|Ontario's Economy:||Provincial Finances:|
|Projected Real GDP Growth, 2009||(2.5%)||2008-09 Interim Deficit||$3.9 billion|
|Avg. Private-Sector Growth, 2009||(2.4%)||2009-10 Revenue Plan||$96.0 billion|
|Projected Real GDP Growth, 2010||2.3%||2009-10 Expense Plan||$108.9 billion|
|Jobs since October 2003||325,700||2009-10 Reserve||$1.2 billion|
|Real GDP (2008 above 2003)||10.3%||Debt1-to-GDP Ratio (2003-04)||25.2%|
|Real Disposable Income (2008 above 2003)||17.9%||Debt-to-GDP Ratio (2008-09)||18.4%|
This chapter presents the outlook for the Ontario economy and the government's fiscal plan.
The global economic outlook has deteriorated significantly in recent months. The U.S. economy — critically important to Ontario as the destination for most of its exports — is in the midst of one of its deepest downturns. Ontario is not immune to these broader forces and the current recession is expected to persist through the first half of 2009.
Growth in the global economy is expected to resume within the next year, mainly due to the aggressive fiscal and monetary actions of national governments and central banks around the world. The Ontario economy is expected to follow the same recovery pattern as the U.S. economy, with growth in Ontario expected to resume during the latter half of 2009 and to gain momentum in 2010 and 2011.
Recognizing the economic challenges facing Ontario, the government chose to reaffirm its commitment to provide and protect key public services. Taking into account the impact of the sudden and unexpected global downturn on the economic and revenue outlook, the Province is currently projecting a $3.9 billion deficit in 2008–09. In response to the downturn, the government is committed to protecting and creating jobs, as well as investing in key priority areas, while holding the average annual growth in core program expense at 3.6 per cent, compared to 3.8 per cent projected revenue growth between 2008–09 and 2011–12. As a result, the Province is projecting steadily declining deficits of $14.1 billion in 2009–10, $12.2 billion in 2010–11 and $9.7 billion in 2011–12, and a balanced budget by 2015–16.
Over two years ago, the government recognized the challenging global economic environment facing the province and took action through investments in skills, infrastructure and business tax cuts. Furthermore, in response to the sudden and unexpected deterioration of the economic environment in the fall of 2008, the government took immediate steps to continue its responsible management of the Province's finances. Since then, the Ontario economy has continued to experience the effects of global economic challenges, resulting in significant revenue declines. The government is now projecting a $3.9 billion deficit in 2008–09.
|Budget Plan||Interim||In-Year Change|
|Interest on Debt||8,891||8,854||(37)|
Changes in the 2008–09 fiscal outlook are primarily driven by revenue declines of $3.5 billion, a decrease of 3.6 per cent from the 2008 Budget forecast. Total expense, however, has been held to growth of only 0.8 per cent compared to 2007–08, and only 1.2 per cent higher than the 2008 Budget forecast — reflecting the government's commitment to contain spending while protecting key public services during this time of economic uncertainty.
The $750 million reserve was used to offset the effects of slower economic growth on the Province's fiscal outlook.
Ontario's 2008–09 deficit relative to the size of its economy is one of the lowest of the industrialized jurisdictions impacted by the global economic crisis. This underscores the government's commitment to protect jobs and encourage growth while continuing to prudently manage the Province's finances.
These interim results for 2008–09 are based on the best information available as of early March 2009. Given the preliminary nature of interim forecasts, these projections are subject to change. Actual Provincial revenue and expense will be presented in the 2008–09 Public Accounts.
Consistent with the Province's fiscal performance and with slower-than-anticipated gross domestic product (GDP) growth this year, the Province's accumulated deficit-to-GDP ratio is forecast at 18.4 per cent in 2008–09, down from 25.2 per cent in 2003–04.
Total revenue in 2008–09 is estimated to be $93,427 million, $3,493 million or 3.6 per cent lower than the 2008 Budget forecast. This is mainly due to weaker economic growth in 2008 and 2009 than projected in the 2008 Budget.
|Personal Income Tax||403|
|Land Transfer Tax||(292)|
|Retail Sales Tax||247|
|Electricity Payments-in-Lieu of Taxes||216|
|All Other Taxes||(370)|
|Government of Canada||108|
|Income from Government Business Enterprises|
|Ontario Power Generation Inc. and Hydro One Inc.||(315)|
|Ontario Lottery and Gaming Corporation||123|
|All Other Government Business Enterprises||(21)|
|Other Non-Tax Revenue||144|
|Total Revenue Change||(3,493)|
Highlights of key 2008–09 revenue changes from the 2008 Budget forecast are as follows:
Total expense in 2008–09 is currently projected to be $97,317 million, an increase of $1,147 million, or 1.2 per cent, from the 2008 Budget forecast. This increase primarily reflects the government's continued action to protect key public services.
|Program Expense Changes|
|Children's and Social Services/Social Housing||259.7|
|Infrastructure and Transportation||142.2|
|Other Program Expense Changes||239.7|
|Total Program Expense Changes||1,184.4|
|Interest on Debt Savings||(37.0)|
|Total Expense Changes||1,147.4|
Highlights of key 2008–09 expense changes from the 2008 Budget forecast are as follows:
This section outlines Ontario's current macroeconomic outlook, which underlies the fiscal plan. The Ministry of Finance's key economic planning assumptions are below the average private-sector forecasts that were available when the economic assumptions were finalized on March 13, 2009.
Ontario's economy has been impacted by the global economic downturn, which includes a recession in the United States, and heightened financial-market turbulence.
|Real GDP Growth||2.6||2.8||2.6||2.3||(0.4e)||(2.5)||2.3||3.3|
|Nominal GDP Growth||4.7||4.0||4.3||4.5||1.7e||(2.4)||3.6||4.7|
An unusual degree of uncertainty remains regarding the outlook. The strength and timing of the Ontario recovery largely depend on the depth and duration of the current global economic downturn.
The Ministry of Finance outlook includes a 2.5 per cent decline in Ontario real gross domestic product (GDP) in 2009. Real GDP declined in late 2008 and is expected to fall in the first two quarters of 2009. Growth is expected to resume during the second half of 2009 and strengthen over the next few years, with real GDP growth rates for planning purposes of 2.3 per cent in 2010 and 3.3 per cent in 2011. Resumed U.S. economic growth, government efforts to provide jobs for today and for the future, low interest rates and actions taken to improve the functioning of global credit markets are expected to bring about the mid-2009 turnaround. Job creation is expected to pick up, with 161,000 net new jobs expected during 2010 and 2011.
The auto sector is an important part of the Ontario economy, generating investments and providing numerous jobs in many communities in the province. A vibrant and competitive auto sector will remain an important part of Ontario's industrial mix in the future.
