Ontario Budget 2008: Chapter II:

SECTION A: OVERVIEW

Table 1
2008 Budget — Numbers at a Glance

Ontario’s Economy:		Provincial Finances:
Projected Real GDP Growth, 2008	1.1%	2007–08 Interim Surplus	$600 million
Avg. Private-Sector Growth, 2008	1.2%	2008–09 Revenue Plan	$96.9 billion
Projected Real GDP Growth, 2009	2.1%	2008–09 Expense Plan	$96.2 billion
Jobs since October 2003	456,800	2008–09 Reserve	$750 million
Jobs Created in 2007	101,100	Debt1-to-GDP Ratio (03–04)	25.2%
Real GDP (2007 above 2003)	10%	Debt1-to-GDP Ratio (07–08)	18.1%
Real Disposable Income (2007 above 2003)	12%
Real Machinery and Equipment Investment (2007 above 2003)	41%
1 Debt is defined as accumulated deficit.

Ontario’s economy has been strong and resilient in recent years, with higher-than-forecast employment growth, and robust consumer and business investment spending. Modest economic growth is anticipated in 2008, as the Ontario economy faces a slowing U.S. economy along with ongoing challenges related to high oil prices and the strong Canadian dollar. Growth is expected to rebound after 2008 due to investments under the Ontario Government’s five-point plan to strengthen the economy and an improving U.S. economy.

With a $0.6 billion surplus projected for 2007–08, the Province is on track to exceed its planned fiscal target for the fourth year in a row and to achieve its third consecutive surplus. The Province remains resilient and is on track to post six consecutive balanced budgets between 2005–06 and 2010–11, for the first time since 1908.

SECTION B: 2007-08 INTERIM FISCAL PERFORMANCE

The government’s prudent approach to managing the Province’s finances continues to produce results. It has eliminated the $5.5 billion deficit it inherited in 2003–04 and is now on track to achieve its third consecutive surplus. A $0.6 billion surplus is forecasted for 2007–08, representing an in-year improvement of $1.0 billion from the 2007 Budget Plan.

The interim outlook indicates that revenue for 2007–08 is estimated to be $96.6 billion, a 5.5 per cent increase over the 2007 Budget forecast. Total expense is estimated to be $96.0 billion, 5.3 per cent higher than the 2007 Plan.

The 2007–08 interim results are based on the best information available as of early March 2008. Given the preliminary nature of these estimates, interim projections are subject to change when actual Provincial revenue and expense are finalized in the 2007–08 Public Accounts.

In-Year Revenue Performance

Total revenue in 2007–08 is estimated to be $96,563 million, $5,060 million higher than the 2007 Budget forecast. This is mainly due to stronger economic growth and higher revenues from processing past-year tax returns

Table 3
Summary of In-Year Changes to Revenue in 2007–08
($ millions)

		Interim 2007–08
Taxation Revenue
Corporations Tax	2,141
Personal Income Tax	1,381
Land Transfer Tax	235
Retail Sales Tax	198
Employer Health Tax	122
Ontario Health Premium	70
Tobacco Tax	(96)
Electricity Payments-in-Lieu of Taxes	(148)
All Other Taxes	100
		4,003
Government of Canada
Canada Health Transfer and Canada Social Transfer	473
All Other Government of Canada	285
		758
Income from Government Enterprises
Ontario Power Generation Inc. and Hydro One Inc.	90
All Other Government Business Enterprises	27
		117
Other Non-Tax Revenue		182
Total Revenue Change		5,060

Revenue Changes

• Corporations Tax (CT) revenues for 2007–08 are estimated to be $2,141 million above the 2007 Budget projection mainly due to stronger 2007 corporate profit growth, robust final tax remittance payments from the financial sector in December and stronger assessment payments related to prior years. The CT revenue change also reflects the impact of a number of tax measures since the 2007 Budget, including 2007 federal budget measures paralleled by Ontario, tax measures announced in the 2007 Economic Outlook and Fiscal Review, and proposed new measures as outlined in Chapter III: Tax Support for Families and Business.
• Personal Income Tax (PIT) revenues are estimated to be $1,381 million above forecast in 2007–08 mainly due to stronger 2007 wages and salaries growth and higher revenues from processing 2006 tax returns. Since the 2007 Budget, processing of 2006 and prior years’ tax returns has increased 2006–07 revenues above Budget estimates, raising the base upon which growth is applied in forecasting PIT revenues for 2007–08 and beyond. Higher revenues than estimated in the 2006–07 Public Accounts result in a one-time increase to PIT revenues of $517 million in 2007–08 as variances from past Public Accounts estimates are included in the current year. Personal Income Tax revenues in 2007–08 also include a $120 million payment from the federal government resulting from corrections to past years’ tax entitlements. Also included is the impact of tax measures announced in the 2007 federal budget that Ontario paralleled, tax measures announced in the 2007 Economic Outlook and Fiscal Review, and proposed new Ontario tax measures as outlined in Chapter III: Tax Support for Families and Business.
• Land Transfer Tax (LTT) revenues are estimated to be $235 million above forecast, reflecting a robust Ontario housing resale market that set new records in 2007. The LTT change captures the impact of tax measures announced in the 2007 Economic Outlook and Fiscal Review.
• Retail Sales Tax (RST) revenues are estimated to increase by $198 million due to stronger consumer spending in 2007. The RST change captures the impact of previously announced tax measures and new tax measures as outlined in Chapter III: Tax Support for Families and Business.
• Employer Health Tax revenues are estimated to be $122 million above the 2007 Budget projection due to stronger growth in employment and wages.
• Ontario Health Premium revenues are estimated to increase by $70 million above forecast, largely reflecting stronger growth in 2007 wages and salaries.
• Tobacco Tax revenue is estimated to be $96 million below forecast based on revenue performance to date. This reflects a combination of Ontarians’ healthier lifestyles and contraband activity in the cigarette market. Enforcement measures to combat illegal activity continue. For more details see Chapter III: Tax Support for Families and Business.
• Electricity Payments-In-Lieu of Taxes (PILs) are estimated to be $148 million below forecast, largely due to lower payments from Hydro One Inc. (HOI) and Ontario Power Generation Inc. (OPG). Lower HOI PILs reflect lower net income as a result of the Ontario Energy Board’s decision on HOI’s transmission rate application, including a lower allowed rate of return on equity for HOI’s transmission business. Lower OPG PILs are due to the corporation’s special December 2007 contribution to the nuclear used-fuel segregated fund, established in 2003 for the costs of long-term used-fuel disposal. The latter impact on PILs is offset by an equivalent increase in OPG net income.
• All Other Tax revenues are estimated to be $100 million above forecast, largely due to higher Mining Profits Tax revenues arising from robust metal prices. Partially offsetting this increase were lower-than- expected Gasoline Tax and Fuel Tax revenues, due respectively to higher gasoline pump prices and weaker manufacturing shipments.
• Canada Health Transfer (CHT) and Canada Social Transfer (CST) revenues are estimated to be $473 million above forecast mainly due to revised estimates of current- and past-year entitlements under these programs. Revised estimates of Ontario’s entitlements under CHT and CST are largely due to a lower estimated share of the Canada-wide tax base in 2006 boosting Ontario’s share of federal funding. This results in a $339 million increase in CHT and CST, including a one-time revenue increase of $239 million as variances from past Public Accounts estimates are reflected in the current year. In addition, 2007 federal budget changes to the calculation of entitlements under CHT and CST result in an additional $134 million in revenues.
• The $285 million increase above forecast in Other Government of Canada Transfers in 2007–08 is largely related to the 2007 federal budget announcement of funds for the patient wait-times guarantee and a program to provide the human papillomavirus (HPV) vaccine, as well as higher transfers for infrastructure projects and new federal transfers related to Ontario’s capital tax elimination.
• Hydro One Inc. and Ontario Power Generation’s combined net income is estimated to be $90 million above forecast largely from higher OPG net income due to the special contribution to the nuclear used-fuel segregated fund, the impact of which is offset by an equivalent decrease in OPG PILs. The increase in OPG’s net income more than offsets lower HOI net income related to the Ontario Energy Board’s decision noted above.
• All Other Government Business Enterprises net income increased due to higher net incomes from the Ontario Lottery and Gaming Corporation (OLG) and Liquor Control Board of Ontario (LCBO).
• Other Non-Tax Revenue is expected to be $182 million above forecast largely due to higher recoveries of prior-year expenditures, reimbursements from municipalities for Provincial spending, and consolidated sales and rentals.

In-Year Expense Performance

Total expense in 2007–08 is currently projected to be $95,963 million, an increase of $4,810 million from the 2007 Budget forecast. This increase primarily reflects government investments that strengthen Ontario’s economic growth through its five-point economic plan.

Table 4
Summary of In-Year Expense Changes in 2007–08
($ millions)

	Interim 2007–08
Program Expense Changes:
Infrastructure and Transportation	1,923.4
Postsecondary Education and Training Sector	758.4
Strengthening Ontario’s Industries	516.2
Children’s and Social Services/Social Housing	493.4
Justice Sector	378.4
Aboriginal Affairs	207.3
Health Sector	178.2
Strengthening the Environment for Innovation	71.2
Northern Development and Natural Resources	64.9
Business and Economic Development	57.0
Greener Ontario	35.8
Other (net) Program Expense Changes	282.9
Total Program Expense Changes	4,967.2
Interest on Debt Savings	(157.0)
Total Expense Changes	4,810.2
Note: Numbers may not add due to rounding.

Expense Changes

Since the 2007 Budget forecast, total expense increased by $4,810.2 million, largely as a result of a $4,967.2 million increase in program expense, offset by $157.0 million in interest on debt savings. Highlights of key expense changes include the following:

