2016-17 First Quarter Finances

August 2016

Contents

A.  2016–17 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 2016–17 Financing Program

Introduction

The Ontario Quarterly Finances contains updated information about Ontario’s 2016–17 fiscal outlook, including updated information about the major components of revenue and expense as set out in the 2016 Budget.

Section A: 2016–17 Fiscal Outlook

The government is projecting a deficit of $4.3 billion in 2016–17, unchanged from the 2016 Budget forecast.

As outlined in the 2016 Budget, the government is on track to balance the budget by 2017–18 and is projecting to remain balanced in 2018–19. The government’s path to a balanced budget is being achieved through responsible fiscal management, which involves managing growth in program spending and maintaining the integrity of Provincial revenues. At the same time, the government continues to make investments in the economy, its people, and a healthy, clean and prosperous low-carbon future.

Relatively strong economic growth recorded in Ontario over the second half of 2015 and early 2016 has helped increase private-sector forecasts for real GDP growth in 2016. The Ontario economy is benefiting from steady economic growth in the United States, low oil prices and a more competitive Canadian dollar.

However, weaker-than-expected global growth and low commodity prices have led to increased volatility in global financial and currency markets, and weakened confidence in the overall Canadian economy. Uncertainty in the global economy has increased, reflecting the United Kingdom’s recent vote to leave the European Union. As a result, global growth expectations will likely be revised lower over the near term, which would adversely affect Ontario’s economic outlook. However, Ontario’s diversified economy means the Province is well positioned to respond to changing global economic conditions.

Given the high degree of uncertainty regarding the economic growth outlook and forthcoming revenue information, the government is maintaining the 2016 Budget revenue forecast.

2016–17 In-Year Fiscal Performance

($ Millions)
  2016–17
Budget Plan
2016–17
Current Outlook
2016–17
In-Year Change
Revenue 130,589 130,590 1
Expense - Programs 122,139 122,140 1
Expense - Interest on Debt 11,756 11,756
Total Expense 133,895 133,896 1
Surplus/(Deficit) Before Reserve (3,306) (3,306)
Reserve 1,000 1,000
Surplus/(Deficit) (4,306) (4,306)
Note: Numbers may not add due to rounding.

Total revenue is projected to be $130.6 billion, essentially unchanged from the 2016 Budget plan.

The outlook for Provincial program expense, at $122.1 billion, is unchanged from the 2016 Budget plan — reflecting the government’s commitment to manage growth in spending.

The Province’s interest on debt expense forecast, at $11.8 billion, is unchanged from the 2016 Budget forecast.

The 2016–17 outlook also maintains a $1.0 billion reserve to protect the fiscal outlook against unforeseen adverse changes in the Province’s revenue and expense, including those resulting from changes in Ontario’s economic performance or the impact of natural disasters.

As outlined in the 2016 Budget, Ontario’s net debt-to-GDP ratio is expected to peak at 39.6 per cent in 2015–16, remain level in 2016–17 and begin to decline in 2017–18.

Further details on the Province’s fiscal plan, including final results for 2015–16, will be provided in future fiscal updates.

Section B: Details of In-Year Changes

Revenue

The 2016–17 revenue outlook, at $130.6 billion, remains essentially unchanged from the 2016 Budget forecast. Since the 2016 Budget, there is one change to the revenue outlook for 2016–17:

  • An increase of $0.9 million in federal revenue through the National Disaster Mitigation Program, to offset the expense increase to support flood mitigation measures across Ontario.

Risks to the 2016–17 revenue outlook are anticipated to be positive, reflecting a moderate improvement in 2016 economic growth. However, economic and revenue information still to be received over the coming months could significantly affect the revenue outlook. This includes personal and corporate income tax assessments for past years, Harmonized Sales Tax entitlements, Ontario-administered tax receipts in
2016–17 and ongoing economic developments. The government will continue to monitor economic and revenue developments and will provide further details in future fiscal updates.