Ontario's auto industry is being hard hit by the sharp decline in demand, with Ontario's exports of autos and parts dropping by 22.8 per cent in 2008. The auto industry accounted for about 3.7 per cent of Ontario GDP in 2008, down from 6.1 per cent in 1999. The industry employed about 150,000 Ontarians in 2008, accounting for 2.3 per cent of total employment, down from a peak of 3.5 per cent in 2002. The Ontario auto sector is expected to see continued challenges throughout 2009. According to the latest Blue Chip Economic Indicators, U.S. light vehicle sales are expected to fall from 13.2 million units in 2008 to 10.3 million units in 2009. This represents a decline of 22.0 per cent, and forecasts range from a low of 8.6 million units to a high of 12.5 million units.
There are prospects for a recovery in the Ontario auto sector after 2009. According to Blue Chip Economic Indicators, vehicle sales in the United States are expected to rebound to 12.3 million units in 2010 and 14.0 million units in 2011.
Ontario is experiencing the impact of a sudden synchronized slowdown in the global economy. All G7 economies are now in a recession, with real GDP contracting sharply in the fourth quarter of last year and further declines expected in the first half of 2009. According to Consensus Economics, world growth is expected to decline by 1.6 per cent in 2009, compared to growth of 2.0 per cent in 2008. This would be the biggest decline since World War II. All G7 economies are expected to post a decline in output in 2009. The contraction is increasingly affecting emerging-market countries. China and other emerging economies are experiencing lower exports due to declining demand.
Several factors are expected to support the recovery in the global economy and result in strengthening economic growth. Significant fiscal stimulus measures at the national level and lower interest rates will boost business and household spending globally. Actions to stabilize the financial sector should allow global credit conditions to improve. This will improve confidence and increase the availability of credit to businesses and consumers. Global growth is expected to rebound to 2.1 per cent in 2010.
Weaker U.S. and global demand, particularly for autos, combined with ongoing global financial-market turbulence is having a negative impact on economic activity in Ontario. These developments have resulted in declines in net exports, higher unemployment and slower growth in both income and consumer spending.
Ontario real GDP fell by an estimated 0.4 per cent in 2008, following modest growth of 2.3 per cent in 2007. The main drag on growth was lower export volumes — largely autos — which fell more than seven per cent in 2008. Imports also declined — again largely reflecting declines in auto-related imports — but at a slower pace than exports. As a result, Ontario's international and interprovincial trade balance deteriorated significantly in 2008, falling from a surplus of $12.4 billion in 2007 to a deficit of $743 million in 2008.
Ontario's economic performance weakened in the fall of 2008, reflecting the turbulence in global financial markets and a U.S. recession. Real consumer spending fell by an estimated 1.0 per cent in the fourth quarter. The housing market also weakened through the end of 2008 and into early 2009. Housing starts declined by 9.5 per cent in the fourth quarter of 2008 and by a further 25.0 per cent in the first two months of 2009. Sales of existing Ontario homes dropped 23.6 per cent in the final quarter of 2008 and by a further 4.5 per cent in January.
Following a relatively modest decrease in the fourth quarter of 2008, Ontario employment has declined further in the past two months, falling by 71,000 net jobs in January and 35,000 in February. As a result, the Ontario unemployment rate rose to 8.7 per cent in February, from 7.2 per cent in December 2008.
The Ministry of Finance surveys private-sector forecasts to determine appropriate planning assumptions. Due to the rapid deterioration of the global economic situation, private-sector forecasters have revised their projections down significantly in recent months. Private-sector forecasters are, on average, calling for Ontario real GDP to decline by 2.4 per cent in 2009. Only a few forecasters provide quarterly forecasts but the ones that do expect the economy to contract for at least three quarters, with an average peak-to-trough decline of 3.3 per cent. Forecasters expect growth to improve in 2010, but there is a wide range of views. The Conference Board of Canada is the most optimistic, calling for growth of 3.6 per cent in 2010, while Desjardins Group is the most pessimistic, expecting growth of only 1.0 per cent.
|Conference Board of Canada (February)||(1.2)||3.6||4.1|
|IHS Global Insight (February)||(2.9)||2.5||3.8|
|Centre for Spatial Economics (February)||(1.2)||3.4||2.5|
|University of Toronto (February)||(2.1)||3.4||3.8|
|RBC Financial Group (March)||(1.9)||2.4||–|
|Scotiabank Group (March)||(2.9)||1.4||–|
|TD Bank Financial Group (March)||(2.7)||1.2||–|
|Desjardins Group (March)||(3.3)||1.0||–|
|BMO Capital Markets (March)||(2.9)||2.1||–|
|CIBC World Markets (March)||(2.5)||2.0||–|
|Private-Sector Survey Average||(2.4)||2.3||3.6|
|Ontario's Planning Assumption||(2.5)||2.3||3.3|
To ensure reasonable and accountable economic projections, the Ministry of Finance consults extensively with private-sector forecasters. The Ontario Economic Forecast Council was established as part of the Fiscal Transparency and Accountability Act, 2004 to provide advice on macroeconomic forecasts and assumptions. The council members are Peter Dungan from the University of Toronto, Glen Hodgson from the Conference Board of Canada, Ernie Stokes from the Centre for Spatial Economics and Dale Orr. The Minister of Finance met with Council members and other private-sector forecasters in the process of preparing the 2009 Budget. Council members were asked to review the Ministry of Finance's economic assumptions in February 2009. The members who were able to respond to this request provided letters stating that the forecast was reasonable, as of February 27, 2009. Subsequent revisions to private-sector forecasts have been reflected in Ontario's planning outlook up to March 13, 2009, the date the economic assumptions for the Budget were finalized.
Ontario's economic outlook is heavily influenced by external factors such as U.S. economic growth, oil prices, the Canadian dollar exchange rate and interest rates. Private-sector forecasts for these factors are summarized in the table below.
|U.S. Real GDP Growth (Per Cent)||(3.4)||(2.6)||(1.4)||(0.2)||1.9||3.5||1.4||3.4||6.3|
|Crude Oil ($US per Barrel)||36.2||44.5||55.0||35.3||60.0||82.5||34.9||61.9||90.0|
|Canadian Dollar (Cents US)||75.4||79.5||83.5||77.6||84.8||94.3||78.2||87.5||94.3|
|Three-Month Treasury Bill Rate (Per Cent)||0.3||0.6||1.4||0.4||1.1||2.9||2.1||3.1||4.3|
|10-Year Government Bond Rate (Per Cent)||2.5||2.9||3.7||2.6||3.3||4.1||3.5||4.4||4.9|
The U.S. economy is in the midst of one of the deepest recessions on record. The financial crisis that began in the U.S. subprime mortgage market escalated in the fall of 2008, creating further credit tightening and increasing global financial-market volatility. Housing starts and new home sales have reached all-time lows, while existing home sales and prices continue to decline. Foreclosure rates for residential mortgages continue to climb, leading to a further tightening in bank lending standards. Job losses and tighter credit conditions have led to reductions in consumer spending, particularly on durable goods such as autos. Businesses are reporting difficulty gaining access to credit to finance investment and maintain working capital. In response to the deteriorating outlook and ongoing financial-market turbulence, the Federal Reserve lowered its target for its key policy rate from 5.25 per cent in September 2007 to a range of zero to 0.25 per cent currently. The U.S. government has injected capital into many U.S. banks through its Troubled Asset Relief Plan (TARP), and the Federal Reserve has increased liquidity into the financial system. These actions are helping improve credit flows, but credit markets remain strained and it will take some time before they return to normal.
