note: Numbers may not add due to rounding.

Other Expense

($ Millions)   2013–14
  Interim
2012–13
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs        
One-Time Investments – Settlements 0.0 - - -
Agriculture and Food / Rural Affairs        
Time-Limited Investments in Infrastructure 18.6 7.0 7.0 -
Time-Limited Assistance 10.0   - -
Economic Development, Trade and Employment / Research and Innovation        
Time-Limited Investments for Youth - 50.0 50.0 -
Education        
One-Time Savings – Labour Savings (1,133.0) - - -
Teachers' Pension Plan1 895.0 939.0 939.0 -
Energy        
Ontario Clean Energy Benefit 1,029.4 1,040.0 1,040.0 -
Environment        
Time-Limited Investments 77.8 - - -
Finance        
Ontario Municipal Partnership Fund 592.2 568.9 568.9 -
Operating Contingency Fund 50.0 500.0 482.0 (18.0)
Power Supply Contract Costs 1,262.0 1,274.0 1,274.0 -
Transition Fund 225.0 150.0 75.0 (75.0)
Government Services        
Pension and Other Employee Future Benefits 1,540.0 1,516.0 1,516.0 -
Infrastructure        
Capital Contingency Fund - 100.0 100.0 -
Municipal Affairs and Housing        
Time-Limited Investments in Municipal Social and Affordable Housing 157.8 155.2 155.2 -
Time-Limited Investments 42.4 3.0 21.0 18.0
Natural Resources        
Emergency Forest Firefighting 157.6 70.7 70.7 -
Tourism, Culture and Sport        
Time-Limited Investments to Support Pan/Parapan Am Games 281.2 289.4 289.4 -
Training, Colleges and Universities        
Time-Limited Investments - 78.0 78.0 -
Total Other Expense 5,206.0 6,741.2 6,666.2 (75.0)
1 Numbers reflect PSAB pension expense. Ontario's matching contributions to the plan are $1,395 million in 2012–13 and $1,452 million in 2013–14.
Note: Numbers may not add due to rounding.

2013–14 Infrastructure Expenditures

($ Millions)   2013–14 Current Outlook
Sector Total
Infrastructure
Expenditures
2012–13 Interim
Investment
in Capital
Assets1
Transfers
and Other
Infrastructure
Expenditures2
Total
Infrastructure
Expenditures
Transportation        
Transit 2,545 2,892 485 3,377
Provincial Highways 2,130 2,228 - 2,228
Other Transportation3 699 652 84 736
Health        
Hospitals 2,806 2,672 205 2,877
Other Health 314 139 166 305
Education 2,074 1,938 65 2,003
Postsecondary        
Colleges 375 413 1 414
Universities 112 - 155 155
Water / Environment 256 46 102 149
Municipal and Local Infrastructure 609 297 467 764
Justice 775 300 93 393
Other 509 986 199 1,185
Subtotal 13,203 12,564 2,021 14,584
Less: Other Partner Funding4 1,326 1,040 - 1,040
Total Excluding Partner Funding 11,877 11,524 2,021 13,545
Less: Other Capital Contributions5 516 373 115 488
Total Provincial Expenditure6 11,361 11,151 1,906 13,057
1 Investment in Capital Assets includes interest capitalized during construction of tangible capital assets of $271 million.
2 Mainly consists of transfers for capital purposes to municipalities and universities, and expenditures for capital repairs.
3 Other transportation includes highway planning activities, property acquisition, highway service centres and other infrastructure programs (e.g., winter roads, remote airports).
4 Third-party contributions to capital investment in consolidated schools, colleges, hospitals and provincial agencies.
5 Mostly federal government transfers for capital investments. 2012-13 amount includes $135 million to reflect federal contributions for prior years' investments in the Rt. Hon. Herb Grey (formerly Windsor-Essex) Parkway.
6 Total Provincial Infrastructure Expenditure includes Investment in Capital Assets of $9.6 billion for 2012–13.
Note: Numbers may not add due to rounding.

Ontario’s 2013-14 Financing Program

Province and Ontario Electricity Financial Corporation
($ Millions)
  Interim
2012-13
2013–14
Budget
Plan
Current
Outlook
In-Year
Change
Deficit / (Surplus) 9,782 11,743 11,743 -
Investment in Capital Assets 9,595 11,116 11,116 -
Non-Cash Adjustments (1,760) (3,932) (3,932) -
Net Loans / Investments 892 1,564 1,564 -
Debt Maturities 17,287 23,683 23,683 -
Debt Redemptions 238 300 300 -
Total Funding Requirement 36,034 44,474 44,474 -
Canada Pension Plan Borrowing (775) (45) (45) -
Decrease / (Increase) in Short-Term Borrowing (2,997) (1,540) (1,540) -
Increase / (Decrease) in Cash and Cash Equivalents 3,819 (5,807) (5,807) -
Maturity of Debt Buyback (1,200) (3,700) (3,700) -
2012-13 Debt Buyback 1,700 - - -
Total Long-Term Public Borrowing Requirement 36,581 33,382 33,382 -
Note: Numbers may not add due to rounding.

Borrowing Program Status (as at June 30, 2013)
($ Billions)
  Completed Remaining Total
Province 6.8 22.9 29.7
Ontario Electricity Financial Corporation 1.0 2.7 3.7
Total 7.7 25.6 33.4
Note: Numbers may not add due to rounding.
  • Long-Term Public Borrowing completed as at June 30, 2013, totalled $7.7 billion as follows:
 ($ Billions)
Ontario Savings Bonds 0.4
Domestic Issues 7.3
Global/US Dollar/Other Issues 0.0
  7.7
  • As domestic investors have continued to show a preference for longer-term maturities, Ontario has been able to extend the term to maturity of its debt.