Ontario Finances: 2015-16 First Quarter Update

Contents

A.  2015–16 Fiscal Outlook

B.  Details of In-Year Changes

C.  Ontario’s Economic Outlook

D.  Economic Performance

E.  Details of Ontario’s Finances

F.  Ontario’s 2015–16 Financing Program

Introduction

The Ontario Quarterly Finances contains updated information about Ontario's 2015–16 fiscal outlook, including updated information about the major components of revenue and expense as set out in the 2015 Budget.

Section A: 2015–16 Fiscal Outlook

The government is projecting a deficit of $8.5 billion in 2015–16, unchanged from the 2015 Ontario Budget. This deficit outlook, if achieved, would be the lowest deficit level since the 2008–09 global recession.

The 2015 Ontario Budget reaffirmed the government’s commitment to take a deliberate and thoughtful approach to eliminating the deficit by 2017–18. The government’s path to a balanced budget is based on managing growth in program spending and maintaining the integrity of Provincial revenues, while continuing to make investments that grow the economy and create jobs.

The Ontario economy continues to grow in a challenging global environment. Since the 2015 Ontario Budget, the forecasts for 2015 growth in Ontario, the rest of Canada and the United States have been reduced. Most of the downgrade in growth prospects is due to a weak start in 2015. Forecasters remain generally optimistic about future Ontario growth, in line with the 2015 Budget assumptions.

2015–16 In-Year Fiscal Performance

($ Millions)     2015–16  
  2014–15
Interim
Budget
Plan
Current
Outlook
In-Year
Change
Revenue 118,517 124,390 124,390
Expense        
Programs 118,775 120,492 120,492
Interest on Debt 10,675 11,410 11,410
Total Expense 129,450 131,902 131,902
Reserve 1,000 1,000
Surplus / (Deficit) (10,933) (8,512) (8,512)
Note: Numbers may not add due to rounding.

The outlook for Provincial program expense, at $120.5 billion, is unchanged from the 2015 Budget Plan — reflecting the government’s commitment to manage growth in spending. The 2015–16 outlook continues to include a program review savings target of $500 million, which will be delivered through the government’s efforts to transform programs and modernize government.

The Province’s interest on debt expense forecast, at $11.4 billion, is unchanged from the 2015 Budget forecast.

The 2015–16 outlook also maintains a $1.0 billion reserve along with contingency funds 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.

Ontario’s net debt-to-GDP ratio is expected to peak at 39.8 per cent in 2015–16, consistent with the forecast in the 2015 Ontario Budget and lower than the 40.8 per cent forecast in the 2014 Ontario Budget.

Further details on the Province’s fiscal plan, including final results for 2014–15, will be provided in future fiscal updates.

Section B: Details of In-Year Changes

Revenue

The 2015–16 revenue outlook, at $124,390 million, remains unchanged from the 2015 Budget.

There are downside risks around the revenue outlook related to the weak start to economic growth in 2015. There are both upside and downside risks around the revenue outlook related to personal and corporate income tax assessments for past years and related to continued uncertainty over global economic growth. The government will continue to monitor economic and revenue developments and will provide further details in future fiscal updates.

Total Expense

The 2015–16 total expense outlook, at $131,902 million, is unchanged from the projection in the 2015 Budget. Key changes to ministry expense projections since the 2015 Budget are all fiscally neutral and they include:

  • A transfer of $3.0 million from Treasury Board Secretariat to the Ministry of Citizenship, Immigration and International Trade for advertising and media buying expenses for the 2015 Action Plan to Stop Sexual Violence and Harassment.
  • A transfer totaling $1.2 million from the Ministry of Tourism, Culture and Sport to the Ministry of Citizenship, Immigration and International Trade, Ministry of Aboriginal Affairs, Ministry of Transportation, Ministry of Education and Ministry of Economic Development, Employment and Infrastructure for promotion, celebration and legacy initiatives for the Pan/Parapan American Games. Funding supports the development of the volunteer program, implementation of the Aboriginal Communities Youth Project, cycling skills training programs, school-based programs and a North South Business Forum.
  • A transfer totaling $1.9 million from the Ministry of Children and Youth Services to the Ministry of Education, the Ministry of Citizenship, Immigration and International Trade, and the Ministry of Tourism, Culture and Sport to support the next phase of Ontario’s Youth Action Plan.
  • A transfer of $1.0 million from the operating contingency fund to Cabinet Office for Ontario’s contribution to the Red Cross to support relief efforts following the earthquake in Nepal.