• In 2007–08, infrastructure and transportation expense increased by a net $1,923.4 million. This includes $1,104.0 million for new municipal transit, including the funding announced in the 2007 Economic Outlook and Fiscal Review; $400.0 million for municipal roads and bridges, as announced in this Budget; $450.0 million in funding for the Municipal Infrastructure Investment Initiative; and an additional $32.4 million to assist municipalities in addressing immediate transportation infrastructure demands.
• The postsecondary education and training sector, including the net expense of Ontario’s colleges of applied arts and technology, increased by a net $758.4 million in 2007–08. This increase is primarily related to investments in Ontario’s colleges and universities, including $353.5 million to support energy-efficiency improvements and campus renewal projects at postsecondary institutions, and $289.4 million for strategic capital investments at colleges and universities.
• Investments to strengthen Ontario’s industries totalled $516.2 million in 2007–08 and include:
  • A net in-year expense increase of $335.1 million for the agriculture sector, which includes $150.0 million in funding to provide financial assistance to help cattle, hog and horticulture farmers manage the effects of current market conditions, as well as initiatives to strengthen competitiveness and $135.0 million in support for grain and oilseed farmers.
  • An expense increase of $102.2 million for culture and tourism. This change is largely related to investments in libraries as well as festivals and marketing initiatives that aim to attract new domestic and international visitors to communities and major attractions across the province.
  • Investments of an additional $78.9 million in the manufacturing sector. The funding includes $25 million to the Yves Landry Foundation for training programs to improve the productivity and adaptability of employees. Funding is also provided to help firms reduce costs and improve competitiveness.
• Children’s and social services expense increased by a net $493.4 million in 2007–08 largely to support the delivery of social assistance, developmental services and child care, and provide one-time funding to municipalities to rehabilitate their social housing stock.
• Justice sector expense increased by $378.4 million in 2007–08, primarily due to a one-time provision for the backlog of cases in the Criminal Injuries Compensation Board, capital investments, and various justice initiatives and community safety enhancements.
• In 2007–08, Aboriginal Affairs expense increased by a net $207.3 million. This change is primarily related to the Ontario First Nations Gaming Revenue Sharing Financial Agreement, which will provide a revenue source for Ontario First Nations to support health, education, community, economic and cultural development.
• A net in-year expense change of $178.2 million in the health sector is primarily due to the introduction of the new $39.2 million voluntary human papillomavirus (HPV) vaccination program, a $14.1 million investment in 10 residential hospices to provide end-of-life care in a home-like environment, $9.0 million in funding for the development of the new expanded Toronto’s Ronald McDonald House, as well as investments to accommodate pressures related to the Ontario Health Insurance Plan (OHIP) program and the Long-Term Care Homes sector.
• To strengthen the environment for innovation, government expense increased by a net $71.2 million in 2007–08. This change includes strategic investments in research, innovation and commercialization initiatives, including the Ontario Institute for Cancer Research, the Institute for Quantum Computing and the Windsor Institute for Diagnostic Imaging.
• Support for northern development and natural resources increased by a net $64.9 million in 2007–08, largely to fund additional forest fire-fighting due to the above-average number of fires this year; address associated renewal and legal obligations under the Crown Forest Sustainability Act; and fund the startup of the Molecular Medicine Research Centre in Thunder Bay.
• Business and economic development expense has increased by $57.0 million in 2007–08. This increase is primarily the result of one-time support for the University of Toronto – Rotman School of Management’s new Prosperity Institute. The Institute will develop capacity for interdisciplinary research on the creation of jurisdictional economic advantage. Support is also provided for communities facing significant challenges, and for a new Global Expansion Program to assist companies reach export markets.
• In 2007–08, expense related to promoting a greener Ontario increased by $35.8 million. This net in-year increase is largely supporting the Go Green climate change plan and the development of drinking water source protection plans.
• Other program expense changes amount to a net increase of $282.9 million in 2007–08, reflecting the balance of changes in program expense. Highlights of additional spending captured in this change include investments in government information technology, international disaster relief and the Ontario Education Collaborative Marketplace program.
• Interest on Debt, at $8,966.0 million, is $157.0 million lower than the 2007 Budget Plan. This amount reflects the impact of lower interest rates and the cost-effective management of the borrowing program, partially offset by the preliminary allowance of $100 million for asset-backed commercial paper as reported in the 2007 Economic Outlook and Fiscal Review.

SECTION C: ONTARIO’S ECONOMIC OUTLOOK

Outlook for Strengthening Ontario Economic Growth

This section outlines Ontario’s current macroeconomic outlook, which is the basis for the fiscal plan. The Ministry of Finance is projecting real GDP growth of 1.1 per cent in 2008, 2.1 per cent in 2009 and 2.7 per cent in 2010.

Ontario real GDP rose by an estimated 2.1 per cent in 2007, 0.5 percentage points above the Ministry’s 2007 Budget forecast. Stronger-than-expected growth occurred despite a significantly more challenging external environment, including a stronger Canadian dollar, higher oil prices, weakening U.S. growth and financial market disruptions resulting from rising sub-prime mortgage defaults in the United States.

Table 5
Ontario Economic Outlook
(Per Cent)

	2003	2004	2005	2006	2007	2008p	2009p	2010p
Real GDP Growth	1.4	2.5	2.9	2.1	2.1e	1.1	2.1	2.7
Nominal GDP Growth	3.2	4.8	3.9	3.9	5.1e	2.8	3.9	4.6
Employment Growth	3.0	1.7	1.3	1.5	1.6	1.0	1.1	1.3
CPI Inflation	2.7	1.9	2.2	1.8	1.8	1.4	1.9	2.0
e = estimate; p = Ministry of Finance planning projection. Sources: Statistics Canada and Ontario Ministry of Finance.

Private-Sector Forecasts Call for Continued Growth

Economic projections are a key building block for the government’s fiscal plan. To ensure reasonable and accountable economic projections, the Ministry of Finance consults with private-sector forecasters.
The Ontario Economic Forecast Council¹ provides expert advice on the macroeconomic forecasts and assumptions used to develop the Budget. The Minister of Finance met with Council members and other private-sector forecasters twice over the last year, in the process of preparing the 2007 Economic Outlook and Fiscal Review and the 2008 Budget. Council members reviewed the economic assumptions underlying the 2008 Budget to verify that the forecast was a reasonable basis for planning.

Table 6
Private-Sector Forecasts for Ontario Real GDP Growth
(Per Cent)

	2008	2009	2010
Conference Board of Canada (February)	2.1	2.9	3.4
Global Insight (February)	1.4	1.9	2.3
Centre for Spatial Economics (January)	1.3	2.0	2.4
University of Toronto (February)	0.4	2.5	3.2
RBC Financial Group (February)	0.9	2.2	–
Scotiabank Group (February)	1.4	1.7	–
TD Bank Financial Group (January)	1.5	2.5	–
BMO Capital Markets (February)	0.9	2.4	–
CIBC World Markets (February)	1.3	–	–
Private-Sector Survey Average	1.2	2.3	2.8
Ontario’s Planning Assumption	1.1	2.1	2.7
Sources: Ontario Ministry of Finance and Ontario Ministry of Finance Survey of Forecasts (February 29, 2008).

Challenging External Economic Environment

Ontario’s Resilience in the Face of Global Economic Challenges

The short-term Ontario economic outlook is heavily influenced by external factors such as oil prices, the Canadian dollar exchange rate, interest rates and U.S. economic growth. The following table shows the typical range for the first- and second-year impacts of these external factors on Ontario real GDP growth. These estimates are based on historical relationships and illustrate the upper and lower limits for the average response. They show the implications of changes in key assumptions in isolation from changes to other external factors. The combination of changing circumstances can also have a substantial bearing on the actual outcome.

Table 7
Impacts of Changes in Key Assumptions on Ontario Real GDP Growth¹
(Percentage Point Increase)

	First Year	Second Year
Canadian Dollar Depreciates by Five Cents US	0.1 to 0.8	0.5 to 1.2
World Crude Oil Prices Decrease by $10 US per Barrel	0.1 to 0.5	0.1 to 0.5
U.S. Real GDP Growth Increases by One Percentage Point	0.3 to 0.7	0.4 to 0.8
Canadian Interest Rates Decrease by One Percentage Point	0.1 to 0.5	0.2 to 0.6
1 Impacts based on changes being sustained. Source: Ontario Ministry of Finance.

U.S. Growth Set to Strengthen in the Second Half of 2008

The state of the U.S. economy is important to Ontario. In 2007, almost 84 per cent of the province’s international merchandise exports went to the United States. A decline in U.S. residential investment, slower consumer spending and weaker business investment, as well as financial market challenges arising from increasing mortgage defaults, caused U.S. real GDP growth to slow to 2.2 per cent in 2007.

Most economists expect the weakness in the U.S. economy to be short-lived. The U.S. Federal Reserve has cut its key interest rate by 225 basis points since September 2007 to help stimulate the economy and stem the slump in housing. Lower interest rates combined with a large fiscal stimulus, including tax rebates, are expected to boost consumer spending. Private-sector forecasters, on average, expect U.S. real GDP to grow by 1.7 per cent in 2008, with growth expected to be soft in the first half of 2008 and to rebound solidly in the second half of the year. Growth in the United States is projected to rebound to 2.6 per cent in 2009 and 2.8 per cent in 2010.

Oil Prices Expected to Remain High

Ontario imports virtually all the crude oil it consumes, and higher prices for this key commodity raise costs for businesses and consumers. However, elevated oil prices do not pose the same risk as they did in the past — the Ontario economy is over 50 per cent more energy efficient than it was during the oil shocks in the 1970s.

Oil prices averaged $72.30 US per barrel in 2007, rising for the sixth consecutive year. Oil prices climbed from less than $50 US in mid-January 2007 to over $110 US in early March 2008.

Oil prices have increased and are expected to remain elevated over the forecast horizon due to restrained supply growth and strong global demand. Ongoing geopolitical risks in key oil-producing regions, continued production restraint by OPEC (Organization of the Petroleum Exporting Countries) and slow growth of non-OPEC capacity will limit global supply. Rising global demand, particularly from rapidly emerging economies such as China and India, will keep oil markets tight and vulnerable to a major supply disruption.

The average private-sector forecast for oil prices is $84 US per barrel in 2008, $77 US per barrel in 2009 and $79 US per barrel in 2010 (annual averages). Ministry of Finance planning projections (see chart above) are prudent compared to the average private-sector forecast. Significant uncertainty persists in oil markets and analysts’ projections for the annual average in 2008 range from less than $77 US per barrel to more than $92 US per barrel.

The Canadian-U.S. Exchange Rate Around Parity

The Canadian dollar has increased in value since 2002 due primarily to higher oil and commodity prices and more recently due to weakness in the U.S. economy. The high dollar has created challenges for Ontario’s export-oriented manufacturing, agriculture, forestry and tourism sectors.

The higher dollar benefits Ontario businesses importing goods and services, including lowering the cost of imported machinery and equipment goods.

The Canadian dollar averaged 93.1 cents US in 2007, rising for the fifth straight year. Forecasters on average call for a Canadian dollar of 98.7 cents US in 2008, 96.2 cents US in 2009 and 97.9 cents US in 2010. Ministry of Finance planning projections (see chart above) are prudent compared to the average private-sector forecast. Forecasts for the Canadian dollar in 2008 range from a low of 96 cents US to a high of 103 cents US.

Ontario’s Exports to Overcome Short-Term Challenges

Along with weaker U.S. demand and growing competition from newly industrialized countries, exporters have been faced with the competitive challenge of the strong Canadian dollar. Exporters have responded by shifting to higher value-added products, entering new international markets and trading more with the rest of Canada.

Over the past five years, the value of Ontario’s merchandise exports to the United States has declined by 12.3 per cent, while exports to other countries have more than doubled. Last year, the value of Ontario’s merchandise exports fell by 0.2 per cent as exports to the United States declined by 3.6 per cent, while exports to the rest of the world increased by 21.6 per cent.

Imports have increased rapidly over the last five years, reflecting a strengthening Canadian dollar that has reduced the relative cost of imported goods and services; greater investment in productivity-enhancing machinery and equipment, most of which is imported; and buoyant household demand.

With U.S. demand slipping and a strong Canadian dollar, the real value of Ontario’s exports is expected to be flat this year. The opening of the new Toyota plant in Woodstock, scheduled to begin production in the fall of 2008, will give exports a lift. Stronger U.S. domestic demand in 2009 should increase exports of autos and durable goods. Robust growth in Western Canada will continue to boost Ontario interprovincial exports. Ontario real exports are projected to increase by 2.5 per cent in 2009 and 2.9 per cent in 2010.

Interest Rates Lower in 2008

The current outlook is for interest rates to decline in 2008 and rise moderately afterwards. The Bank of Canada cut its benchmark rate by 100 basis points between December and the beginning of March, dropping the Canadian overnight lending rate to 3.50 per cent. Further cuts are expected. According to the Bank of Canada, domestic demand in Canada remains firm, but the Bank acknowledges that further monetary stimulus will likely be required in the near term.