The U.S. government has taken strong steps to lift the economy out of recession, including passing the American Recovery and Reinvestment Act. The stimulus package includes infrastructure spending, personal tax cuts for lower- and middle-income households, business tax cuts designed to boost investment, as well as additional transfers to state governments. The U.S. Treasury has also introduced the Homeowner Affordability and Stability Plan that will reduce mortgage payments for many consumers as well as the number of home foreclosures. With U.S. housing construction now at extremely low levels, inventories of unsold houses should decrease. As inventories are pared down, housing starts and house prices are expected to stabilize. The eventual stabilization and recovery of the U.S. housing market should help credit conditions return to normal.
As it will take time for these initiatives to take effect, the U.S. economy is expected to decline through the first half of 2009, with consumption and business investment continuing to contract and exports weakening. Overall, U.S. GDP is expected to decline by 2.6 per cent in 2009. As the economic recovery takes hold, growth is expected to improve to 1.9 per cent in 2010. However, an unusually large degree of uncertainty remains surrounding the outlook, particularly the ultimate size and timing of the recovery. It is unclear when the U.S. housing market will stabilize and how long it will take for credit conditions to improve. There is a wide range of views on the U.S. outlook, with forecasts for growth in 2009 ranging from a low of -3.4 per cent to a high of -1.4 per cent. The range of outcomes for 2010 is even wider, with growth ranging from -0.2 per cent to 3.5 per cent.
Crude oil prices have declined sharply, from a record daily high of $145 US per barrel in July 2008 to below $34 US per barrel in February 2009, a drop of more than 75 per cent in just seven months — the sharpest decline on record. The dramatic downturn of the U.S. and world economies has put downward pressure on oil demand and prices. The plunge in oil prices has prompted the Organization of the Petroleum Exporting Countries (OPEC) to cut its production, and oil companies to cancel or postpone their capital investments in oil exploration and development, reducing future oil supply. As a result, production may be unable to respond quickly to meet increased demand once global growth picks up steam, contributing to a rebound in prices. Private-sector forecasters, on average, expect oil prices to climb from $45 US per barrel in 2009 to $60 US per barrel in 2010 and $62 US per barrel in 2011. There is a wide range of views on oil prices, reflecting uncertainty about demand conditions and available supply.
The Canadian dollar depreciated sharply against the U.S. dollar last October, dipping below 77.0 cents US in mid-March, reflecting the heightened financial-market turmoil and dramatic deterioration in global growth prospects, as well as falling commodity prices. Other currencies, including the euro and British pound, also depreciated significantly against the U.S. dollar in the last year. Private-sector forecasters expect the dollar to average 79.5 cents US in 2009, with forecasts ranging from a low of 75.4 cents US to a high of 83.5 cents US. As oil and other commodity prices are expected to rise in 2010, this will once again place upward pressure on the dollar. Private-sector forecasters project the Canadian dollar will average 84.8 cents US in 2010 and 87.5 cents US in 2011.
Interest rates have been lowered by central banks around the world since the financial turmoil intensified last autumn. The Bank of Canada has cut the overnight interest rate target by 400 basis points since December 2007 to a current historic low of 0.5 per cent. The Bank of Canada has also taken a number of extraordinary steps to provide liquidity to the financial market, including extending the duration of its loans to eligible institutions and expanding the type of collateral it accepts. In addition, since the fall of 2008 the federal government has agreed to put in place a number of programs to help ease the tension in financial markets, including the purchase of up to $125 billion in insured mortgage pools from Canadian financial institutions through the Canada Mortgage and Housing Corporation (CMHC) and the provision of a guarantee for banks' borrowings through the Canadian Lenders Assurance Facility.
Although central government interest rates are at record lows, the fall in interest rates for central government debt has not been fully matched by declines in interest rates for businesses, consumers and other levels of government. The prime lending rate, which influences a broad range of consumer loan rates, has declined by 375 basis points since December 2007. Over this period, the one-year mortgage rate has decreased by 270 basis points and the five-year mortgage rate by 160 basis points. Canadian household credit continues to grow at a pace well above the historical average, but the pace of activity has slowed. Canadian businesses have had difficulty accessing capital markets for financing, and have had to rely more on bank lending. However, the Bank of Canada's Senior Loan Officer Survey reported ongoing tightening in both the pricing and availability of credit.
Interest rates are expected to remain low throughout the year and rise over the medium term. Private-sector forecasters project the three-month treasury bill rate will average 0.6 per cent in 2009, down from 2.3 per cent in 2008, and the 10-year Government of Canada bond rate will average 2.9 per cent, down from 3.6 per cent. As global financial conditions improve and growth resumes, interest rates are projected to rise. The three-month treasury bill rate is expected to increase to 1.1 per cent in 2010 and 3.1 per cent in 2011. The 10-year Government of Canada bond yield is forecast to climb to 3.3 per cent in 2010 and 4.4 per cent in 2011.
As summarized in the following table, there is a wide range of views regarding the future path of the key external factors influencing the Ontario economy. In the past year, oil prices and the Canadian dollar have experienced record swings in values. The ongoing volatility in exchange rates and financial markets reflects the heightened uncertainty in the rapidly changing global economic outlook. 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.
|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 Barrel2||0.1 to 0.3||0.1 to 0.3|
|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|
Ontario's economy is expected to recover as financial conditions continue to improve and fiscal actions to provide jobs take hold. Exports are also expected to recover next year, reflecting the competitive value of the Canadian dollar and a rebound in the U.S. economy.
Due to the global economic downturn, Ontario's economy is expected to remain weak throughout the first half of 2009. For the year as a whole, real GDP is expected to decline by 2.5 per cent, because resumed growth during the latter half of the year will only partially offset reduced output during the first half.
The biggest drag on Ontario's economy in 2009 is expected to be exports, which are projected to decline by 9.7 per cent. The decline in exports is occurring worldwide, reflecting the interconnectivity of trade and weaker global demand. Business investment in both machinery and equipment as well as commercial and industrial construction is expected to weaken in 2009, reflecting falling corporate profits, the weak economic climate and tighter lending conditions. Lower profits and sales are expected to lead to a two per cent decline in employment and an increase in the unemployment rate to 8.8 per cent in 2009. Consumer spending is expected to fall by 0.6 per cent in 2009 due to declining employment, lower consumer confidence and reduced personal wealth due to lower stock and home prices. Inflation is expected to remain low over the forecast horizon. Ontario's consumer price index (CPI) inflation rate is expected to fall to 0.4 per cent in 2009, from 2.3 per cent in 2008, reflecting lower oil prices and weak domestic demand. Inflation is expected to average 1.9 per cent in 2010 and 2.0 per cent in 2011. The number of home resales is expected to decline by 25 per cent in 2009. As the inventory of unsold homes remains higher than normal, housing prices are projected to soften. New home construction is also being affected by weak demand and tighter credit conditions, with housing starts expected to fall to 50,000.