Interest on debt expense is unchanged. The projected cost of borrowing is consistent with the 2015 Ontario Budget, as interest rates remain in line with the Budget forecast.

Fiscal Prudence

The 2015 Budget included a $1.0 billion reserve in 2015–16 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 current fiscal outlook maintains the full reserve.

The current outlook also maintains contingency funds to help mitigate expense risks — particularly in cases where health and safety may be compromised or services to the most vulnerable are jeopardized — that may otherwise negatively impact Ontario’s fiscal performance.

Section C: Ontario’s Economic Outlook

The Ontario economy continues to grow in a challenging global environment. Expectations for global economic growth remain moderate, but uneven. In July, the International Monetary Fund’s World Economic Outlook Update projected growth for the world economy of 3.3 per cent, slightly below the forecast at the time of the Budget. The average forecast for 2015 real GDP growth in the United States, Ontario’s largest trading partner, has declined from 3.1 per cent at the time of the 2015 Budget to 2.4 per cent.

As of July 31, 2015, private-sector forecasters, on average, project Ontario real GDP will increase by 2.2 per cent in 2015, down from a 2.8 per cent increase expected at the time of the 2015 Budget. Private-sector forecasts for Ontario real GDP growth in 2016 have increased slightly, averaging 2.6 per cent, up from 2.5 per cent at the time of the Budget.

Section D: Economic Performance

Ontario Real GDP

  • In the first (calendar) quarter of 2015, Ontario’s real GDP edged down 0.1 per cent, or 0.2 per cent annualized, following a 0.6 per cent increase, or 2.3 per cent annualized, in the fourth quarter of 2014. Ontario’s real GDP in the quarter was 8.5 per cent above its pre-recession level.

Labour Market

  • Ontario employment increased 0.4 per cent in the second quarter of 2015, following a 0.1 per cent decline in the first quarter. As of June 2015, Ontario employment increased by 295,600 net jobs, or 4.4 per cent, above the pre-recession peak reached in October 2008.
  • The unemployment rate was 6.5 per cent in June 2015, the lowest rate since September 2008.

Retail Sales

  • Ontario retail sales over the first two months of the second quarter grew 2.4 per cent above the first quarter average. On a year-to-date basis, retail sales were up 4.1 per cent over the first five months of 2015, compared to the same period in 2014.

Inflation

  • The Ontario Consumer Price Index (CPI) rose 0.9 per cent (year-over-year) in the second quarter of 2015. Lower energy prices contributed to the modest pace of inflation in the quarter.

Housing Market

  • Ontario home resales advanced by 9.7 per cent in the second quarter of 2015, after edging down 0.8 per cent in the previous quarter. On a year-to-date basis, Ontario home resales were up 12.2 per cent over the first six months of 2015, compared to the same period in 2014.
  • Ontario housing starts increased 22.0 per cent in the second quarter, following a decline of 3.7 per cent in the previous quarter.

Manufacturing Sales and International Exports

  • Ontario manufacturing sales over the first two months of the second quarter edged down 0.1 per cent compared to the first quarter average. On a year-to-date basis, manufacturing sales were down 0.5 per cent over the first five months of 2015, compared to the same period in 2014.
  • Ontario international goods exports (on a customs basis) increased 0.9 per cent in the second quarter of 2015. On a year-to-date basis, international goods exports advanced 8.7 per cent over the first six months of 2015, compared to the same period in 2014.

Ontario Key Economic Indicators

  (Seasonally adjusted per cent change from previous period, unless indicated otherwise)
  Monthly 2015 Quarterly Annual
  Apr May June 2015Q1 2015Q2 2014
Gross Domestic Product            
Real GDP N/A N/A N/A -0.1 N/A 2.2
Nominal GDP N/A N/A N/A 0.3 N/A 3.6
 Labour Market            
Labour Force (Change in 000s) -20.4 23.9 10.7 -12.7 4.5 34.8
Employment (Change in 000s) -14.3 43.9 14.0 -7.6 25.6 54.5
Unemployment Rate (%) 6.8 6.5 6.5 6.9 6.6 7.3
 Household Sector            
Retail Sales 0.3 1.2 N/A -0.8 N/A 5.0
Housing Starts1 0.7 31.3 -29.9 -3.7 22.0 -3.2
MLS Home Resales 4.8 3.4 0.4 -0.8 9.7 3.7
 Manufacturing Sales -0.6 -1.1 N/A -2.8 N/A 6.1
Transportation Equipment 1.4 -1.1 N/A -5.2 N/A 8.7
 Consumer Price Index2 0.8 0.9 1.0 1.5 0.9 2.4
1 Monthly and quarterly 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.