Heightened risk aversion in financial markets, combined with slower economic growth, has led to lower yields on secure government assets including treasury bills and government bonds. The fall in interest rates for government debt has not been matched by declines in interest rates for private-sector debt. As of early March, the Canadian three-month treasury bill rate declined by around 220 basis points since August 2007 while the three-month commercial paper rate declined by about 120 basis points. Private-sector forecasters project Canadian three-month treasury bill rates will average 3.3 per cent in 2008, down from 4.2 per cent in 2007. Once economic and credit conditions improve, interest rates are projected to rise but remain well below historical averages. Forecasters expect three-month treasury bill rates to rise to 3.8 per cent in 2009 and 4.5 per cent in 2010. Ten-year Government of Canada bond yields are forecast to average 3.9 per cent in 2008, 4.5 per cent in 2009 and 5.2 per cent in 2010. Ministry of Finance planning projections (see table above) are consistent with the average private-sector forecast.

Inflation Expected to Drop in 2008

Ontario’s consumer price index (CPI) inflation rate has been low and stable in recent years, averaging 1.8 per cent in both 2006 and 2007.

Inflation is expected to remain low over the forecast horizon. Ontario’s CPI inflation rate is expected to fall to a 10-year low of 1.4 per cent in 2008, largely reflecting the impact of the one percentage point cut in the federal Goods and Services Tax (GST). Once the 2008 GST cut no longer affects year-to-year price changes, Ontario’s CPI inflation rate is expected to average 1.9 per cent in 2009 and 2.0 per cent in 2010.

Continued Strong and Resilient Domestic Economy

Strong Investment to Lead Growth

Business investment remained strong in 2007 and is expected to be a leading contributor to growth in the Ontario economy in coming years. Real investment in commercial and industrial structures expanded 4.6 per cent, while real investment in machinery and equipment grew 8.4 per cent.

Healthy corporate balance sheets and the rising Canadian dollar have encouraged business investment. Corporate profits rose by an average of 4.7 per cent annually since 2003, and are projected to grow by an average of 4.4 per cent annually from 2008 through 2010. Growth in corporate profits should continue to provide a healthy financial environment for business investment in Ontario. Interest rates are projected to decline this year, lowering borrowing costs for business expansion and upgrading machinery and equipment.

The higher Canadian dollar lowers the costs of imported machinery and equipment, making it more attractive for business to invest in leading-edge technologies. Real investment in machinery and equipment is projected to rise by 6.0 per cent in 2008 and by an average of 4.3 per cent a year in 2009 and 2010. Commercial and industrial construction is also expected to remain strong. Real spending on business construction is expected to rise by 2.5 per cent in 2008 and by an average of 2.4 per cent a year in 2009 and 2010.

Employment Growth to Continue

Since October 2003, the Ontario economy has created 456,800 net new jobs — 383,500, or 84 per cent, have been full time. There has been strong employment growth in sectors paying above-average wages, including finance (47,800), education (93,500), health care and social assistance (71,100), construction (71,400), and professional services (62,000).

The Ontario economy created 101,100 net new jobs in 2007, a gain of 1.6 per cent — the largest increase since 2004. Private-sector forecasters expect continued job growth. The Ministry of Finance is projecting employment will increase by 1.0 per cent this year, 1.1 per cent in 2009 and 1.3 per cent in 2010, which translates into a total gain of 230,000 net new jobs over this three-year period. The annual unemployment rate is projected to fall to 6.3 per cent by 2010.

Household Income and Spending to Increase

The healthy labour market has resulted in solid wage gains. Since 2003, the average hourly wage rate has increased by 12.7 per cent. Steady employment gains and rising wages led to a 4.9 per cent increase in labour income in 2007. Labour income is forecast to increase by 3.4 per cent in 2008 and to pick up over the medium term, averaging 4.0 per cent in 2009 and 2010.

Rising incomes will support growing household spending. Real consumer spending grew by 3.4 per cent in 2007 and is expected to average 2.6 per cent growth a year between 2008 and 2010, in line with after-tax income growth.

Healthy Housing Market Conditions

The healthy pace of activity in the Ontario housing market continued in 2007. Home resales hit a record high in 2007, climbing 9.5 per cent. Robust activity in the resale market supported strong price gains, with the average resale price rising 7.6 per cent to $299,500 in 2007. Last year, housing starts moderated to 68,100 units, from 73,400 units in 2006.

Population growth is projected to result in the creation of 67,700 net new Ontario households a year from 2008 to 2010, supporting demand for housing. Housing starts are expected to average 64,300 per year over the 2008 to 2010 period.

Resales are projected to ease slightly in 2008 and 2009 before rising in 2010. The level of home resales over the 2008 to 2010 period is expected to remain almost four per cent higher than the average from 2003 to 2007. The average Ontario home resale price is projected to increase from $311,400 in 2008 to $328,900 in 2010. Housing affordability is projected to remain steady in 2008 as lower interest rates and rising incomes are expected to offset rising home prices.

Details of the Ontario Economic Outlook

The following table shows key details of the Ministry of Finance’s economic outlook for the 2008 to 2010 period.

Table 9
The Ontario Economy, 2005 to 2010
(Per Cent Change)

	Actual			Projected
	2005	2006	2007	2008	2009	2010
Real Gross Domestic Product	2.9	2.1	2.1e	1.1	2.1	2.7
Personal Consumption	3.6	3.5	3.4e	2.5	2.6	2.6
Residential Construction	1.8	1.1	0.6e	(0.5)	1.3	2.5
Non-residential Construction	3.6	10.4	4.6e	2.5	2.0	2.9
Machinery and Equipment	9.1	11.2	8.4e	6.0	4.1	4.6
Exports	2.2	(0.2)	1.4e	0.0	2.5	2.9
Imports	3.9	2.7	3.8e	2.2	2.7	3.0
Nominal Gross Domestic Product	3.9	3.9	5.1e	2.8	3.9	4.6
Other Economic Indicators
Retail Sales	4.8	4.1	4.0	3.4	3.7	4.1
Housing Starts (000s)	78.8	73.4	68.1	64.0	63.0	66.0
Personal Income	4.5	4.8	5.0e	3.1	4.0	4.4
Labour Income	5.0	4.5	4.9e	3.4	3.9	4.1
Corporate Profits	(2.7)	3.2	8.5e	4.0	4.9	4.5
Consumer Price Index	2.2	1.8	1.8	1.4	1.9	2.0
Labour Market
Employment	1.3	1.5	1.6	1.0	1.1	1.3
Job Creation (000s)	81	95	101	68	76	87
Unemployment Rate (per cent)	6.6	6.3	6.4	6.6	6.5	6.3
e = estimate.
Sources: Statistics Canada, Canada Mortgage and Housing Corporation and Ontario Ministry of Finance.

Table 10
Changes in Key Economic Forecast Assumptions,
2007 Budget Compared to 2008 Budget (Per Cent Change)

	2007		2008		2009
	2007 Budget	Actual	2007 Budget	2008 Budget	2007 Budget	2008 Budget
Real Gross Domestic Product	1.6	2.1e	2.8	1.1	3.1	2.1
Nominal Gross Domestic Product	3.1	5.1e	4.7	2.8	4.7	3.9
Retail Sales	3.6	4.0	4.6	3.4	4.6	3.7
Housing Starts (000s)	68.0	68.1	67.0	64.0	68.0	63.0
Personal Income	3.9	5.0e	4.7	3.1	4.9	4.0
Labour Income	3.9	4.9e	4.8	3.4	4.9	3.9
Corporate Profits	1.1	8.5e	2.4	4.0	2.5	4.9
Employment	1.1	1.6	1.4	1.0	1.6	1.1
Job Creation (000s)	71	101	90	68	109	76
Key External Variables
Crude Oil ($ US per Barrel)	61.0	72.3	61.0	85.0	61.0	80.0
U.S. Real Gross Domestic Product	2.7	2.2	3.0	1.7	3.1	2.6
Canadian Dollar (Cents US)	86.0	93.1	87.5	100.0	88.0	98.0
3-month Treasury Bill Rate	4.1	4.2	4.3	3.3	4.5	3.8
10-year Government Bond Rate	4.2	4.3	4.7	3.9	5.1	4.5
e = estimate.
Sources: Statistics Canada, Canada Mortgage and Housing Corporation, Bank of Canada, New York Mercantile Exchange, U.S. Bureau of Economic Analysis, Blue Chip Economic Indicators and Ontario Ministry of Finance.

Ontario’s real GDP grew by 2.1 per cent in 2007 — 0.5 percentage points higher than the Ministry’s 2007 Budget forecast despite a more challenging economic environment, including weaker U.S. growth, the stronger dollar, higher oil prices and credit tightening. The labour market was healthy, with employment increasing by 1.6 per cent — 0.5 percentage points above the Budget forecast and resulting in 30,000 more jobs than expected. Income growth was 5.0 per cent in 2007, 1.1 percentage points higher than the Budget forecast. Corporate profits were much healthier, rising by 8.5 per cent, significantly stronger than the prudent Budget projection of 1.1 per cent growth. Nominal GDP rose by 5.1 per cent, two percentage points above the Budget projection.

Forecasts for growth in 2008 and 2009 are lower than projected at the time of the 2007 Budget, reflecting significantly weaker U.S. growth, the higher Canadian dollar and higher oil prices. Real GDP growth has been revised down 1.7 percentage points in 2008 and 1.0 percentage point in 2009 since the 2007 Budget. Similarly, nominal GDP has been lowered 1.9 percentage points in 2008 and 0.8 percentage points in 2009. The growth of wages and salaries along with retail sales, both key revenue drivers, are projected to be lower than projected in the 2007 Budget, but corporate profits, also an important revenue driver, are forecast to grow at a stronger pace than projected in the 2007 Budget.

SECTION D: ONTARIO’S REVENUE OUTLOOK

The medium-term revenue forecast reflects the Ministry of Finance economic outlook for Ontario and estimated impacts of government policy decisions. Total revenues are projected to increase by $6.9 billion between 2008–09 and 2010–11, or 3.5 per cent a year on average.

Table 11
Summary of Medium-Term Outlook
($ billions)

Revenue	Interim 2007–08	Plan 2008–09	Outlook
			2009–10	2010–11
Taxation Revenue	68.3	69.0	71.9	74.5
Personal Income Tax	24.7	25.2	26.6	28.1
Retail Sales Tax	16.9	17.2	18.1	19.0
Ontario Health Premium	2.7	2.8	2.9	3.1
Corporations Tax	12.7	12.3	12.5	12.3
All Other Taxes	11.3	11.5	11.8	12.0
Government of Canada	16.9	16.5	17.0	17.7
Income from Government Enterprises	4.1	4.1	4.3	4.6
Other Non-Tax Revenue	7.3	7.4	7.3	7.0
Total Revenue	96.6	96.9	100.6	103.8
Note: Numbers may not add due to rounding.
Source: Ontario Ministry of Finance.

The Personal Income Tax (PIT) revenue forecast is consistent with the economic outlook for wages and salaries growth. Personal Income Tax revenues are boosted in 2007–08 by a one-time adjustment of $0.5 billion due to underestimation of 2006–07 PIT revenues in the Public Accounts and a further $0.1 billion due to a payment from the federal government relating primarily to a correction to Ontario’s 2005 tax entitlements. The PIT revenue forecast reflects previously announced tax measures and measures proposed in this Budget as discussed in Chapter III: Tax Support for Families and Business. The PIT revenue base tends to grow at a faster rate than incomes due to the progressive structure of the tax system.