The recovery is expected to begin in the latter half of 2009, with growth resuming at a strengthening pace over 2010 and 2011, led by improving global economic conditions — most importantly, resumed growth in the U.S. economy. Improving U.S. demand should lead to a turnaround for Ontario's exports in 2010 and 2011. As economic growth strengthens and corporate profits rebound, businesses are expected to take advantage of low financing costs to expand operations and upgrade their technology and equipment. As economic growth rebounds, job creation will resume. In 2010 and 2011, 161,000 net new jobs are expected to be created. Job creation will contribute to stronger income and spending in 2010 and 2011. Housing activity is expected to recover in 2010 as confidence rebounds, incomes improve and households take advantage of low interest rates.
The economy tends to return to long-run trend GDP after a recession. During economic downturns, demand falls faster than supply, resulting in an unintentional buildup in inventories. Businesses are then forced to cut back production, reduce employment and scale back investment plans, all of which lead to lower labour income and reduced household spending. Particularly hard hit are housing, cars, furniture and other large-ticket items where purchasing decisions can be delayed. As a result, prices for these items soften.
Eventually during a downturn, inventories are run down and businesses need to replenish stocks. As well, prices for big-ticket items reach a point at which the improved affordability leads a rebound in household spending. As population increases, the demand for housing and other durable items such as autos and furniture outpaces the inventory of supply, leading to firmer prices, an increase in housing construction and accelerating sales of durable goods such as autos and furniture. All of these factors lead to increased employment and income, fuelling stronger spending and investment. In addition, since households and businesses are cautious, innovations are not adopted as quickly during downturns. As the economic recovery takes hold, new products and processes are introduced and demand accelerates.
Past experience indicates that Ontario has always recovered from economic downturns and returned to long-term trend real GDP growth. The 1982 recession was followed by very strong real GDP growth of 4.5 per cent in 1983 and 7.9 per cent in 1984 — a recovery to long-term trend GDP in two years. The economy recovered less quickly from the recession of 1990 to 1992. Real GDP growth averaged 4.0 per cent over the 1993 to 1999 period, resulting in the economy recovering to trend GDP in seven years. The fiscal recovery plan outlined in this Budget is based on the assumption that the Ontario economy will recover to trend GDP in 2015–16, with Ontario's real GDP growth averaging 3.8 per cent and nominal GDP growth averaging 5.6 per cent over the 2012 to 2016 period.
In recent recessions, the Bank of Canada has helped boost the economy through downturns by lowering interest rates. This helps generate investment and spending activity by lowering the cost of borrowing. However, with the Bank of Canada's key policy rate currently near zero, there is an increased need for governments to support economic activity through fiscal action. This action helps support demand for goods and services and helps generate a recovery in employment and investment. Actions being taken by the Ontario government to stimulate the economy are outlined in Chapter I: Confronting the Challenge: Building Ontario's Economic Future.
The following table shows details of the Ministry of Finance's economic outlook for 2009 to 2011.
|Real Gross Domestic Product||2.6||2.3||(0.4e)||(2.5)||2.3||3.3|
|Machinery and Equipment||9.0||7.8||(1.0e)||(9.0)||4.3||5.9|
|Nominal Gross Domestic Product||4.3||4.5||1.7e||(2.4)||3.6||4.7|
|Other Economic Indicators|
|Housing Starts (000s)||73.4||68.1||75.1||50.0||55.0||65.0|
|Consumer Price Index||1.8||1.8||2.3||0.4||1.9||2.0|
|Job Creation (000s)||95||101||94||(135)||54||107|
|Unemployment Rate (per cent)||6.3||6.4||6.5||8.8||8.9||8.2|
Ontario's real GDP declined by 0.4 per cent in 2008 — 1.5 percentage points lower than the Ministry of Finance's 2008 Budget forecast. Nominal GDP rose by 1.7 per cent — 1.1 percentage points lower than the Budget forecast. The labour market performed better than projected, with employment growing by 1.4 per cent — 0.4 percentage points above the Budget forecast and resulting in 26,000 more jobs than expected — and labour income growth was 4.2 per cent in 2008 — 0.8 percentage points higher than the Budget forecast. Corporate profits, however, were weaker than expected, declining by 4.5 per cent — 8.5 percentage points below the Budget forecast.
Forecasts for growth in 2009 and 2010 are lower than projected at the time of the 2008 Budget, reflecting significant deterioration in global economic conditions. Real GDP growth has been revised down 4.6 percentage points in 2009 and 0.4 percentage points in 2010. Nominal GDP has been lowered by 6.3 percentage points in 2009 and 1.0 percentage point in 2010. Growth in labour income and retail sales, key revenue drivers, is projected to be lower than in the 2008 Budget. Corporate profits are expected to decline sharply in 2009 and rebound in 2010; however, the level of profits in both 2009 and 2010 is lower than expected in the 2008 Budget.
|Real Gross Domestic Product||1.1||(0.4e)||2.1||(2.5)||2.7||2.3|
|Nominal Gross Domestic Product||2.8||1.7e||3.9||(2.4)||4.6||3.6|
|Housing Starts (000s)||64.0||75.1||63.0||50.0||66.0||55.0|
|Job Creation (000s)||68||94||76||(135)||87||54|
|Key External Variables|
|Crude Oil ($ US per Barrel)||85.0||99.6||80.0||47.3||80.0||55.5|
|U.S. Real Gross Domestic Product||1.7||1.1||2.6||(2.6)||2.8||1.9|
|Canadian Dollar (Cents US)||100.0||93.7||98.0||80.0||98.0||85.0|
|3-month Treasury Bill Rate||3.3||2.3||3.8||0.6||4.5||1.1|
|10-year Government Bond Rate||3.9||3.6||4.5||2.9||5.2||3.3|
The medium-term revenue forecast is based on the Ministry of Finance economic outlook and reflects the estimated impacts of government policy decisions. Total revenues are projected to increase at an annual average rate of 3.8 per cent from 2008–09 to 2011–12.
|Personal Income Tax||25.6||25.2||25.0||26.1|
|Ontario Health Premium||2.8||2.8||2.9||3.1|
|All Other Taxes||11.0||10.7||11.0||11.4|
|Government of Canada||16.6||19.2||23.0||20.5|
|Income from Government Business Enterprises||3.9||4.3||4.5||4.8|
|Other Non-Tax Revenue||7.5||7.6||7.6||7.4|
The total tax package proposed in this Budget, net of federal transitional assistance of $4.3 billion, would reduce Ontario revenue by $2.3 billion over four years.