Section E: Details of Ontario’s Finances

Revenue

($ Millions)   2015–16
  Interim
2014–15
Budget
Plan
Current
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 29,028 30,377 30,377
Sales Tax1 21,740 22,982 22,982
Corporations Tax 10,148 11,342 11,342
Education Property Tax2 5,632 5,715 5,715
Employer Health Tax 5,430 5,680 5,680
Ontario Health Premium 3,350 3,458 3,458
Gasoline Tax 2,383 2,457 2,457
Land Transfer Tax 1,758 1,782 1,782
Tobacco Tax 1,163 1,262 1,262
Fuel Tax 738 752 752
Beer and Wine Tax 566 575 575
Electricity Payments-In-Lieu of Taxes 209 524 524
Other Taxes 509 491 491
  82,654 87,397 87,397
Government of Canada        
Canada Health Transfer 12,413 13,065 13,065
Canada Social Transfer 4,847 4,976 4,976
Equalization 1,988 2,363 2,363
Infrastructure Programs 149 308 308
Labour Market Programs 909 914 914
Social Housing 458 448 448
Wait Times Reduction Fund
Other Federal Payments 949 816 816
  21,713 22,890 22,890
Government Business Enterprises        
Ontario Lottery and Gaming Corporation 1,935 1,920 1,920
Liquor Control Board of Ontario 1,811 1,880 1,880
Ontario Power Generation Inc./Hydro One Inc. 1,565 1,012 1,012
  5,311 4,812 4,812
Other Non-Tax Revenue        
Reimbursements 989 980 980
Vehicle and Driver Registration Fees 1,442 1,592 1,592
Electricity Debt Retirement Charge 948 865 865
Power Supply Contract Recoveries 920 793 793
Sales and Rentals 2,260 2,803 2,803
Other Fees and Licences 914 979 979
Net Reduction of Power Purchase Contract Liability 217 172 172
Royalties 248 262 262
Miscellaneous Other Non-Tax Revenue 901 845 845
  8,839 9,291 9,291
Total Revenue 118,517 124,390 124,390
1 Sales Tax revenue is net of the Ontario Sales Tax Credit and the energy component of the Ontario Energy and Property Tax Credit.
2 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)     2015–16  
  Interim
2014–15
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs1 68.6 74.5 74.8 0.3
Agriculture, Food and Rural Affairs1 924.9 1,028.8 1,028.8
Attorney General 1,780.3 1,779.8 1,779.8
Board of Internal Economy2 300.9 210.5 210.5
Children and Youth Services 4,173.9 4,315.7 4,313.8 (1.9)
Citizenship, Immigration and International Trade 155.9 158.6 162.6 4.1
Community and Social Services 10,568.6 11,114.9 11,114.9
Community Safety and Correctional Services1 2,496.1 2,466.6 2,466.6
Economic Development, Employment and Infrastructure / Research and Innovation1 1,111.6 1,219.9 1,219.9 0.1
Education1 24,594.2 25,230.7 25,231.7 1.1
Energy1 316.9 322.9 322.9
Environment and Climate Change 485.6 503.3 503.3
Executive Offices 44.6 33.8 34.8 1.0
Finance1 821.3 860.9 860.9
Francophone Affairs, Office of 5.6 8.4 8.4
Government and Consumer Services 596.6 601.9 601.9
Health and Long-Term Care 50,172.7 50,770.9 50,770.9
Labour 307.7 310.5 310.5
Municipal Affairs and Housing1 884.5 920.0 920.0
Natural Resources and Forestry1 724.4 720.2 720.2
Northern Development and Mines 757.4 756.7 756.7
Tourism, Culture and Sport1 1,256.5 1,274.3 1,274.7 0.4
Training, Colleges and Universities 7,741.6 7,809.7 7,809.7
Transportation 2,965.6 3,456.8 3,456.9 0.2
Treasury Board Secretariat1 424.1 490.2 487.3 (3.0)
Interest on Debt3 10,675.0 11,410.1 11,410.1
Other Expense1 5,094.9 5,541.5 5,539.3 (2.2)
Program Review Savings Target (490.0) (490.0)
Year-End Savings4 (1,000.0) (1,000.0)
Total Expense 129,450.1 131,902.0 131,902.0
1 Details on other ministry expense can be found in the Details of Other Expense table.
2 The 2014–15 amount includes projected expenses for the 2014 general election.
3 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $193 million in 2014–15 and $170 million in 2015–16.
4 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.