Expense

The 2016–17 total expense outlook, at $133.9 billion, is on track with the projection in the 2016 Budget. The government continues to manage spending within the fiscal plan. Since the 2016 Budget, the following expense changes have occurred and have been accommodated within the fiscal plan.
Key changes to expense projections with offsets from the contingency funds include:

  • An increase of $91.3 million for more supports for children and youth with autism, including an accelerated implementation of the new Ontario Autism Program.
  • An increase of $40.4 million to address urgent health care needs and improve access to care for First Nations peoples primarily focused in the North.
  • An increase of $3.1 million to support the Ontario Cattle Feeders’ Association’s three-year strategic marketing initiative to promote Ontario Corn-Fed Beef to help increase its domestic market share, and grow global exports.
  • An increase of $2.9 million to enable the Anti-Racism Directorate to deliver on its core mandate and priorities.
  • An increase of $2.7 million to build on the government’s commitment to support vulnerable families by fully exempting child support payments as income received by social assistance clients.
  • An increase of $1.8 million to support Ontario’s Indigenous communities, including funding to the Ontario Native Women’s Association.
  • An increase of $1.0 million to support disaster relief efforts for both the Fort McMurray, Alberta wildfires and the Ecuador earthquake. The government also provided emergency management personnel to support local firefighting efforts in Fort McMurray.
  • An operating increase of $0.4 million and the transfer of land associated with the Chapleau Cree First Nation Treaty Land Entitlement Claim Settlement Agreement.

Other key changes to expense projections include:

  • A transfer of $116.4 million in capital funding from the Ministry of Economic Development, Employment and Infrastructure to the Ministry of Agriculture, Food, and Rural Affairs for the delivery of municipal infrastructure projects under the 2014 Building Canada Fund.
  • A transfer totaling $26.8 million from the Ministry of Citizenship, Immigration and International Trade to the Ministry of Tourism, Culture and Sport, the Ministry of Children and Youth Services, and Treasury Board Secretariat to revitalize communities and celebrate Ontario’s 150th birthday.
  • An increase of $0.9 million, fully offset by increased federal revenue through the National Disaster Mitigation Program, to support flood mitigation measures across Ontario.

The outlook for interest on debt expense is unchanged from the 2016 Budget plan. The projected cost of borrowing is consistent with the 2016 Budget, as interest rates remain in line with the Budget forecast.

Asset Optimization

The Province is making progress on its asset optimization strategy.

Since the release of the 2016 Budget, the government completed a secondary offering of 14 per cent of Hydro One common shares in April 2016 and closed the sale of the LCBO head office lands in June 2016.

The government remains on track to generate $5.7 billion in net revenue gains over time from its asset optimization initiative. All net revenue gains from the sale of qualifying assets will be dedicated to the Trillium Trust to help fund investments in transit, transportation and other priority infrastructure under Moving Ontario Forward.

This asset optimization target will help support the single largest infrastructure investment program in the province’s history.

Fiscal Prudence

The 2016 Budget included a $1.0 billion reserve in 2016–17 to protect the fiscal outlook against unforeseen adverse changes in the Province’s revenue and expense, including those resulting from changes in Ontario’s economic performance or the impact of natural disasters. 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 adversely affect Ontario’s fiscal performance.

Section C: Ontario’s Economic Outlook

As of July 5, 2016, private-sector forecasters, on average, project Ontario real GDP to increase by 2.6 per cent in 2016, up from the 2.3 per cent increase expected at the time of the 2016 Budget. Growth in 2017 is unchanged at 2.5 per cent.

Expectations for global economic growth in 2016 have been lowered since the 2016 Budget. The International Monetary Fund lowered their 2016 global growth forecast from 3.4 per cent at the time of the Budget to 3.1 per cent in July due to weakness in advanced and emerging economies, and the potential impact of United Kingdom’s recent vote to leave the European Union. The average forecast for 2016 real GDP growth in the United States, Ontario’s largest trading partner, has declined from 2.1 per cent at the time of the 2016 Budget to 1.9 per cent in July.

Section D: Economic Performance

The Ontario economy continues to grow in a challenging global environment, with real GDP rising by a solid 0.8 per cent (3.0 per cent at annual rates) in the first quarter of 2016. This follows a similar increase in the fourth quarter of 2015. Ontario posted higher real GDP growth in the first quarter than Canada, the U.S. and all other G7 countries.

The strength in Ontario’s economy has supported steady employment gains. Ontario’s employment increased by 85,100 jobs over the first six months of 2016, compared to the same period in 2015. As of June 2016, employment increased by 625,100 net jobs, or 9.8 per cent, above the recessionary low of June 2009, and the unemployment rate declined to 6.4 per cent, below the national average and the lowest rate since September 2008..

Major economic indicators of business-sector activity have advanced strongly during the first half of 2016. On a year-to-date basis, Ontario’s international merchandise exports increased 12.6 per cent, compared to the first five months of 2015. During the same period, manufacturing sales advanced 7.6 per cent, led by the auto sector. Similarly, consumers have recorded strong year-to-date gains in retail sales, home resale activity and housing starts.