Personal Income Tax (PIT) revenue is projected to decline in 2009–10 and 2010–11, mainly due to the impact of measures proposed in this Budget. These tax measures are outlined in detail in Chapter III: Reforming Ontario's Tax and Pension Systems. The underlying PIT revenue base growth forecast is consistent with the economic outlook for wages and salaries growth. The PIT revenue base tends to grow at a faster rate than incomes due to the progressive structure of the tax system.
|Total Projected Revenue||25.6||25.2||25.0||26.1|
|Measures Included in Total1||–||(0.3)||(2.0)||(2.4)|
|Adjustments for Prior Years||0.5||–||–||–|
|Base Revenue Growth (Per Cent)||3.3||1.7||5.8||5.9|
|Wages and Salaries Growth (Per Cent)||4.2||0.3||3.2||4.2|
This Budget introduces a proposal to replace the Retail Sales Tax with a new value-added sales tax starting on July 1, 2010. For a detailed discussion, see Chapter III: Reforming Ontario's Tax and Pension Systems. After adjusting for this and other tax measures, total sales tax revenue base growth is consistent with the underlying growth in consumer spending.
|Total Projected Retail Sales Tax (RST)||17.5||17.6||4.7||–|
|Total Projected New Sales Tax||–||–||16.3||22.9|
|Measures Included in Total 1|
|New Sales Tax Measures||–||–||1.7||2.2|
|Temporary Restriction of Input Tax Credits for Businesses||–||–||0.9||1.3|
|RST Base Revenue 2||17.5||17.5||18.4||19.3|
|RST Base Revenue Growth (Per Cent)||2.8||0.5||4.6||5.3|
|Nominal Consumption Growth (Per Cent)||4.6||0.1||3.3||4.1|
Corporations Tax (CT) revenues are projected to decline over the medium term, largely due to the impact of measures proposed in this Budget. These tax measures are discussed in detail in Chapter III: Reforming Ontario's Tax and Pension Systems. After adjusting for tax measures and one-time revenue impacts in 2008–09, CT revenue base growth is consistent with the outlook for corporate profits. The one-time revenue impacts in 2008–09 include an adjustment for variances from estimates in past Public Accounts and the expectation that much of the 2008–09 shortfall is attributable to writedowns and income losses related to the global financial crisis.
|Total Projected Revenue||8.6||8.5||8.8||8.4|
|Measures Included in Total1|
|2009 Budget Measures||–||(0.1)||(0.7)||(1.6)|
|All Previous Measures||–||(0.2)||(0.8)||(1.1)|
|Adjustments for Prior Years||(0.8)||–||–||–|
|Other One-Time Impacts||(1.6)||–||–||–|
|Base Revenue Growth (Per Cent)||(3.6)||(19.4)||16.2||7.6|
|Corporate Profit Growth (Per Cent)||(4.5)||(24.8)||9.5||8.2|
The Ontario Health Premium (OHP) forecast is based on the outlook for employment and personal income, both of which begin to recover in 2010. Ontario Health Premium revenues are projected to increase by an annual average of 3.2 per cent over the forecast period, roughly consistent with the outlook for personal incomes.
The forecast for All Other Taxes is projected to decline in 2009–10 and then increase moderately, reflecting the economic outlook discussed in Section C: Ontario's Economic Outlook. The forecast is developed on an item-by-item basis. For example, the forecast for Gasoline and Fuel Taxes is based on the outlook for gasoline and diesel pump prices, disposable income, and real gross domestic product (GDP) growth. The forecast reflects estimated impacts of all previously announced measures and those proposed in this Budget as discussed in Chapter III: Reforming Ontario's Tax and Pension Systems.
The forecast for Government of Canada transfers is based on existing federal–provincial funding arrangements. The outlook includes funding from the new infrastructure and training initiatives announced in the 2009 federal budget. Equalization payments, the Canada Health Transfer (CHT) and the Canada Social Transfer (CST) are all projected to increase in the medium term according to their respective funding formulas and the forecast for demographic, economic and government fiscal information applied in the formulas. Also included in this outlook are federal transition payments to Ontario in moving to a single sales tax. This is discussed in detail in Chapter III: Reforming Ontario's Tax and Pension Systems.
The forecast for Income from Government Business Enterprises is based on information provided by each of these government enterprises. Revenues from government enterprises are projected to increase by $0.9 billion, or at an annual average rate of 6.9 per cent, from 2008–09 to 2011–12. Net incomes from Ontario Power Generation (OPG) and Hydro One Inc. (HOI) are projected to increase, primarily due to expected new generation, transmission and distribution investments coming into service. The projected increase in Ontario Lottery and Gaming Corporation (OLG) net income is largely due to planned strategic initiatives and expansions at a number of facilities. Net Income of the Liquor Control Board of Ontario (LCBO) is projected to decrease in 2009–10 due to the economic downturn before resuming growth in 2011–12.
The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies. Between 2008–09 and 2011–12, other non-tax revenues are projected to decrease by $0.1 billion. Reimbursements from municipalities decline due to the government's previously announced decision to upload the municipal share of Ontario Disability Support Program and Ontario Drug Benefit costs. This is partially offset by projected increases in Sales and Rentals; Other Fees, Licences and Permits; and Miscellaneous revenues.
|Slower Economic Growth||(1.4)||(6.1)||(5.2)|
|Past-Year Tax Return Processing – Ongoing||(0.3)||(0.4)||(0.5)|
|Past-Year Tax Return Processing – One Time||(0.4)||0.0||0.0|
|Corporations Tax, Financial Markets – One Time||(1.6)||0.0||0.0|
|Tax Policy Measures||(0.0)||(0.3)||(0.1)|
|2009 Federal Budget||(0.0)||2.1||2.1|
|Federal Transition Payment||0.0||0.0||3.0|
|Total Revenue Changes||(3.5)||(4.6)||(0.1)|
The medium-term forecast for total revenues is lower in each year compared to the 2008 Budget.
The deterioration in the economic growth outlook in 2008 and over the forecast period significantly lowers revenues over the 2008–09 to 2011–12 period. The economic outlook is discussed in detail in Section C: Ontario's Economic Outlook.
Since the 2008 Budget, processing of PIT and CT past years' tax returns has lowered the estimated 2007–08 revenue base upon which growth is applied for 2008–09 and beyond. In addition, there is a one-time net revenue decrease in 2008–09 because variances from past Public Accounts are picked up in the current year.
Much of the shortfall in 2008–09 Corporations Tax revenues is attributable to writedowns and other income losses related to the global financial crisis.
New tax measures announced since the 2008 Budget are discussed in detail in Chapter III: Reforming Ontario's Tax and Pension Systems.
The net impact of measures announced in the 2009 federal budget increases revenues over the medium term. This includes new funding for infrastructure and training that boosts revenues, particularly in 2009–10 and 2010–11, and changes to the CHT funding formula. This is partially offset by the impact of tax measures announced in the 2009 federal budget.