Table 12
Personal Income Tax Revenue Outlook
($ billions)

	Interim 2007–08	Plan 2008–09	Outlook
			2009–10	2010–11
Total Projected Revenue	24.7	25.2	26.6	28.1
Measures Included in Total1	–	(0.1)	(0.1)	(0.2)
Adjustments for Prior Years	0.5	–	–	–
Other One-Time Revenue	0.1	–	–	–
Base Revenue2	24.0	25.2	26.7	28.3
Base Revenue Growth (Per Cent)	5.7	5.1	5.8	5.9
Wages and Salaries Growth (Per Cent)	4.8	3.4	3.9	4.1
1 Represents the incremental revenue impact of all tax measures, announced previously and in this fiscal update, relative to their impact on revenue in 2007–08. 2 "Total projected revenue" less the impact of tax measures or other one-time factors such as prior-year adjustments. Base revenue reflects the impact of underlying macroeconomic factors. Note: Numbers may not add due to rounding.

Retail Sales Tax (RST) revenue growth is based on the forecast for increased spending by households and businesses. The RST outlook reflects the estimated impact of previously announced tax measures and measures proposed in this Budget as discussed in Chapter III: Tax Support for Families and Business.

The Ontario Health Premium forecast is based on the outlook for rising employment and personal incomes.

The Corporations Tax (CT) revenue outlook largely reflects the outlook for pre-tax corporate profits. Corporations Tax revenues in 2007–08 include $0.6 billion in one-time revenue largely due to strong tax assessment payments related to past years. The CT revenue outlook also reflects previously announced tax measures and measures proposed in this Budget as discussed in Chapter III: Tax Support for Families and Business.

Table 13
Corporations Tax Revenue Outlook
($ billions)

	Interim 2007–08	Plan 2008–09	Outlook
			2009–10	2010–11
Total Projected Revenue	12.7	12.3	12.5	12.3
Measures Included in Total1	(0.2)	(0.4)	(0.6)	(1.2)
Adjustments for Prior Years	0.6	–	–	–
Other One-Time Revenue	–	–	–	–
Base Revenue2	12. 3	12.7	13.1	13.5
Base Revenue Growth (Per Cent)	6.2	3.0	3.2	3.1
Corporate Profit Growth (Per Cent)	8.5	4.0	4.9	4.5
1 Represents the incremental revenue impact of all tax measures, announced previously and in this fiscal update, relative to their impact on revenue in 2007–08. 2 "Total projected revenue" less the impact of tax measures or other one-time factors such as prior-year adjustments. Base revenue reflects the impact of underlying macroeconomic factors. Note: Numbers may not add due to rounding.

The forecast for All Other Taxes is based on the economic growth outlook outlined in Section C: Ontario’s Economic Outlook. All Other Taxes include, for example, the Employer Health Tax, Gasoline and Fuel Taxes, and the Land Transfer Tax. The forecast is developed on an item-by-item basis. For example, the forecast for Employer Health Tax revenues is based on the outlook for wages and salaries growth. The forecast for all other taxes takes into account the estimated impact of previously announced tax measures and measures proposed in this Budget as discussed in Chapter III: Tax Support for Families and Business.

The forecast for Government of Canada transfers is based on the assumption that existing federal transfer agreements are renewed. The outlook includes the 2007 federal budget announcement of funding for the patient wait-times guarantee trust and an immunization program to provide the human papillomavirus (HPV) vaccine as well as 2008 federal budget funding for community development and public transit. The outlook also assumes that the federal government will continue to fund previously announced time-limited transfers at 2008–09 levels. These revenues help fund the expenditures projected in this Budget.

The outlook for Net Income from Government Business Enterprises is based on information enterprises provide. Total net income is projected to grow by an annual average rate of 5.1 per cent between 2008–09 and 2010–11. Net income from the Ontario Lottery and Gaming Corporation (OLG) is impacted by the strength of the Canadian dollar and cross-border competition. Net Income of the Liquor Control Board of Ontario (LCBO) is projected to grow steadily based on increasing sales. Net incomes from OPG and Hydro One are projected to increase as their returns on equity are expected to improve and as new generation, transmission and distribution investments come into service.

The forecast for Other Non-Tax Revenue is based on information that government ministries and provincial agencies provide. Between 2008–09 and 2010–11, other non-tax revenues are forecast to decrease by $0.3 billion. This is mainly due to the government’s decision to upload the municipal share of ODSP and ODB costs.

Uncertainty in Forecasting Corporations Tax Revenue

Variances from revenue projections arise due to the inherent uncertainties of predicting the future and lags in information flows. These pose particular challenges in forecasting Corporations Tax revenues that are clearly demonstrated by the experience of Canadian jurisdictions in 2006–07, summarized in Chart 9. On average, other provinces’ Corporations Tax revenues varied by 24.2 per cent from forecast. Ontario’s variance was significantly lower at +10.2 per cent.

The Corporations Tax payments system operates with a considerable lag between changes in the underlying tax entitlements and the tax payments, so it can take a great deal of time before current revenue performance is fully understood. For example, most of the financial sector’s final tax remittances arrive at the end of December, and most of the non-financial sector’s remittances arrive in late February, resulting in considerable revenue uncertainty late in the fiscal year. Uncertainty remains due to amounts to be received after the government’s fiscal year-end, such as payments on filing 2007 tax returns (largely between April and June) and subsequent tax assessment payments and refunds arising from processing those tax returns (largely between July and December). This uncertainty is one of the principal reasons for the proposed Investing in Ontario Act, 2008, which would allow a portion of any positive variance between interim and actual 2007–08 revenues to be devoted to priority investments as outlined in Section G: Accountability, Transparency and Fiscal Management.

Sources of Medium-Term Revenue Change Since 2007 Ontario Budget

Table 14
Summary of Medium-Term Revenue Change Since 2007 Budget
($ billions)

	Interim 2007–08	2008–09	2009–10	2010–11
Key Revenue Changes Since 2007 Ontario Budget
Prior-Year Tax Return Processing — Ongoing	1.7	1.9	2.0	2.0
Prior-Year Tax Return Processing — One Time	1.4
Stronger 2007 Economic Growth	2.2	2.4	2.5	2.7
Slower Economic Growth in 2008 and 2009	0.0	(1.1)	(1.5)	(2.0)
Tax Policy Measures	(0.9)	(1.1)	(0.8)	(0.7)
Government of Canada Transfers (2007 and 2008 Federal Budgets)	0.3	0.3	0.4	0.2
Other	0.3	(0.2)	0.3	0.5
Total Revenue Changes	5.1	2.2	2.8	2.7
Note: Numbers may not add due to rounding.

The medium-term forecast for total revenues is higher in each year compared to the 2007 Budget.

Since the 2007 Budget, processing of prior years’ tax returns has boosted the estimated 2006–07 revenue base upon which growth is applied for 2007–08 and beyond. Also, there is a one-time revenue pickup in 2007–08 because variances from past Public Accounts estimates are picked up in the current year.

Stronger 2007 economic growth also contributes to a higher revenue base upon which growth is applied for 2008–09 and onwards.

A slower economic growth outlook beginning in 2008 dampens revenue growth over the
2008–09 to 2010–11 period. The economic outlook is discussed in greater detail in Section C: Ontario’s Economic Outlook.

New tax measures announced since the 2007 Budget lower the revenue outlook. These include paralleling of tax measures announced in the 2007 and 2008 federal budgets and other measures announced by the Province. More details on proposed tax measures can be found in Chapter III: Tax Support for Families and Business.

The 2007 and 2008 federal budgets included measures that result in a net increase in Government of Canada transfers over the medium term. New transfers from the 2008 federal budget reflected in the forecast include funding for community development and public transit. The 2007 federal budget included changes to the CHT and CST, including a move to a 10-province standard for calculating equalization entitlements under the CHT and a move to a per-capita basis for calculating CST entitlements. The 2007 federal budget also included funding for the patient wait-times guarantee and for the HPV immunization program.

Other changes largely reflect the assumption that the federal government will continue to fund previously announced time-limited transfers at 2008–09 levels, higher federal infrastructure transfers, higher sales and rentals, and higher projected other non-tax revenues. These increases are partially offset by lower revenues over the medium term from OLG and the electricity sector as well as the government’s decision to upload the municipal share of the ODSP and ODB costs for social assistance recipients over four years starting in 2008. Municipalities currently reimburse the Province for a portion of the costs of delivering these programs. By the time it is fully implemented in 2011, the upload will save municipalities over $900 million a year.

Potential Risks to Provincial Revenue

This section highlights some of the key sensitivities and risks to the fiscal plan that could arise from unexpected changes in economic conditions. It should be cautioned that these estimates, while useful, are only guidelines and actual results can vary depending on the composition and interaction of the various factors. The risks are those that could have the most material impact on the largest revenue sources. There are a broader range of potential additional risks that are not included because either they are not as material or are difficult to quantify. For example, Income from Government Business Enterprises, representing roughly four per cent of total revenues, could be affected by changes in each business’s particular business environment; for instance, by economic, market, policy and regulatory developments. Likewise, the outlook for Government of Canada transfers is subject to future negotiations and legislation.