(Seasonally adjusted per cent change from previous period, unless indicated otherwise)
  Monthly 2016
April
Monthly 2016
May
Monthly 2016
June
Quarterly
2016Q1
Quarterly
2016Q2
Annual
2015
Gross Domestic Product - Real GDP N/A N/A N/A 0.8 N/A 2.6
Gross Domestic Product - Nominal GDP N/A N/A N/A 0.7 N/A 3.5
Labour Market - Labour Force (Change in 000s) 13.7 -10.1 -20.1 36.8 7.5 7.5
Labour Market - Employment (Change in 000s) -3.3 21.6 -4.2 36.1 15.2 45.3
Labour Market - Unemployment Rate (%) 7.0 6.6 6.4 6.8 6.7 6.8
Household Sector - Retail Sales 0.4 N/A N/A 1.5 N/A 4.2
Household Sector - Housing Starts -25.9 5.6 25.8 6.5 -4.7 18.6
Household Sector - MLS Home Resales 2.8 -0.1 0.2 2.3 4.5 9.6
Manufacturing Sales - Transportation Equipment 0.6 -3.6 N/A 7.1 N/A 8.6
Consumer Price Index1 2.1 1.9 N/A 1.7 N/A 1.2
[1] 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)
  2016–17
Budget Plan
2016–17
Current Outlook
2016–17
In-Year Change
Taxation Revenue - Personal Income Tax 32,167 32,167
Taxation Revenue - Sales Tax2 23,976 23,976
Taxation Revenue - Corporations Tax 12,050 12,050
Taxation Revenue - Education Property Tax3 5,834 5,834
Taxation Revenue - Employer Health Tax 6,007 6,007
Taxation Revenue - Ontario Health Premium 3,604 3,604
Taxation Revenue - Gasoline Tax 2,522 2,522
Taxation Revenue - Land Transfer Tax 2,051 2,051
Taxation Revenue - Tobacco Tax 1,221 1,221
Taxation Revenue - Fuel Tax 790 790
Taxation Revenue - Beer and Wine Tax 611 611
Taxation Revenue - Electricity Payments-In-Lieu of Taxes 515 515
Taxation Revenue - Other Taxes 471 471
Total Taxation Revenue 91,819 91,819
Government of Canada - Canada Health Transfer 13,858 13,858
Government of Canada - Canada Social Transfer 5,128 5,128
Government of Canada - Equalization 2,304 2,304
Government of Canada - Infrastructure Programs 1,017 1,017
Government of Canada - Labour Market Programs 989 989
Government of Canada - Social Housing 434 434
Other Federal Payments 914 915 1
Total Government of Canada 24,644 24,645 1
Government Business Enterprises - Ontario Lottery and Gaming Corporation 1,953 1,953
Government Business Enterprises - Liquor Control Board of Ontario 2,025 2,025
Government Business Enterprises - Ontario Power Generation Inc./Hydro One Ltd./ Brampton Distribution Holdco Inc. 1,049 1,049
Total Government Business Enterprises 5,027 5,027
Other Non-Tax Revenue - Reimbursements 983 983
Other Non-Tax Revenue - Vehicle and Driver Registration Fees 1,751 1,751
Other Non-Tax Revenue - Electricity Debt Retirement Charge 625 625
Other Non-Tax Revenue - Power Supply Contract Recoveries 643 643
Other Non-Tax Revenue - Sales and Rentals 2,421 2,421
Other Non-Tax Revenue - Cap-and-Trade Proceeds 478 478
Other Non-Tax Revenue - Other Fees and Licences 987 987
Other Non-Tax Revenue - Net Reduction of Power Purchase Contract Liability 129 129
Other Non-Tax Revenue - Royalties 287 287
Other Non-Tax Revenue - Miscellaneous Other Non-Tax Revenue 795 795
Total Other Non-Tax Revenue 9,099 9,099
Total Revenue 130,589 130,590 1
[2] Sales Tax revenue is net of the Ontario Sales Tax Credit and the energy component of the Ontario Energy and Property Tax Credit.
[3] 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