Since the 2008 Budget, Ontario has qualified under the Equalization program to receive a payment of $0.3 billion in 2009–10, and is projected to be entitled to receive $0.7 billion in 2010–11. This is largely due to a decline in Ontario's fiscal capacity relative to other provinces, particularly with respect to resource revenues. Under the Equalization program, entitlements are based on a three-year weighted average of the Province's fiscal capacity relative to all of Canada, using data that are lagged by two years. For example, Ontario's 2010–11 entitlement is based on data from the federal government for 2006–07 and 2007–08, and projections for 2008–09.
As part of moving to a single sales tax, Ontario would receive transitional payments from the federal government in 2010–11 and 2011–12. This is discussed in detail in Chapter III: Reforming Ontario's Tax and Pension Systems.
Other changes result in a net reduction in the revenue outlook over the forecast period. The 2008 Budget assumed that the federal government would continue to fund previously announced time-limited transfers at 2008–09 levels. This assumption is no longer being made, given other funding announced in the 2009 federal budget. This revenue decline is partially offset by higher miscellaneous Non-Tax Revenue. Also included in other changes are increased revenues due to tax audit and collection improvements being implemented, beginning in 2009–10.
There is currently an unusual degree of uncertainty regarding Ontario's economic and revenue outlook given the global economic slowdown, particularly in the United States, and ongoing turmoil in global financial markets. This section highlights some of the key sensitivities and risks to the fiscal plan that could arise from unexpected changes in economic conditions. These estimates 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 is a broader range of additional risks that are not included because they are either not as material or are difficult to quantify. For example, Income from Government 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.
|Item/Key Components||2009–10 Assumption||2009–10 Sensitivities|
|– Real GDP||2.5 per cent decline in 2009||$725 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.|
|– GDP Deflator||0.1 per cent increase in 2009|
|Total Taxation Revenues|
|– Revenue Base1||2.8 per cent decline in 2009–10||$470 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||2.4 per cent decline in 2009|
|Personal Income Tax (PIT) Revenues|
|– Revenue Base||1.7 per cent growth in 2009–10|
|Key Economic Assumptions|
|– Wages and Salaries||0.3 per cent growth in 2009||$314 million revenue change for each percentage point change in wages and salaries growth.|
|– Employment||2.0 per cent decline in 2009|
|– Unincorporated Business Income||2.7 per cent growth in 2009||$31 million revenue change for each percentage point change in unincorporated business income growth.|
|Key Revenue Assumptions|
|– Net Capital Gains Income||42.0 per cent decrease in 2009||$10 million revenue change for each percentage point change in net capital gains income growth.|
|– RRSP Deductions||0.9 per cent growth in 2009||$16 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.|
|– 2008 Tax-Year Assessments2||$23.7 billion||$237 million revenue change for each percentage point change in 2008 PIT assessments.3|
|– 2007 Tax-Year and Prior Assessments2||$1.3 billion||$13 million revenue change for each percentage point change in 2007 and prior PIT assessments.3|
|Retail Sales Tax Revenues|
|– Revenue Base||0.5 per cent growth in 2009–10|
|– Taxable Household Spending||0.6 per cent growth in 2009–10|
|– Other Taxable Spending||0.3 per cent growth in 2009–10|
|Key Economic Assumptions|
|– Retail Sales||1.0 per cent decline in 2009|
|– Nominal Consumption Expenditure||0.1 per cent growth in 2009||$110 million revenue change for each percentage point change in nominal consumption expenditure growth.|
|Corporations Tax Revenues|
|– Revenue Base||19.4 per cent decline in 2009–10|
|– Corporate Profits||24.8 per cent decline in 2009||$65 million revenue change for each percentage point change in pre-tax corporate profit growth.|
|– 2008–09 Tax Assessment Refunds4||$2.6 billion payable in 2009–10||$26 million revenue change in the opposite direction for each percentage point change in 2008–09 refunds.3|
|– 2008–09 Tax Payments upon Filing4||$0.9 billion receivable in 2009–10||$9 million revenue change for each percentage point change in 2008–09 payments upon filing.3|
|– 2008–09 Tax Assessment Payments4||$1.2 billion receivable in 2008–09 and 2009–10||$12 million revenue change for each percentage point change in 2008–09 assessment payments.3|
|Employer Health Tax Revenues|
|– Revenue Base||0.2 per cent growth in 2009–10|
|– Wages and Salaries||0.3 per cent growth in 2009||$40 million revenue change for each percentage point change in wages and salaries growth.|
|Ontario Health Premium (OHP) Revenues|
|– Revenue Base||1.4 per cent growth in 2009–10|
|– Personal Income||0.6 per cent growth in 2009||$26 million revenue change for each percentage point change in personal income growth.|
|– 2008 Tax-Year Assessments||$2.6 billion||$26 million revenue change for each percentage point change in 2008 OHP assessments.|
|Gasoline Tax Revenues|
|– Revenue Base||0.3 per cent growth in 2009–10|
|– Gasoline Pump Prices||86.0 cents per litre in 2009||$4 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.|
|Fuel Tax Revenues|
|– Revenue Base||1.9 per cent growth in 2009–10|
|– Real GDP||2.5 per cent decline in 2009||$5 million revenue change for each percentage point change in real GDP growth.|
|Land Transfer Tax Revenues|
|– Revenue Base||16.2 per cent decline in 2009–10|
|– Housing Resales||25.0 per cent decline in 2009||$12 million revenue change for each percentage point change in both the number and prices of housing resales.|
|– Resale Prices||8.0 per cent decline in 2009|
|Canada Social Transfer5|
|– Ontario Population Share||38.9 per cent in 2009–10||$11 million revenue change for each tenth of a percentage point change in population share.|
The Province's total expense outlook is projected to grow from $97.3 billion in 2008–09 to $112.9 billion by 2011–12.
Total program spending is projected to increase from $88.5 billion in 2008–09 to $101.9 billion in 2011–12, reflecting the government's commitment to preserve vital services and to protect and create jobs through focused and timely investments in areas such as infrastructure and skills training.
Holding the average annual growth of program spending to less than that of revenue growth is a key element of the government's fiscal plan. Core program spending growth is expected to average 3.6 per cent annually between 2008–09 and 2011–12, which is lower than the 3.8 per cent average annual growth projected for revenue during this period.
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 $11.1 billion in 2011–12, mainly due to additional borrowings to fund the projected deficits and investments in capital assets.
An unusual degree of uncertainty remains regarding Ontario's economic outlook, and the impact it could have on the Province's overall fiscal plan, including the expense outlook. 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 make up over two-thirds of total Provincial expense, and include assumptions about expected utilization, enrolment rates and caseloads.
Ontario's economy has been hit hard by the global economic downturn, which includes a recession in the United States, heightened financial market turmoil, and a sharp contraction in manufacturing. Given the high level of uncertainty arising from the global economic slowdown, particularly in the short run, the government's 2009–10 expense plan includes contingency funds totalling $3.4 billion. The contingency funds will provide the government with the needed flexibility to respond immediately to further changes resulting from ongoing global economic turbulence in a way that maintains public services while protecting and creating jobs for Ontarians.