Table 15
Selected Economic and Revenue Risks and Sensitivities

Item/Key Components	2008–09 Assumption	2008–09 Sensitivities
Total Revenues
– Real GDP – GDP Deflator	1.1 per cent growth in 2008 1.7 per cent increase in 2008	$730 million revenue change for each percentage point change in real GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
– Canadian Interest Rates	3.3 per cent three-month treasury bill rate in 2008	Between $75 million and $365 million revenue change in the opposite direction for each percentage point change in interest rates.
– U.S. Real GDP	1.7 per cent growth in 2008	Between $220 million and $510 million revenue change for each percentage point change in U.S. real GDP growth.
– Canadian Dollar Exchange Rate	100.0 cents US in 2008	Between $15 million and $110 million revenue change in the opposite direction for each one cent change in the Canadian dollar exchange rate.
Total Taxation Revenues
– Revenue Base1	3.4 per cent growth in 2008–09	$505 million revenue change for each percentage point change in nominal GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
– Nominal GDP	2.8 per cent growth in 2008
Personal Income Tax (PIT) Revenues
– Revenue Base	5.1 per cent growth in 2008–09
Key Economic Assumptions
– Wages and Salaries	3.4 per cent growth in 2008	$310 million revenue change for each percentage point change in wages and salaries growth.
– Employment	1.0 per cent growth in 2008
– Unincorporated Business Income	3.0 per cent growth in 2008	$36 million revenue change for each percentage point change in unincorporated business income growth.
Key Revenue Assumptions
– Net Capital Gains Income	0.6 per cent decrease in 2008	$13 million revenue change for each percentage point change in net capital gains income growth.
– RRSP Deductions	5.2 per cent growth in 2008	$16 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.
– 2007 Tax-Year Assessments2	$22.6 billion	$226 million revenue change for each percentage point change in 2007 PIT assessments.3
– 2006 Tax-Year and Prior Assessments2	$1.1 billion	$11 million revenue change for each percentage point change in 2006 and prior PIT assessments.3
Retail Sales Tax Revenues
– Revenue Base	2.1 per cent growth in 2008–09
Includes:
– Taxable Household Spending	1.7 per cent growth in 2008–09
– Other Taxable Spending	2.6 per cent growth in 2008–09
Key Economic Assumptions
– Retail Sales	3.4 per cent growth in 2008
– Nominal Consumption Expenditure	3.5 per cent growth in 2008	$125 million revenue change for each percentage point change in nominal consumption expenditure growth.
Corporations Tax Revenues
– Revenue Base	3.0 per cent growth in 2008–09
– Corporate Profits	4.0 per cent growth in 2008	$70 million revenue change for each percentage point change in pre-tax corporate profit growth.
– 2007–08 Tax Assessment Refunds4	$1.7 billion payable in 2008–09	$17 million revenue change in the opposite direction for each percentage point change in 2007–08 refunds.3
– 2007–08 Tax Payments upon Filing4	$1.1 billion receivable in 2008–09	$11 million revenue change for each percentage point change in 2007–08 payments upon filing.3
– 2007–08 Tax Assessment Payments4	$1.1 billion receivable in 2007–08 and 2008–09	$11 million revenue change for each percentage point change in 2007–08 assessment payments.3
Employer Health Tax Revenues
– Revenue Base	3.2 per cent growth in 2007–08
– Wages and Salaries	3.4 per cent growth in 2008	$42 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenues
– Revenue Base	4.1 per cent growth in 2008–09
– Personal Income	3.1 per cent growth in 2008	$26 million revenue change for each percentage point change in personal income growth.
– 2007 Tax-Year Assessments	$2.5 billion	$25 million revenue change for each percentage point change in 2007 OHP assessments.
Gasoline Tax Revenues
– Revenue Base	1.0 per cent growth in 2008–09
– Gasoline Pump Prices	101.4 cents per litre in 2008	$5 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenues
– Revenue Base	2.0 per cent growth in 2008–09
– Real GDP	1.1 per cent growth in 2008	$7 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues
– Revenue Base	0.7 per cent decline in 2008–09
– Housing Resales	3.0 per cent decline in 2008	$18 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices	4.0 per cent growth in 2008
Canada Health Transfer
– Ontario Population Share	38.8 per cent in 2007–08	$34 million revenue change for each tenth of a percentage point change in population share.
– Ontario Basic Federal PIT Share	42.1 per cent in 2007–08	$9 million revenue change in the opposite direction for each tenth of a percentage point change in Ontario’s basic federal PIT share.
Canada Social Transfer
– Ontario Population Share	38.8 per cent in 2007–08	$11 million revenue change for each tenth of a percentage point change in population share.
1 Revenue base is revenue excluding the impact of measures, adjustments for past Public Accounts estimate variances and other one-time factors. 2 Ontario 2007 Personal Income Tax (PIT) is a forecast estimate because 2007 tax returns are yet to be assessed by the Canada Revenue Agency. Some tax amounts for 2006 and prior years are also yet to be assessed in 2008, and estimates of these amounts are included in the revenue outlook. 3 Any changes in the 2007 or prior-year PIT assessments or 2007–08 Corporation Tax revenues will have an effect on 2008–09 revenues through a change in the revenue base upon which that year’s growth is applied. 4 Corporations Tax revenues for 2007–08 are still subject to uncertainty because a high proportion of corporations have until June 30, 2008 to file their 2007 tax returns and much of the activity that arises from that (payments on filing, refunds, assessment payments) will occur after this Budget.

SECTION E: ONTARIO’S MEDIUM-TERM EXPENSE OUTLOOK

The Province’s total expense outlook is projected to grow from $96.2 billion in 2008–09 to $102.6 billion by 2010–11. This $6.4 billion increase reflects the initiatives and investments announced in this Budget for health, education, postsecondary education and training, social services, infrastructure and the environment.

Holding the average annual growth of spending to less than that of revenue is a key element of prudence and discipline built into the government’s medium-term fiscal plan. While the average annual growth of expense is projected at 3.3 per cent over the medium term, total revenue is forecast to increase by $6.9 billion — from $96.9 billion in 2008–09 to $103.8 billion in 2010–11 — yielding a higher average annual growth rate of 3.5 per cent.

Total program spending, which includes both capital and operating expense, will grow from $87.3 billion in 2008–09 to $93.4 billion in 2010–11. This growth includes investments made under the government’s ongoing five-point economic plan presented in this Budget.

Included in the total expense outlook is interest on Provincial debt, which is expected to increase over the medium term from $8.9 billion in 2008–09 to $9.1 billion in 2010–11 mainly due to additional borrowings to finance investments in capital assets.

Details of Expense Outlook

• Total health sector spending, including the net expense of hospitals, will increase from $40.4 billion in 2008–09 to $44.7 billion in 2010–11. This increase of $4.2 billion reflects an average annual growth rate of 5.1 per cent over the medium term.
• Total education sector spending, including the net expense of the Province’s school boards, will grow by $1.0 billion, or 8.4 per cent, from $12.4 billion in 2007–08 to $13.4 billion in 2010–11 primarily due to increased provincial grants to school boards for continued improvements in student achievement.
• Total postsecondary education and training sector spending, including the net expense of the Province’s 24 colleges of applied arts and technology, will grow by $0.3 billion, or 5.5 per cent, from $5.9 billion in 2007–08, not including one-time investments, to $6.2 billion in 2008–09. Total sector spending will increase to $6.5 billion by 2010–11. This increase is primarily due to initiatives included in the Skills to Jobs Action Plan.
• Total children’s and social services sector funding will grow annually by $0.5 billion in 2008–09, $0.2 billion by 2009–10 and $0.1 billion in 2010–11. This increased support for Ontario’s families includes the planned phasing-in of additional investments for the Ontario Child Benefit, enhanced funding for adults with developmental disabilities and their families, and a further two per cent increase in social assistance benefits.
• Justice sector spending will grow by 4.7 per cent from $3.7 billion in 2008–09 to $3.9 billion in 2009–10, and by a further 3.9 per cent to $4.0 billion in 2010–11. This level of spending includes investments for various justice initiatives, including courthouses, correctional facilities and community safety enhancements.
• Other Programs spending will increase from $11.9 billion in 2008–09 to $12.8 billion in 2010–11.  This increase of $0.9 billion reflects investments in the Province’s infrastructure, as well as ongoing and growing support to strengthen the environment for innovation.
• Interest on debt expense increases by $0.2 billion — from $8.9 billion in 2008–09 to $9.1 billion in 2010–11 due to additional borrowings to finance investments in capital assets.

Risks to Expense Outlook

There are a number of revenue and expense risks that could challenge the Province’s ability to achieve its fiscal targets over the medium term. Key cost drivers within the Province’s expense outlook are demand-driven programs and services that arise from changes in the economic outlook, utilization or enrolment rates. These pressures are especially evident in the health, education and social services sectors, which comprise over two-thirds of total Provincial expense, and include assumptions about expected utilization, enrolment rates and caseloads. For example, a one per cent increase in both Ontario Works and Ontario Disability Support Program caseloads would cost the Province an additional $46 million a year. For reasons such as this, it is important that the government maintain a focused and disciplined approach to investing in key priority areas, while managing the Province’s spending in a diligent and prudent way. Prudence in the form of contingency funds and a reserve is built into the fiscal plan to protect against such risks.

The following table provides a summary of key expense risks and sensitivities that could result from unexpected changes in economic conditions and program demands. A change in these factors could impact total expense, causing changes in the overall fiscal forecast. It should be cautioned that these sensitivities and risks are only guidelines and can vary, depending on the nature and composition of potential risks.

Table 16
Selected Expense Risks and Sensitivities

Program/Sector	2008–09 Assumption	2008–09 Sensitivity
Health Sector	Annual growth of 6.2 per cent.	One per cent change in health spending: $404 million.
Hospitals’ Net Expense	Annual growth of 6.1 per cent.	One per cent change in hospitals’ net expense: $184 million.
Drug Programs	Annual utilization growth of 6.9 per cent.	One per cent change in utilization of all drug programs: $44 million (seniors and social assistance recipients).
Long-Term Care Homes	75,866 long-term care home beds. Annual average Provincial operating cost per bed in a long-term care home is $40,800.	One per cent change in number of beds: approximately $29 million.
Home Care	Over 17 million hours of homemaking and support services; 10 million nursing and professional visits.	One per cent change in hours of homemaking and support services: $5 million. One per cent change in nursing and professional visits: $6 million.
University Students1	325,075 full-time undergraduate and graduate students.	One per cent enrolment change: $25 million of net expense.
Ontario Works	192,000 average annual caseload.	One per cent caseload change: $16 million.
Ontario Disability Support Program	244,000 average annual caseload.	One per cent caseload change: $30 million.
College Students	155,000 full-time students.	One per cent enrolment change: $13 million.
Interest on Debt	Average cost of 2008–09 borrowing is forecast to be approximately 4.8 per cent.	The 2008–09 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $290 million.
Correctional System	3.0 million adult inmate days per year. Average cost $160 per inmate per day.	One per cent change in inmate days: $5 million.
1 Based on 2007–08.

Compensation costs and wage settlements are also key cost drivers and could have a substantial impact on the finances of both broader public-sector partners and the Province.

Table 17
Selected Compensation Costs

Sector	Cost of 1% Salary Increase	Size of Sector
OHIP Payments to Physicians	$87 million	Almost 23,200 physicians in Ontario, comprising 11,200 family doctors and 12,000 specialists.
Elementary and Secondary School Staff1	$145 million	Over 200,000 FTE staff including teachers, principals, administrators, and support and maintenance staff.
College Staff2	$15 million	About 37,000 staff including faculty, administrators, and support and maintenance staff.
Ontario Public Service3	$56 million	Over 66,000 public servants.
1 One per cent increase in salary benchmarks in Grants for Student Needs based on 2007–08 school year. 2 Based on 2006–07, reflects total compensation costs. 3 Based on 2006–07, reflects total compensation costs.

Contingent Liabilities

In addition to the key demand sensitivities and economic risks to the fiscal plan, there are additional risks stemming from the government’s contingent liabilities. Whether these contingencies will result in actual liabilities for the Province is beyond the direct control of the government. Losses could result from legal settlements, defaults on projects, and loan and funding guarantees. Provisions for losses that are likely to occur and can be reasonably estimated are expensed and reported as liabilities in the Province’s financial statements. Significant contingent liabilities are described as follows.

Ontario Nuclear Funds Agreement

The Province has certain responsibilities with respect to nuclear used fuel waste management and nuclear station decommissioning. The Province, Ontario Power Generation Inc. (OPG), a wholly owned subsidiary, and certain subsidiaries of OPG are parties to the Ontario Nuclear Funds Agreement (ONFA), to establish, fund and manage segregated funds to ensure sufficient funds are available to pay the costs of nuclear station decommissioning and nuclear used fuel waste management. Under ONFA, the Province is liable to make payments should the cost estimate for nuclear used fuel waste management rise above specified thresholds for a fixed volume of used fuel. As well, under ONFA, the Province guarantees a return of 3.25 per cent over the Ontario consumer price index for the nuclear used fuel waste management fund. Ontario has also provided a direct Provincial guarantee to the Canadian Nuclear Safety Commission on behalf of OPG for up to $760 million (effective January 1, 2008), which relates to the portion of the decommissioning and waste management obligations not funded by the segregated funds.

Obligations Guaranteed by the Province

Ontario provides guarantees on loans on behalf of various parties. The authorized limit for loans guaranteed by the Province as at March 31, 2007, was $2.9 billion. The outstanding loans guaranteed and other contingencies amounted to $2.6 billion at March 31, 2007. A provision of $416 million based on an estimate of the likely loss arising from guarantees under the Student Support Programs has been reflected in the 2006–07 Consolidated Financial Statements of the Province.