Ministry Expense
($ Millions)
  2016–17
Budget Plan
2016–17
Current Outlook
2016–17
In-Year Change
Aboriginal Affairs4 77.0 78.8 1.8
Agriculture, Food and Rural Affairs5 915.9 919.0 3.1
Attorney General 1,867.8 1,867.8
Board of Internal Economy 219.9 219.9
Children and Youth Services 4,346.1 4,448.1 102.0
Citizenship, Immigration and International Trade 220.8 194.0 (26.8)
Community and Social Services 11,467.5 11,470.2 2.7
Community Safety and Correctional Services 2,649.5 2,649.5
Economic Development, Employment and Infrastructure / Research and Innovation6 1,177.0 1,177.0
Education7 25,635.8 25,635.8
Energy8 322.1 322.1
Environment and Climate Change 531.4 531.4
Executive Offices 44.0 47.9 3.9
Finance9 963.1 963.1
Francophone Affairs, Office of 5.7 5.7
Government and Consumer Services 607.6 607.6
Health and Long-Term Care 51,785.2 51,815.6 30.4
Labour 309.5 309.5
Municipal Affairs and Housing10 900.0 900.0
Natural Resources and Forestry11 750.6 750.6
Northern Development and Mines 790.7 790.7
Tourism, Culture and Sport12 1,250.8 1,273.5 22.7
Training, Colleges and Universities 7,876.8 7,876.8
Transportation 3,850.9 3,850.9
Treasury Board Secretariat13 316.9 320.3 3.4
Interest on Debt14 11,756.0 11,756.0
Other Expense15 4,056.8 3,914.5 (142.3)
Year-End Savings16 (800.0) (800.0)
Total Expense 133,895.4 133,896.3 0.9
[4], [5], [6], [7], [8], [9], [10], [11], [12], [13], [15] Details on other ministry expense can be found in the Details of Other Expense table.
[14] Interest on debt is net of interest capitalized during construction of tangible capital assets of $183 million in 2016–17.
[16] As in past years, the Year-End Savings provision reflects efficiencies through in-year expenditure management and underspending due to factors such as program management, and changes in project startups and implementation plans.
Notes: Numbers may not add due to rounding.
The impact of recently announced ministry restructuring will be reflected in future updates.

Details of Other Expense

Ministry Expense
($ Millions)
  2016–17
Budget Plan
2016–17
Current Outlook
2016–17
In-Year Change
Aboriginal Affairs - One-Time Investments including Settlements 0.4 0.4
Agriculture, Food and Rural Affairs - Time-Limited Investments in Infrastructure 116.4 116.4
Economic Development, Employment and Infrastructure / Research and Innovation - Federal-Provincial Infrastructure Programs 618.7 502.2 (116.4)
Education - Teachers’ Pension Plan17 (452.0) (452.0)
Energy - Strategic Asset Management and Transformation Related to Hydro One 70.9 70.9
Finance - Ontario Municipal Partnership Fund 505.0 505.0
Finance - Power Supply Contract Costs 643.1 643.1
Municipal Affairs and Housing - Time-Limited Investments in Municipal, Social and Affordable Housing 160.3 160.3
Municipal Affairs and Housing - Other Time-Limited Investments 0.9 0.9
Natural Resources and Forestry - Emergency Forest Firefighting 69.8 69.8
Tourism, Culture and Sport - Time-Limited Investments to Support 2015 Pan/Parapan American Games 88.6 88.6
Treasury Board Secretariat - Capital Contingency Fund 100.0 100.0
Treasury Board Secretariat - Operating Contingency Fund 1,100.0 956.4 (143.6)
Treasury Board Secretariat - Employee and Pensioner Benefits 1,152.5 1,152.5
Total Other Expense 4,056.8 3,914.5 (142.3)
[17] Numbers reflect Public Sector Accounting Board pension expense. Ontario’s matching contributions to the plan is $1,664 million in 2016–17.
Notes: Numbers may not add due to rounding.
The impact of recently announced ministry restructuring will be reflected in future updates.

2016–17 Infrastructure Expenditures

($ Millions)
Sector 2016–17
Current Outlook
Investment in Capital Assets18
2016–17
Current Outlook
Transfers and Other Infrastructure Expenditures19
2016–17
Current Outlook
Total Infrastructure Expenditures20
Transportation - Transit 4,701 688 5,389
Transportation - Provincial Highways 2,108 43 2,150
Transportation - Other Transportation, Property and Planning 603 166 768
Health - Hospitals 2,621 263 2,884
Health - Other Health 60 248 308
Education 1,834 171 2,005
Postsecondary - Colleges and Other 608 4 613
Postsecondary - Universities 187 187
Social 8 304 311
Justice 58 197 255
Other Sectors21 436 934 1,370
Total 13,038 3,202 16,240
[18] Includes $183 million in interest capitalized during construction.
[19] Includes transfers to municipalities, universities and non-consolidated agencies.
[20] Includes third party investments in hospitals, colleges and schools; and provisional federal contributions to provincial infrastructure investments.
[21] Includes government administration, natural resources, culture and tourism sectors.
Note: Numbers may not add due to rounding.