Details of Other Expense

($ Millions)     2015–16  
  Interim
2014–15
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs        
One-Time Investments Including Settlements 3.3
Agriculture, Food and Rural Affairs        
Time-Limited Investments in Infrastructure 40.5 12.5 12.5
Time-Limited Assistance 6.5
Community Safety and Correctional Services        
Time-Limited Support for 2015 Pan/Parapan American Games Security 45.6 182.7 182.7
Economic Development, Employment and Infrastructure / Research and Innovation        
Federal-Provincial Infrastructure Programs 235.2 235.2
Education        
Teachers' Pension Plan1 571.0 71.0 71.0
Energy        
Ontario Clean Energy Benefit 1,080.0 860.0 860.0
Finance        
Ontario Municipal Partnership Fund 541.5 512.5 512.5
Power Supply Contract Costs 920.0 793.0 793.0
Municipal Affairs and Housing        
Time-Limited Investments in Municipal Social and Affordable Housing 153.3 160.3 160.3
Time-Limited Investments 7.3
Natural Resources and Forestry        
Emergency Forest Firefighting 79.4 69.8 69.8
Tourism, Culture and Sport        
Time-Limited Investments to Support 2015 Pan/Parapan American Games 468.6 904.6 903.4 (1.2)
Treasury Board Secretariat        
Operating Contingency Fund 50.0 550.0 549.0 (1.0)
Capital Contingency Fund 100.0 100.0
Pension and Other Employee Future Benefits 1,128.0 1,090.0 1,090.0
Total Other Expense 5,094.9 5,541.5 5,539.3 (2.2)
1 Numbers reflect Public Sector Accounting Board pension expense. Ontario's matching contributions to the plan are $1,531 million in 2014–15 and $1,593 million in 2015–16.
Note: Numbers may not add due to rounding.

2015–16 Infrastructure Expenditures

($ Millions)   2015–16 Plan
Sector Total
Infrastructure Expenditures
2014–15 Interim1
Investment
in Capital
Assets2,3(i)
Transfers
and Other
Infrastructure
Expenditures4
Total
Infrastructure
Expenditures3(ii)
Transportation        
Transit 2,919 2,659 546 3,205
Provincial Highways 2,361 2,466 2,466
Other Transportation,
Property and Planning
863 751 120 871
Health        
Hospitals 3,575 2,425 243 2,668
Other Health 359 70 206 276
Education 1,904 1,885 57 1,941
Postsecondary        
Colleges and Other 380 347 15 362
Universities 168 214 214
Social 241 27 315 342
Justice 220 91 152 243
Other Sectors5 689 418 861 1,279
Subtotal 13,680 11,138 2,728 13,866
Less: Federal and Municipal Contributions 348 75 255 330
Total 13,332 11,063 2,473 13,536
1 Includes Provincial investment in capital assets of approximately $9.5 billion.
2 Includes $170 million in interest capitalized during construction.
3 Includes approximately $2 billion in third party investments in hospitals, colleges and schools. Excluding this amount: (i) provincially funded investment in capital assets is approximately $9.1 billion; and (ii) total infrastructure expenditure is approximately $11.9 billion.
4 Includes transfers to municipalities, universities and non-consolidated agencies.
5 Includes government administration, natural resources, culture and tourism sectors.
Note: Numbers may not add due to rounding.