Social Housing — Loan Insurance Agreements

The Province is liable to indemnify and reimburse the Canada Mortgage and Housing Corporation for any net costs, including any environmental liabilities incurred as a result of project defaults, for all non-profit housing projects in the Provincial portfolio. At March 31, 2007, there were $8.3 billion of mortgage loans outstanding.

Claims Against the Crown

There are claims outstanding against the Crown arising from legal action, either in progress or threatened, in respect of aboriginal land claims, breach of contract, damages to persons and property, and like items.
At March 31, 2007, there were 111 claims outstanding against the Crown that were for amounts over $50 million.

Canadian Blood Services

The provincial and territorial governments of Canada have entered into a Canadian Blood Services Excess Insurance Captive Support Agreement (the “Captive Support Agreement”) with Canadian Blood Services (CBS) and Canadian Blood Services Captive Insurance Company Limited (CBSI), a wholly owned subsidiary of CBS established under the laws of British Columbia. Under the Captive Support Agreement, each government indemnifies CBSI for its pro rata share of any payments that CBSI becomes obliged to make under a comprehensive blood risks insurance policy it provides to CBS. The policy has an overall limit of $750 million, which may cover settlements, judgments and defence costs. The policy is in excess of, and secondary to, a $250 million comprehensive insurance policy underwritten by CBS Insurance Company Limited, a subsidiary of CBS domiciled in Bermuda. Given current populations, Ontario’s maximum potential liability under the Captive Support Agreement is approximately $376 million. The Province is not aware of any proceedings that could lead to a claim against it under the Captive Support Agreement.

SECTION F: ONTARIO’S FISCAL PLAN

Medium-Term Fiscal Outlook

Despite significant challenges arising from the global economic environment, the Province remains on track to post six consecutive balanced budgets between 2005–06 and 2010–11. If achieved, this would be the most consecutive balanced budgets for the Province since 1908.

Total revenue increases by $6.9 billion over the medium term, from $96.9 billion in 2008–09 to $103.8 billion in 2010–11 — an average annual growth rate of 3.5 per cent. Revenue growth is dampened by a slower economic growth forecast than projected at the time of the 2007 Budget.

Total expense over the medium term is projected to increase from $96.2 billion in 2008–09 to $102.6 billion in 2010–11, reflecting investments to promote economic growth and job creation through the government’s five-point economic plan. The total expense outlook also includes interest on debt, which is increasing over the medium term due to additional borrowings to finance investments in the Province’s capital assets.

The fiscal plan also includes prudence in the form of reserves of $0.8 billion in 2008–09, $1.0 billion in 2009–10 and $1.2 billion in 2010–11.

Table 18
Medium-Term Fiscal Plan and Outlook
($ billions)

	Interim 2007–08	Plan 2008–09	Outlook
			2009–10	2010–11
Total Revenue	96.6	96.9	100.6	103.8
Expense
Programs
Health Sector	38.1	40.4	42.4	44.7
Education Sector1	12.4	13.1	13.4	13.4
Postsecondary Education and Training Sector	6.6	6.2	6.4	6.5
Children’s and Social Services Sector	11.3	11.8	12	12.1
Justice Sector	3.7	3.7	3.9	4.0
Other Programs	14.9	11.9	12.5	12.8
Total Programs	87.0	87.3	90.6	93.4
Interest on Debt	9.0	8.9	9.0	9.1
Total Expense	96.0	96.2	99.6	102.6
Reserve	–	0.8	1.0	1.2
Surplus/(Deficit)	0.6	0.0	0.0	0.0
1 Excludes Teachers’ Pension Plan. (Printed Budget erroneously says “Includes Teachers’ Pension Plan”.) Note: Numbers may not add due to rounding.

Key Elements of Ontario’s Medium-Term Fiscal Plan

The Fiscal Transparency and Accountability Act, 2004 sets out a number of criteria that the Province’s fiscal plan must meet. These criteria ensure the highest level of transparency and accountability in fiscal planning and reporting.

The act requires the Ontario Government to plan for balanced budgets. The key elements of the government’s fiscal plan that will contribute to ensuring the achievement of six consecutive balanced budgets include:

• making disciplined decisions and achieving efficiencies that hold the average annual rate of growth in total expense to less than the average annual rate of growth in total revenue over the medium term
• strengthening Ontario’s economic advantage through a five-point economic plan to invest in skills and knowledge, lower business costs, strengthen the environment for innovation, invest in infrastructure and form key partnerships to strengthen Ontario’s industries
• promoting principled and sustainable federal–provincial fiscal arrangements
• maintaining a prudent debt-to-GDP ratio
• maintaining a cautious and prudent fiscal plan, including an annual contingency fund and reserve.

Fiscal Prudence

In addition to maintaining a prudent and disciplined approach to spending in light of slower economic growth and other challenges arising from the global economic environment, the fiscal plan includes other key elements of prudence each year to help protect the government’s overall fiscal objectives and ensure the achievement of fiscal targets.

In keeping with sound fiscal practices, the Province’s revenue outlook is based on prudent economic assumptions.

Consistent with the requirements under the Fiscal Transparency and Accountability Act, 2004, the fiscal plan incorporates prudence in the form of a reserve 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 medium-term fiscal plan includes a reserve of $0.8 billion in 2008–09, $1.0 billion in 2009–10 and $1.2 billion in 2010–11. The reserve increases over the medium term to better reflect the uncertain nature of the medium-term revenue and expense projections. The fiscal plan also includes contingency funds (operating and capital) totalling $0.6 billion in 2008–09 to help mitigate against expense risks that may otherwise have a negative impact on results.

Risks and the Fiscal Outlook

The outlook for each fiscal year is subject to change and reflects a continuum of information that begins with the Budget and ends with the Public Accounts. As new information affecting the economic, revenue and expense assumptions arises throughout the year, the fiscal forecast changes. In this context, it is important to note that the forecast presented in economic and fiscal updates, including this Budget, represents a point in time along this continuum and is based on the best available information at that time.

The revenue forecast includes assumptions about tax-return filings and growth of key factors such as wages, salaries, disposable income and housing prices. It also takes into account current federal–provincial funding arrangements and funding formulas for major health and social transfers. Developing revenue estimates also requires highly detailed economic forecasts, which include assumptions about factors such as the U.S. economic outlook, Canadian dollar exchange rate, oil prices and economic growth in the rest of Canada.

Variances from revenue estimates arise due to inherent uncertainties involved in predicting the future and lags in information flows. A variance in any of the key factors underlying the revenue assumptions could result in a change to the revenue forecast.

The total expense forecast includes assumptions about program growth and demands, as well as additional planned spending in key priority areas. As many ministries’ expense forecasts are based on assumptions about utilization, enrolment and caseloads for government programs and services, a change in these factors could impact total expense, causing changes in the overall fiscal performance.

For example, a change of one per cent to total revenue or total expense in 2010–11 represents about a $1.0 billion change in the Province’s overall fiscal outlook. While this change may be small compared to the government’s overall budget, it can cause significant swings in the Province’s surplus/deficit. It is due to this type of uncertainty that the fiscal plan includes a revenue forecast based on prudent economic assumptions, contingency funds and a reserve. These forms of prudence exist to help offset any negative impact to the fiscal plan that could result from even a small variance in the revenue and expense forecast.

As the factors and assumptions comprising the revenue and expense forecasts interact and shift, fiscal and economic updates at various times of the fiscal cycle may include adjustments to the revenue and expense forecasts to reflect these changes. Updates such as those provided in this Budget are based on the best available information, and provide transparency around the changes to the fiscal forecast and information on key risks and sensitivities that may affect the fiscal plan.

To help mitigate the impact these variances can have on the government’s ability to invest in key priority areas, the proposed Investing in Ontario Act, 2008, would allow the government to use any unexpected surplus funds in 2007–08 to help reduce the Province’s accumulated financial deficit, and help municipalities address their infrastructure priorities such as roads and bridges, public transit or social housing.

SECTION G: ACCOUNTABILITY, TRANSPARENCY AND FINANCIAL MANAGEMENT

The government is committed to enhancing accountability, increasing transparency and improving its financial management. Since taking office in 2003, it has introduced a number of important improvements to this end and is taking further steps to strengthen accountability for the spending of taxpayer dollars, improving transparency in the Province’s financial reporting, and increasing efficiencies in the government and in hospitals, schools and other broader public-sector (BPS) organizations.

Investing Unanticipated Year-End Surpluses

The government is committed to maintaining the highest standards of financial transparency, ensuring its accounting policies support sound public policy decision-making and improving public understanding of its financial reports.

Year-end surpluses are forecast based on the best information available to governments at the time their budgets are prepared. However, these forecasts are subject to economic and program risks. The final Public Accounts surplus or deficit depends on information on tax revenues and consolidated expenses that in some cases is not known for a number of months after the end of a government’s fiscal year. This forecast variance can result in unanticipated surpluses or deficits. This is a common risk faced by all governments in Canada.

The government recently introduced the proposed Investing in Ontario Act, 2008. If enacted, it would allow the government to use unanticipated year-end surpluses to both address priority public needs such as the municipal infrastructure deficit, as well as reduce the accumulated financial deficit. In prior years, the government had no choice but to use all unanticipated surpluses to reduce the Province’s accumulated financial deficit.

Strengthening Accountability for Government Transfer Payments

The government provides more than $65 billion in transfer payments annually to individuals and organizations in Ontario. In August 2007, the government introduced a new transfer payment accountability directive to provide stronger assurance that these public funds are being spent by organizations for their intended purposes.

As well, in response to concerns raised by the Auditor General of Ontario, the government has taken specific measures to improve accountability for its year-end transfers. The Ministry of Finance worked with the Auditor General to ensure that significant provisions in the new transfer payment accountability directive can apply equally to year-end transfer payments without compromising their accounting treatment. The government has also strengthened its due-diligence processes to provide additional assurance that year-end investments comply with these more stringent requirements.

Public Service Efficiencies

Starting in 2004, as part of its continuing commitment to increase efficiencies and maximize savings, the government reduced costs, resulting in savings of more than $800 million annually by 2007. To date, efficiency initiatives have focused on savings from such activities as streamlining purchasing, improving the use of technology, and absorbing cost increases through program reviews. These savings have been reinvested in priority sectors such as education and health care.

For the past four years, the government has also established an annual savings target of approximately one per cent of total expenditures. These savings result mainly from program efficiencies, delays in new program start-ups, and changes in implementation plans. As overall expenditures are increasing, the government has established an annual savings target of $1.1 billion starting in 2008–09.

Collectively, BPS organizations purchase over $10 billion in goods and services. With so much at stake, ensuring that these organizations operate efficiently and effectively is a government priority.

Whether providing care to patients, teaching children or plowing roads, BPS front-line staff are dedicated to providing excellent service. Their dedication is shared by co-workers who provide critical back-office support in areas such as accounting, human resources and supply chain.

OntarioBuys is an innovative program with a simple goal: to reduce the time and money spent by the BPS on procuring goods (more than $4 billion in the health care sector alone), and funnel savings back into front-line services.

OntarioBuys has demonstrated that adopting supply chain leading practices can improve the efficiency and effectiveness of Ontario’s BPS. The government strongly supports the implementation of these leading practices by BPS organizations to improve efficiency, effectiveness and internal customer service levels.

The OntarioBuys program was established on a relatively small scale to facilitate and accelerate the adoption of supply chain leading practices by the BPS. As of early 2008, BPS interest in additional funding for high-impact projects exceeded available funding — an indicator of BPS willingness to embrace change and improve services. Based on the results to date, the government intends to renew and expand the OntarioBuys’ mandate and plans to invest an additional $15 million to achieve greater supply chain efficiencies in the BPS. In addition, the government will propose legislation to support the renewal and expansion of the OntarioBuys program.