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 variances in the overall fiscal forecast. It should be cautioned that these sensitivities and risks are illustrative and can vary, depending on the nature and composition of potential risks.
|Program/Sector||2009–10 Assumption||2009–10 Sensitivity|
|Health Sector||Annual growth of 4.5 per cent.||One per cent change in health spending: $426 million.|
|Hospitals' Net Expense||Annual growth of 3.5 per cent.||One per cent change in hospitals' net expense: $192 million.|
|Drug Programs||Annual utilization growth of less than 5.0 per cent.||One per cent change in program expenditure of all drug programs: $43 million (seniors and social assistance recipients).|
|Long-Term Care Homes||75,866 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $41,600.||One per cent change in number of beds: approximately $32 million.|
|Home Care||Approximately 17 million hours of homemaking and support services.||One per cent change in hours of homemaking and support services: approximately $5 million.|
|Approximately 10 million nursing and professional visits.||One per cent change in nursing and professional visits: approximately $7 million.|
|University Students1||331,339 full-time undergraduate and graduate students.||One per cent enrolment change: $34 million.|
|Ontario Works||225,482 average annual caseload.||One per cent caseload change: $19 million.|
|Ontario Disability Support Program||259,874 average annual caseload.||One per cent caseload change: $32 million.|
|College Students||162,070 full-time students.||One per cent enrolment change: $13 million.|
|Interest on Debt||Average cost of 2009–10 borrowing is forecast to be approximately 4.5 per cent.||The 2009–10 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $480 million.|
|Correctional System||3.3 million adult inmate days per year. Average cost $164 per inmate per day.||One per cent change in inmate days: $5.3 million.|
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.
|Sector||Cost of 1% Salary Increase||Size of Sector|
|OHIP Payments to Physicians1||$95 million||Just over 23,800 physicians in Ontario, comprising 11,300 family doctors and 12,500 specialists.|
|Hospital Nurses2||$52 million||Over 58,500 full-time equivalent nurses in hospitals.|
|Elementary and Secondary School Staff3||$150 million||Almost 203,000 full-time equivalent staff including teachers, principals, administrators, and support and maintenance staff.|
|College Staff4||$17 million||About 37,200 staff including faculty, administrators, and support and maintenance staff.|
|Ontario Public Service5||$59 million||Over 68,000 public servants.|
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.
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.
Ontario provides guarantees on loans on behalf of various parties. The authorized limit for loans guaranteed by the Province as at March 31, 2008, was $2.4 billion. The outstanding loans guaranteed and other contingencies amounted to $2.3 billion at March 31, 2008.
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, 2008, there were $8.0 billion of mortgage loans outstanding.
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, 2008, there were 72 claims outstanding against the Crown that were for amounts over $50 million.
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.
Ontario's medium-term fiscal outlook reflects the impact of the global economic downturn on Ontario's revenues, as well as the immediate measures the government is taking to position Ontario to be more competitive, so families and businesses can take advantage of the next generation of jobs and growth.
The government is currently projecting deficits of $14.1 billion in 2009–10, $12.2 billion in 2010–11 and $9.7 billion in 2011–12. The Province is projected to return to a balanced budget no later than 2015–16 by holding the average annual growth of core program expense to less than the average annual growth of revenue.
|Postsecondary Education and Training Sector||6.1||6.6||6.6||6.4|
|Children's and Social Services Sector||12.1||12.7||12.9||12.5|
|Interest on Debt||8.9||9.3||9.9||11.1|
Total Provincial revenue is projected to increase from $93.4 billion in 2008–09 to $104.4 billion in 2011–12 — an annual average growth rate of 3.8 per cent over this period.
Total expense over the medium term is projected to increase from $97.3 billion in 2008–09 to $112.9 billion in 2011–12 — reflecting the immediate measures the government is taking in this Budget to protect and create jobs.
In recognition of the ongoing uncertainty in the global economic environment, the fiscal plan includes prudence in the form of a reserve of $1.2 billion each year. In addition, the fiscal plan also includes contingency funds totalling $3.4 billion in 2009–10 to provide flexibility to respond to the impact of further global economic challenges.
|Total Program Expense||88.5||99.6||104.7||101.9|
|Less: Non-Core Program Expense|
|Sales Tax Transitional Support||–||–||3.1||1.3|
|Labour Market and Skills Training Investments||–||0.3||0.3||–|
|Total Non-Core Program Expense||1.7||5.8||9.7||5.5|
|Total Core Program Expense||86.8||93.7||95.0||96.4|
A key element of the government's plan to eliminate the deficit by 2015–16 is ensuring that core program expense growth is lower than growth in revenue. Excluding the impact of non-core program expense such as time-limited infrastructure investments and labour market and skills training funding, core Provincial program expense will only grow by an annual average rate of 3.6 per cent between 2008–09 and 2011–12, which is lower than the 3.8 per cent growth projected for revenue over the same period.
Non-core program expense totals $1.7 billion in 2008–09, $5.8 billion in 2009–10, $9.7 billion in 2010–11 and $5.5 billion in 2011–12.
The 2008 Budget projected balanced budgets over the medium term. Since that time, however, the global economic downturn has significantly impacted Ontario's economy and, in turn, Provincial revenues. The government is now projecting deficits of $3.9 billion in 2008–09, $14.1 billion in 2009–10, and $12.2 billion in 2010–11. These deficits mainly reflect decreases in the revenue forecast resulting from the global economic downturn as well as the impact of time-limited investments the government is making in key priority areas such as infrastructure and skills training to help protect and create jobs.
The following table provides an overview of key changes to the medium-term revenue and expense outlooks, and the reserve since the release of the 2008 Budget.
|Surplus/(Deficit) as per 2008 Budget Fiscal Plan||0.0||0.0||0.0|
|Total Revenue Changes Since 2008 Budget||(3.5)||(4.6)||(0.1)|
|Expense Changes Since 2008 Budget:|
|Changes to Core Program Expense|
|Investments in Children's and Social Services||0.3||0.7||0.8|
|Investments in Health||0.2||0.0||0.3|
|Increased Education Funding||0.1||0.8||1.2|
|Investments in Justice||0.1||0.0||0.3|
|All Other Core Program Expense Changes||0.4||3.1||0.4|
|Total Change in Core Program Expense||1.2||4.7||3.0|
|Changes to Non-Core Program Expense|
|Higher Pension Expense||0.0||0.8||1.5|
|Labour Market and Skills Training Investments||–||0.3||0.3|
|Sales Tax Transitional Support||–||–||3.1|
|Total Change in Non-Core Program Expense||0.0||4.3||8.3|
|Change in Interest on Debt Expense||(0.0)||0.3||0.8|
|Total Expense Changes||1.1||9.3||12.1|
|Change in Reserve||(0.8)||0.2||0.0|
|2009 Budget Surplus/(Deficit)||(3.9)||(14.1)||(12.2)|
Total revenue has decreased by $3.5 billion in 2008–09, $4.6 billion in 2009–10 and $0.1 billion in 2010–11, mainly as a result of the challenges presented by the global economic downturn and the estimated impact of government policy decisions. Specific details of the revenue forecast can be found in Section D: Ontario's Revenue Outlook.