Review of Selected Financial and Economic Statistics1

($ Millions) 2011–12 2012–13 2013–14 Interim
2014–15
Current
Outlook
2015–16
Revenue 109,773 113,369 115,911 118,517 124,390
Expense          
Programs 112,660 112,248 115,792 118,775 120,492
Interest on Debt2 10,082 10,341 10,572 10,675 11,410
Total Expense 122,742 122,589 126,364 129,450 131,902
Reserve 1,000
Surplus / (Deficit) (12,969) (9,220) (10,453) (10,933) (8,512)
Net Debt 235,582 252,088 267,190 284,137 298,864
Accumulated Deficit 158,410 167,132 176,634 186,336 194,848
Gross Domestic Product (GDP) at Market Prices 658,635 679,616 695,705 720,938 751,242
Primary Household Income 444,343 460,133 473,702 490,211 509,311
Population – July (000s) 13,264 13,410 13,551 13,679 13,810
Net Debt per Capita (dollars) 17,762 18,798 19,717 20,772 21,642
Household Income per Capita (dollars) 33,501 34,312 34,957 35,837 36,881
Interest on Debt as a per cent of Revenue 9.2 9.1 9.1 9.0 9.2
Net Debt as a per cent of GDP 35.8 37.1 38.4 39.4 39.8
Accumulated Deficit as a per cent of GDP 24.1 24.6 25.4 25.8 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 Interest on debt is net of interest capitalized during construction of tangible capital assets of $232 million in 2012–13, $134 million in 2013–14, $193 million in 2014–15 and $170 million in 2015–16.
Sources: Ontario Ministry of Finance and Statistics Canada.

Section F: Ontario’s 2015–16 Financing Program

Province and Ontario Electricity Financial Corporation

($ Millions) Interim
2014–15
2015–16
Budget
Plan
Current
Outlook
In-Year
Change
Deficit / (Surplus) 10,933 8,512 8,512
Investment in Capital Assets 9,507 9,079 9,079
Non-Cash Adjustments (4,607) (4,912) (4,912)
Loans to Infrastructure Ontario 840 1,058 1,058
Other Net Loans / Investments (760) 1,012 1,009 (3)
Debt Maturities 21,572 20,981 21,072 91
Debt Redemptions 87 200 100 (100)
Total Funding Requirement 37,573 35,930 35,919 (11)
Canada Pension Plan Borrowing (42) (42)
Decrease / (Increase) in Short-Term Borrowing
Increase / (Decrease) in Cash and Cash Equivalents 45
Preborrowing from 2013–14 (2,603)
Preborrowing in 2014–15 4,834 (4,834) (4,834)
Total Long-Term Public Borrowing Requirement 39,849 31,054 31,043 (11)
Note: Numbers may not add due to rounding.

Borrowing Program Status (as at June 30, 2015)

 ($ Billions) Completed Remaining Total
Province 6.3 22.7 29.0
Ontario Electricity Financial Corporation 0.4 1.6 2.0
Total 6.7 24.3 31.0
Note: Numbers may not add due to rounding.

Long-Term Public Borrowing completed as at June 30, 2015 totalled $6.7 billion, as follows:

  ($ Billions)
Domestic Issues 4.2
Global/US Dollar/Other Issues 2.5
  6.7

Given the strength of demand in the Canadian-dollar market for Ontario bonds, the Province has raised its Canadian-dollar borrowing target to at least 75 per cent in 2015–16. As of June 30, 2015, approximately 63 per cent of this year’s borrowing had been completed in Canadian dollars.

Ministry of Finance
www.fin.gov.on.ca

For general inquiries regarding the Ontario Finances 2015–16 First Quarter Update, please call:

Toll-free English & French inquiries: 1-800-337-7222
Teletypewriter (TTY): 1-800-263-7776

© Queen’s Printer for Ontario, 2015

 

Chart: Ontario Real GDP Growth

The bar chart shows the 2015 Budget planning assumption and average private-sector projection at the time of the 2015 Budget (March) and the current view (July) for Ontario’s real GDP growth for 2015 and 2016. For 2015, the 2015 Budget planning assumption was 2.7 per cent growth. This compares to a private-sector average of 2.8 per cent at the time of the Budget and the current average private-sector forecast of 2.2 per cent in 2015. For 2016, the 2015 Budget planning assumption was 2.4 per cent growth. This compares to a private-sector average of 2.5 per cent in 2016 at the time of the Budget and the current average private-sector forecast of 2.6 per cent.

Return to Chart

 

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