The government is also considering legislation that would require BPS organizations to report on their progress in implementing supply chain leading practices, starting with health care service providers.

Improving Transparency in Financial Reporting

2007 Pre-Election Report

In April 2007, the government released the first-ever Pre-Election Report on Ontario’s Finances. Designed to inform Ontarians and political parties about the Province’s fiscal outlook prior to the provincial election, it was the first of its kind in Canada and among the first in the world.

Consolidation of Hospitals, School Boards and Colleges

The government funds over $30 billion annually to hospitals, school boards and colleges throughout the province. In compliance with Public Sector Accounting Standards, the government began including the financial results of hospitals, school boards and colleges with those of the Province on a one-line consolidation basis starting with the 2006 Budget and 2005–06 annual financial statements. The government also began providing additional financial information in its annual financial statements on the revenues, expenses, assets and liabilities of each of these major public sectors.

In the government’s view, one-line consolidation financial statement presentation of these sectors best reports the bottom-line fiscal accountability of these organizations for managing these public funds. It also provides a more transparent and easily understood presentation of their financial results. Further, it respects the public accountability of school boards, hospital boards and boards of governors of colleges to the communities they serve throughout the province for managing the performance of their organizations.

The government has expressed this view to the Public Sector Accounting Board (PSAB) and requested that it reconsider its position that all provincial governments in Canada should merge the financial results of these broader public-sector organizations with those of government ministries and agencies on a line-by-line basis in their financial statements. In the government’s view, line-by-line financial presentation would diminish transparency in the Province’s financial reporting and be inconsistent with the public accountability structures in place in Ontario. In November 2007, PSAB reaffirmed its position that governments in Canada should move to a line-by-line consolidation basis of financial reporting for fiscal years commencing April 1, 2008.

The government retains its view that the financial results of hospitals, school boards and colleges should be presented on a one-line basis in its financial statements. The one-line consolidation presentation of hospital, school board and college net expenses supports the government’s commitment to public accountability and transparency in financial reporting. The government will consult further with other stakeholders impacted by PSAB’s decision.

PSAB Joint Working Group

At their June 2007 meeting, the Federal-Provincial-Territorial Ministers of Finance requested that a group of deputy ministers meet with Public Sector Accounting Board (PSAB) members to discuss the importance of government accounting standards and their impact on fiscal transparency, public accountability and sound government policy decision-making. As a result of these discussions, a Joint Working Group of deputy ministers and PSAB members was formed to review government accounting standards in a number of emerging areas. It is expected that this dialogue will lead to greater understanding and alignment of public-sector accounting standards with fiscal transparency and public accountability objectives of governments in Canada.

Investments in Tangible Capital Assets

In response to changes in PSAB standards, the government began accounting for its investments in land, buildings and transportation infrastructure as tangible capital assets in 2003. With the adoption of this accounting treatment, investments in depreciable assets including buildings, roads and bridges are being amortized to expenses over their estimated useful lives instead of being expensed in the years they are purchased or constructed. Starting with the Province’s 2009–10 fiscal year, this policy is being extended to building leasehold improvements, assets acquired through capital leases, and other tangible capital assets owned by the Province such as vehicles, aircraft, information technology infrastructure, information technology systems and other equipment. With the extension of this policy to these classes of assets, Ontario will be accounting for its tangible capital assets on a comparable basis to the federal government and other provinces.

Fiscal Transparency and Accountability Act, 2004

As part of its commitment to enhancing accountability, increasing transparency and improving its financial reporting, in December 2004 the government enacted the Fiscal Transparency and Accountability Act (FTAA).

The government is proposing other legislation and amendments to enhance accountability, transparency and financial management. The government is proposing legislation to set out interim appropriations spending, clarify the basis for determining whether a liability has been incurred and addressing Treasury Board’s decision-making authority over payments within the scope of an appropriation.

With the introduction of fixed election dates and changes in Public Sector Accounting Standards since the FTAA was introduced in 2004, the government will also review the act based on experience to date and external developments to determine whether amendments to the act should be proposed.

SECTION H: DETAILS OF ONTARIO’S FINANCES

This section provides information on the Province’s historical performance, key fiscal indicators, as well as details on Ontario’s medium-term fiscal plan and outlook.

Table 19
Medium-Term Fiscal Plan and Outlook
($ billions)

	Interim 2007–08	Plan 2008–09	Outlook
			2009–10	2010–11
Revenue	96.6	96.9	100.6	103.8
Expense
Programs	87.0	87.3	90.6	93.4
Interest on Debt1	9.0	8.9	9.0	9.1
Total Expense	96.0	96.2	99.6	102.6
Reserve	–	0.8	1.0	1.2
Surplus/(Deficit)	0.6	0.0	0.0	0.0
Investment in Capital Assets	3.6	4.9	6.0	7.1
Net Debt2	142.8	146.2	150.6	156.1
Accumulated Deficit2	106.2	106.2	106.2	106.2
1 Interest on debt expense increases by $0.2 billion between 2008–09 and 2010–11 due to additional borrowings to finance investments in capital assets. 2 Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in tangible capital assets and the change in net assets of hospitals, school boards and colleges. Accumulated Deficit is calculated as the difference between liabilities and total assets including tangible capital assets and net assets of hospitals, school boards and colleges. Note: Numbers may not add due to rounding.

Table 20
2008–09 Fiscal Outlook
($ millions)

	Interim 2007–08	Plan 2008–09	Change
			$ millions	Per Cent
Revenue	96,563	96,920	357	0.4
Expense
Programs	86,997	87,279	282	0.3
Interest on Debt	8,966	8,891	(75)	(0.8)
Total Expense	95,963	96,170	207	0.2
Reserve	–	750	750	–
Surplus/(Deficit)	600	0	(600)	–
Investment in Capital Assets	3,603	4,935	1,332	37.0
Net Debt1	142,839	146,232	3,393	2.4
Accumulated Deficit1	106,176	106,176	–	–
1 Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in tangible capital assets and the change in net assets of hospitals, school boards and colleges. Accumulated Deficit is calculated as the difference between liabilities and total assets including tangible capital assets and net assets of hospitals, school boards and colleges.

Table 21
Revenue
($ millions)

	2004–05	2005–06	Actual 2006–07	Interim 2007–08	Plan 2008–09
Taxation Revenue
Personal Income Tax	19,320	21,041	23,655	24,666	25,171
Retail Sales Tax	14,855	15,554	16,228	16,880	17,206
Corporations Tax	9,883	9,984	10,845	12,746	12,339
Employer Health Tax	3,886	4,197	4,371	4,672	4,821
Ontario Health Premium	1,737	2,350	2,589	2,708	2,809
Gasoline Tax	2,277	2,281	2,310	2,357	2,380
Land Transfer Tax	1,043	1,159	1,197	1,422	1,343
Tobacco Tax	1,453	1,379	1,236	1,121	1,092
Fuel Tax	727	729	723	726	742
Electricity Payments-In-Lieu of Taxes	511	951	757	558	600
Other Taxes	283	292	399	466	472
	55,975	59,917	64,310	68,322	68,975
Government of Canada
Canada Health Transfer (CHT)	5,640	7,148	7,702	8,445	8,826
Canada Social Transfer (CST)	2,912	3,324	3,478	3,872	4,089
CHST Supplements	775	584	–	–	–
Social Housing	522	520	532	517	514
Wait Times Reduction Fund	242	243	467	468	235
Infrastructure Programs	209	285	191	219	234
Medical Equipment Funds	387	194	–	–	–
Other Government of Canada	1,195	953	1,666	3,343	2,559
	11,882	13,251	14,036	16,864	16,457
Income from Investment in Government Business Enterprises
Ontario Lottery and Gaming Corporation	1,992	2,027	1,945	1,805	1,772
Liquor Control Board of Ontario	1,147	1,197	1,307	1,366	1,420
Ontario Power Generation Inc. and Hydro One Inc.	444	1,107	947	930	930
Other Government Enterprises	(5)	(23)	(3)	2	–
	3,578	4,308	4,196	4,103	4,122
Other Non-Tax Revenue
Reimbursements	1,241	1,295	1,415	1,524	1,412
Vehicle and Driver Registration Fees	976	763	970	1,027	1,044
Electricity Debt Retirement Charge	997	1,021	991	995	1,004
Power Sales	610	779	863	831	856
Sales and Rentals	352	465	1,108	523	701
Other Fees and Licences	506	550	624	624	615
Liquor Licence Revenue	489	516	467	454	454
Net Reduction of Power Purchase Contract Liability	236	396	412	398	373
Royalties	278	191	215	211	242
Miscellaneous Other Non-Tax Revenue	721	773	790	687	665
	6,406	6,749	7,855	7,274	7,366
Total Revenue	77,841	84,225	90,397	96,563	96,920

Table 22
Total Expense
($ millions)

Ministry Expense	2004–05	2005–061	Actual 2006–07	Interim 2007–08	Plan 2008–09
Aboriginal Affairs2	21	50	25	34.7	55.6
Agriculture, Food and Rural Affairs2	795	861	796	869.4	945.6
Attorney General3	1,195	1,277	1,338	1,686.8	1,592.4
Board of Internal Economy	145	150	163	244.9	173.9
Children and Youth Services	2,793	3,271	3,264	3,703.3	4,074.3
Citizenship and Immigration3	62	89	112	91.3	88.6
Community and Social Services	6,360	6,717	7,181	7,617.8	7,727.2
Community Safety and Correctional Services	1,732	1,749	1,876	2,004.7	2,110.4
Culture2	346	478	414	348.2	379.8
Economic Development and Trade2	66	176	199	340.4	445.3
Education2	365	440	423	462.9	472.5
School Boards’ Net Expense	10,274	10,886	11,290	11,921.5	12,669.7
Energy	194	207	229	301.5	304.4
Environment	305	274	314	349.3	398.0
Executive Offices4	34	31	37	36.5	35.2
Finance2	538	582	568	465.7	559.1
Francophone Affairs, Office of	3	4	4	5.0	5.2
Government and Consumer Services2	1,075	740	971	958.4	1,102.0
Health and Long-Term Care	17,521	17,808	19,130	20,353.1	21,621.9
Hospitals’ Net Expense	13,877	14,816	16,145	17,382.7	18,436.3
Health Promotion	236	290	391	367.3	389.7
Labour	129	141	146	159.8	170.2
Municipal Affairs and Housing2	770	926	843	747.1	795.9
Natural Resources3	557	626	731	803.3	780.5
Northern Development and Mines	320	337	318	343.6	357.5
Public Infrastructure Renewal2,5	41	107	286	169.3	(33.0)
Research and Innovation2	236	332	316	309.5	382.8
Revenue	523	442	563	577.5	610.6
Small Business and Entrepreneurship3	20	26	25	31.7	27.8
Tourism3	167	210	204	242.5	176.1
Training, Colleges and Universities2	3,297	3,509	4,115	4,406.2	4,825.8
Colleges’ Net Expense6	1,289	1,185	1,273	1,508.7	1,414.5
Transportation2,7	1,744	2,116	2,660	1,883.1	1,961.7
Interest on Debt	9,368	9,019	8,831	8,966.0	8,891.0
Other Expense2	2,998	4,055	2,947	6,269.3	3,321.3
Year-End Savings	–	–	–	–	(1,100.0)
Total Expense	79,396	83,927	88,128	95,963.2	96,169.7
1 Starting in 2005–06, the Province’s financial reporting has been expanded to include hospitals, school boards and colleges using one-line consolidation. Prior to 2005–06, historical figures reflect grants to these entities for comparison purposes. 2 Details on Other Ministry Expense can be found in Table 23, Other Expense. 3 Decline from 2007–08 to 2008–09 due to one-time initiatives in 2007–08. 4 Executive Offices is comprised of Cabinet Office, Premier’s Office and the Office of the Lieutenant Governor. 5 Credit expense amounts result from a consolidation adjustment to avoid the double counting of internal charges to ministries from the Ontario Realty Corporation (ORC). Decline of $202 million from $169 million in 2007–08 to ($33 million) in Plan 2008–09 due to the impact of the ($227 million) ORC consolidation. The consolidation is negative to offset the impact of an increase in capital assets amortized over a longer period instead of expensed in one year. 6 The college net expense in 2008–09 is projected to be $94 million lower than 2007–08 due primarily to one-time expenses in 2007–08 related to facility and campus renewal investments. 7 Decline from 2006–07 to interim 2007–08 due to one-time transit initiatives in 2006–07. Note: Numbers may not add due to rounding.