Review of Selected Financial and Economic Statistics

($ Millions)
  2012–13 2013–14 2014–15 Interim
2015–16
Current Outlook 2016–17
Revenue 113,369 115,911 118,546 126,547 130,590
Expense - Programs 112,248 115,792 118,225 120,883 122,140
Expense - Interest on Debt22 10,341 10,572 10,635 11,200 11,756
Total Expense 122,589 126,364 128,860 132,083 133,896
Surplus/(Deficit) Before Reserve (9,220) (10,453) (10,314) (5,536) (3,306)
Reserve 150 1,000
Surplus/(Deficit) (9,220) (10,453) (10,314) (5,686) (4,306)
Net Debt 252,088 267,190 284,576 296,109 308,315
Accumulated Deficit 167,132 176,634 187,511 193,447 197,753
Gross Domestic Product (GDP) at Market Prices 680,084 693,210 721,970 747,101 779,407
Primary Household Income 459,111 473,905 490,412 508,714 531,151
Population – July (000s) 13,410 13,551 13,678 13,792 13,960
Net Debt per Capita (dollars) 18,798 19,717 20,806 21,470 22,086
Household Income per Capita (dollars) 34,236 34,972 35,855 36,885 38,048
Interest on Debt as a Per Cent of Revenue 9.1 9.1 9.0 8.9 9.0
Net Debt as a Per Cent of GDP 37.1 38.5 39.4 39.6 39.6
Accumulated Deficit as a Per Cent of GDP 24.6 25.5 26.0 25.9 25.4
[22] Interest on debt is net of interest capitalized during construction of tangible capital assets of $134 million in 2013–14, $202 million in 2014–15, $131 million in 2015–16, and $183 million in 2016–17.
Sources: Ontario Ministry of Finance and Statistics Canada.

Section F: Ontario’s 2016–17 Financing Program

Province and Ontario Electricity Financial Corporation

($ Billions)
  2016–17
Budget Plan
2016–17
Current Outlook
2016–17
In-Year Change
Deficit/(Surplus) 4.3 4.3
Investment in Capital Assets 11.2 11.2
Non-Cash Adjustments (5.8) (5.8)
Other Net Loans/Investments (0.9) (1.1) (0.2)
Debt Maturities 21.5 21.2 (0.2)
Debt Redemptions 0.1 0.1
Total Funding Requirement 30.3 29.8 (0.4)
Canada Pension Plan Borrowing (0.1) (0.1)
Decrease/(Increase) in Short-Term Borrowing (1.0) (1.0)
Increase/(Decrease) in Cash and Cash Equivalents (2.7) (2.3) 0.4
Preborrowing from 2015–16 (2.0) (2.0)
Total Long-Term Public Borrowing Requirement 26.4 24.4 (2.0)
Note: Numbers may not add due to rounding.

Borrowing Program Status (as at June 30, 2016)

($ Billions)
  Completed Remaining Total
Province 8.1 16.3 24.4
Ontario Electricity Financial Corporation 0.0 0.0 0.0
Total 8.1 16.3 24.4
Note: Numbers may not add due to rounding.

Long-Term Public Borrowing completed as at June 30, 2016 totalled $8.1 billion, as follows:

($ Billions)
Domestic Issues 4.5
Global/US Dollar/Other Issues 3.6
Total 8.1

As of June 30, 2016, approximately 55 per cent of this year’s borrowing was completed in Canadian dollars. The Province may revise its Canadian dollar borrowing target of 75 per cent published in the 2016 Budget if international demand for Ontario bonds outpaces domestic demand.

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

For general inquiries regarding the 2016–17 First Quarter Finances, please call:

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

© Queen’s Printer for Ontario, 2016

Chart: Ontario Real GDP Growth

This bar chart shows 2016 Budget forecast and private-sector average forecast for Ontario real GDP growth in 2016 and 2017. The 2016 Budget projected Ontario real GDP to rise by 2.2 per cent in 2016 and 2.4 per cent in 2017. As of July 5, 2016, private-sector forecasters, on average, project Ontario real GDP to increase by 2.6 per cent in 2016, up from the 2.3 per cent increase expected at the time of the 2016 Budget. Private-sector forecasts for Ontario real GDP growth in 2017 are unchanged at 2.5 per cent since the time of the Budget.

Return to Chart