Table 23
Other Expense
($ millions)

Ministry Expense	2004–05	2005–06	Actual 2006–07	Interim 2007–08	Plan 2008–09
Aboriginal Affairs
One-Time Expense for the First Nations Gaming Agreement	–	–	–	201.0	–
Agriculture, Food and Rural Affairs
One-Time Extraordinary Assistance	458	125	259	283.7	–
Time Limited Assistance	143	157	19	77.3	166.5
Culture
One-Time Investments	–	–	–	57.2	–
Economic Development and Trade
One-Time Investments	–	–	–	116.8	–
Education
Teachers’ Pension Plan1	240	295	345	342.0	54.0
Finance
Community Reinvestment Fund One-Time Transition Funding	233	–	–	–	–
Ontario Municipal Partnership Fund2	626	714	758	916.7	934.8
Operating Contingency Fund	–	–	–	50.0	420.0
Power Purchases	840	803	863	831.0	856.0
Government and Consumer Services
Pension and Other Employee Future Benefits	458	729	557	522.0	715.0
Municipal Affairs and Housing
One-Time Investment in Municipal Social Housing Stock	–	–	–	100.0	–
Public Infrastructure Renewal
Capital Contingency Fund	–	–	–	–	175.0
One-Time Investments in Municipal Infrastructure	–	–	140	450.0	–
Research and Innovation
One-Time Investments	–	–	–	86.5	–
Training, Colleges and Universities
One-Time Investments	–	–	–	698.8	–
Transportation
One-Time Transit and Infrastructure Investments	–	1,232	6	1,536.4	–
Total Other Expense	2,998	4,055	2,947	6,269.3	3,321.3
1 Numbers reflect PSAB pension expense. Ontario’s matching contributions to the plan grow from $708 million in 2004–05 to $808 million in 2007–08 and $1,061 million in 2008–09. 2 The 2004–05 figure includes transfers under predecessor Community Reinvestment Fund. Note: Numbers may not add due to rounding.

Table 24
2008–09 Infrastructure Expenditures
($ millions)

Sector	Total Infrastructure Expenditures 2007–08 Interim	2008–09 Plan
		Investment in Capital Assets	Transfers and Other Expenditures in Infrastructure1	Total Infrastructure Expenditures
Transportation
Transit	1,925.3	901.0	349.9	1,250.9
Highway Construction	1,345.7	1,484.3	–	1,484.3
Other Transportation2	832.8	520.5	70.7	591.3
Health
Hospitals	674.1	1,045.7	2.5	1,048.2
Other Health	241.8	60.8	187.4	248.1
Education
School Boards	1,000.4	–	1,018.6	1,018.6
Colleges	181.3	202.0	–	202.0
Universities	677.0	–	54.8	54.8
Water/Environment	259.5	16.3	286.9	303.2
Municipal and Local Infrastructure3	816.8	33.1	273.1	306.2
Justice	215.5	426.2	49.7	475.9
Other	700.8	244.9	295.9	540.8
Total4	8,871.1	4,934.7	2,589.5	7,524.2
1 Mainly consists of transfers for capital purposes to municipalities and universities, expenditures for servicing capital-related debt of schools, and expenditures for the repair and rehabilitation of schools. These expenditures are included in the Province’s total expense in Tables 22 and 23. 2 Other transportation includes planning activities, property acquisition, and other infrastructure programs (e.g., Municipal/Local Roads/Remote Airports). 3 Municipal and local water and wastewater infrastructure investments are included in the Water/Environment sector. 4 Total expenditures in 2008–09 include $48 million in flow-throughs in Investment in Capital Assets (for provincial highways) and $225 million in flow-throughs in Transfers and Other Expenditures in Infrastructure ($15 million in Transportation, $15 million in Health, $67 million in Water/Environment, $128 million in Municipal and Local Infrastructure). Note: Numbers may not add due to rounding.

Table 25
Ten-Year Review of Selected Financial and Economic Statistics
($ millions)

	1999–00	2000–01	2001–02	2002–031	2003–04	2004–05	2005–062	Actual 2006–07	Interim 2007–08	Plan 2008–09
Financial Transactions
Revenue	65,042	66,294	66,534	68,891	68,400	77,841	84,225	90,397	96,563	96,920
Expense
Programs	53,347	53,519	55,822	59,080	64,279	70,028	74,908	79,297	86,997	87,279
Interest on Debt	11,027	10,873	10,337	9,694	9,604	9,368	9,019	8,831	8,966	8,891
Total Expense	64,374	64,392	66,159	68,774	73,883	79,396	83,927	88,128	95,963	96,170
Reserve	–	–	–	–	–	–	–	–	–	750
Surplus/(Deficit)	668	1,902	375	117	(5,483)	(1,555)	298	2,269	600	0
Net Debt3, 4	134,398	132,496	132,121	132,647	138,816	140,921	141,928	141,100	142,839	146,232
Accumulated Deficit3	134,398	132,496	132,121	118,705	124,188	125,743	109,155	106,776	106,176	106,176
Gross Domestic Product (GDP) at Market Prices	409,020	440,759	453,701	477,763	493,081	516,792	536,908	557,784	586,494	603,197
Personal Income	321,702	347,653	361,187	369,420	381,309	399,781	417,861	438,030	459,938	474,134
Population — July (000s)	11,506	11,685	11,898	12,102	12,263	12,420	12,565	12,705	12,804	12,942
Net Debt per Capita (dollars)	11,681	11,339	11,104	10,961	11,320	11,346	11,295	11,106	11,156	11,299
Personal Income per Capita (dollars)	27,959	29,752	30,357	30,526	31,094	32,188	33,255	34,476	35,922	36,635
Total Expense as a per cent of GDP	15.7	14.6	14.6	14.4	15.0	15.4	15.6	15.8	16.4	15.9
Interest on Debt as a per cent of Revenue	17.0	16.4	15.5	14.1	14.0	12.0	10.7	9.8	9.3	9.2
Net Debt as a per cent of GDP	32.9	30.1	29.1	27.8	28.2	27.3	26.4	25.3	24.4	24.2
Accumulated Deficit as a per cent of GDP	32.9	30.1	29.1	24.8	25.2	24.3	20.3	19.1	18.1	17.6
1 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 are accounted for as expense in the year of acquisition or construction. All capital assets owned by consolidated organizations are accounted for on a full accrual basis. 2 Starting in 2005–06, the Province’s financial reporting has been expanded to include hospitals, school boards and colleges using one-line consolidation. Total expense prior to 2005–06 has not been restated to reflect expanded reporting. 3 Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in tangible capital assets and the change in net assets of hospitals, school boards and colleges. Accumulated Deficit is calculated as the difference between liabilities and total assets including tangible capital assets and net assets of hospitals, school boards and colleges. The annual change in the Accumulated Deficit is equal to the surplus/deficit. For fiscal 2005–06, the change in the Accumulated Deficit includes the opening combined net assets of hospitals, school boards and colleges that were recognized upon consolidation of these Broader Public Sector entities. For fiscal 2006–07, the change in the Accumulated Deficit includes an adjustment to the unfunded liability of the Ontario Electricity Financial Corporation made at the beginning of the year. 4 Net Debt is restated in 2003–04, 2004–05 and 2005–06 to reflect the value of hydro corridor lands transferred to the Province from Hydro One Inc. Sources: Ontario Ministry of Finance and Statistics Canada.

Support from Gaming for Health Care, the Ontario Trillium Foundation and Communities

Provincial proceeds from gaming activities continue to support Provincial priorities, including the operation and support of hospitals, charities, amateur sports, communities and the agricultural sector.

Table 26
Support for Health Care, Charities, and Problem Gambling and Related Programs
($ millions)

		Interim 2007–08	Plan 2008–09
Lotteries, Charity Casinos and Slot Machines at Racetracks Revenue
Operation of Hospitals		1,507	1,493
Ontario Trillium Foundation		105	110
Problem Gambling and Related Programs		37	39
Ontario Amateur Sports		10	10
Commercial Casinos Revenue
General Government Priorities		146	120
Total		1,805	1,772
Sources: Ontario Ministries of Public Infrastructure Renewal and Finance.

Revenue from Lotteries, Charity Casinos and Slot Machines at Racetracks

The Ontario Lottery and Gaming Corporation Act, 1999 requires that net Provincial revenue generated from lotteries, charity casinos and racetrack slot machines support services such as the operation of hospitals, problem gambling and related programs, amateur sports, and funding for charitable and not-for-profit organizations through the Ontario Trillium Foundation.

An estimated $1,493 million in net revenue from lotteries, charity casinos and slot machines at racetracks will be applied to support the operation of hospitals in 2008–09. While this level of support for hospitals from gaming revenue is down slightly from last year, hospitals’ net expense on a consolidated basis will increase by $1,054 million this year to $18.4 billion made up from other government revenues.

In 2008–09, the Ontario Trillium Foundation will be provided with $110 million to help build strong and healthy communities through contributions to charitable and not-for-profit organizations in the arts and culture, sports and recreation, human and social services, and environment sectors.

Two per cent of gross slot machine revenue, estimated at $39 million for 2008–09, is allocated for problem gambling prevention, treatment and research programs.

The Quest for Gold lottery will provide an estimated $10 million in 2008–09 for direct financial support to Ontario’s high-performance amateur athletes. This funding will also support enhanced coaching and skills development.

Benefits from Commercial Casinos

In 2008–09, net Provincial revenue from commercial casinos, estimated at $120 million, will be used to support general government priorities, including health care, education and public infrastructure. In addition to the support for general government priorities, commercial casino operations support approximately 11,800 direct jobs in Ontario and provide vital tourism and economic development attractions for their respective communities.

Other Beneficiaries of Charity Casinos and Slot Machines at Racetracks

Twenty per cent of gross revenue from slot machines at racetracks is provided to promote the economic growth of the horse-racing industry. Since 1998, this initiative has provided over $2 billion to Ontario’s horse-racing industry, a key component of the Province’s agricultural sector. For 2008–09, additional support is estimated at $346 million.

A portion of gross slot-machine revenue, estimated at $80 million in 2008–09, will be provided to municipalities that host charity casinos and slot operations at racetracks. These revenues will help offset local infrastructure and service costs.