The majority of changes in Provincial program spending since the 2008 Budget are related to non-core program expense — mainly time-limited investments being made to protect and create jobs for Ontarians while also maintaining key public services.
Core program expense has increased by $1.2 billion in 2008–09, $4.7 billion in 2009–10 and $3.0 billion in 2010–11. Key changes include:
Non-core program expense will increase by $4.3 billion in 2009–10 and $8.3 billion in 2010–11. These include:
Interest on Debt increases by $0.3 billion in 2009–10 and $0.8 billion in 2010–11, mainly from higher borrowings to fund the projected deficits and net investments in capital assets.
The $0.8 billion reserve in 2008–09, included to protect the fiscal plan against adverse changes in the Province's fiscal outlook, was used to offset the effects of slower economic growth on the Province's fiscal performance. The 2009–10 reserve has been increased to $1.2 billion from the 2008 Budget, in recognition of the increased uncertainty arising from the deteriorating global economic outlook.
When the government took office in 2003, it inherited a hidden fiscal deficit of $5.5 billion as well as deficits in key areas such as health care, education and infrastructure. The challenges were significant. But, over the last five years, the government has made major investments in the public services that matter most to Ontarians, while eliminating the fiscal deficit in less than three years.
Since the fall of 2008, the Ontario economy has experienced the effects of global economic challenges, resulting in significant revenue declines. The government is now projecting a $3.9 billion deficit in 2008–09. The global economic crisis continues to affect Ontario in the short term, resulting in a projected deficit of $14.1 billion in 2009–10.
Similar to 2008–09, Ontario's deficit relative to the size of its economy in 2009–10, at 2.4 per cent, is low among industrialized jurisdictions impacted by the global economic crisis. This reflects the government's commitment to preserve vital services and to protect and create jobs through focused and timely investments in areas such as infrastructure and skills training, while continuing to prudently manage the Province's finances.
The Fiscal Transparency and Accountability Act, 2004 requires the government to outline a recovery plan to balance the budget.
The government's recovery plan will steadily reduce the Provincial deficit from the $14.1 billion forecasted in 2009–10 to a balanced budget no later than 2015–16.
Key elements of the government's fiscal plan to eliminate the deficit by 2015–16 include:
Adopting efficiency practices and managing overall expenditures are key to achieving a balanced budget. Excluding the impact of non-core program expense such as time-limited infrastructure investments and other funding for immediate measures to protect and create jobs, core Provincial program expense is expected to grow by 3.6 per cent a year on average between 2008–09 and 2011–12 — lower than the 3.8 per cent annual average growth forecast for revenue over the same period.
Past experience indicates Ontario has always recovered from economic downturns and returned to long-term trend real gross domestic product (GDP) growth. The fiscal recovery plan is based on the forecast that the Ontario economy will recover to its historical trend GDP in 2015–16, with Ontario's real GDP growth averaging 3.8 per cent and nominal GDP growth averaging 5.6 per cent over the 2012 to 2016 period. Consistent with these GDP planning data, revenue growth is projected to increase to an average annual rate of 4.6 per cent between 2011–12 and 2015–16. Growth in the Ontario economy and revenue alone, however, cannot bring the Province back to balance — program expense must also grow at a sustainable rate, and must grow at a rate less than the average annual growth in revenue. For this reason, during this same period, program expense growth will be held to an average annual growth rate of 2.3 per cent in order to achieve balance while protecting core public services.
|Plan||Medium-Term Outlook||Extended Outlook|
|Interest on Debt||9.3||9.9||11.1||11.6||12.0||12.2||12.2|
In addition to maintaining a prudent approach in response to the impacts of the global economic downturn, the fiscal plan includes other key elements of prudence each year to help protect the government's overall fiscal objectives and contribute to the achievement of fiscal targets.
In keeping with sound fiscal practices, the Province's revenue outlook is based on prudent economic assumptions.
Consistent with 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 fiscal plan includes a reserve of $1.2 billion each year over the medium term, and $1.5 billion each year over the extended outlook. The reserve is larger for the extended outlook period to reflect the uncertain nature of longer-term revenue and expense projections.
The fiscal plan also includes contingency funds (both operating and capital) totalling $3.4 billion in 2009–10 to help mitigate expense risks that may otherwise have a negative impact on results. The level of the 2009–10 contingency funds — set at about three per cent of total expense — reflects the unusual degree of economic and fiscal uncertainty in 2009–10.
The fiscal 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. For example, the 2008 Budget forecasted real GDP growth of 1.1 per cent in 2008. However, since then, 2008 real GDP has declined by 0.4 per cent, or 1.5 percentage points, compared to the 2008 Budget forecast. Given the current global economic uncertainty, 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, as was observed in 2008–09 when unforeseen changes in the economic outlook contributed to a $3.5 billion decline in revenue.
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 affect total expense — causing changes in the Province's overall fiscal performance.
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.
The government is committed to enhancing accountability, strengthening transparency and improving financial management. The Fiscal Transparency and Accountability Act, 2004 sets standards for how the Province presents financial reports to Ontarians. With this Budget, the Province is introducing a number of improvements to further strengthen accountability and transparency in its financial reporting, and enhance its financial management.
In response to changes in Public Sector Accounting Board (PSAB) standards, the government began accounting for investments in land, buildings and transportation infrastructure as tangible capital assets in 2003. Since the adoption of this accounting treatment, investments in depreciable assets, including provincial buildings, roads and bridges have been amortized to expenses over their estimated useful lives instead of being expensed in the years they were purchased or constructed. Starting in the 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, including vehicles, aircraft, and information technology infrastructure and systems.
In addition, starting with the Province's 2009–10 fiscal year, the government is modifying its existing tangible capital asset accounting policy to include interest costs incurred during construction as part of the cost of constructing assets. With the adoption of this accounting treatment, interest costs incurred during construction will be amortized over the estimated useful lives of tangible capital assets along with other costs of construction rather than being expensed during the period of construction.
Municipalities and school boards in Ontario will also be adopting tangible capital asset accounting consistent with a recent change in PSAB standards for local governments. The government has been working closely with its municipal and school board partners on the transition to these new accounting standards. With the introduction of these changes, the government is proposing amendments to the Education Act, Municipal Act, 2001 and City of Toronto Act, 2006 to improve consistency in public-sector financial reporting and better align financial accountability structures. For municipalities, changes to legislation will be proposed to meet new PSAB standards while maintaining current financial accountability provisions. For school boards, changes will be proposed in the Education Act to modernize the financial accountability framework and improve consistency with provincial financial reporting.
It is important that government accounting standards support fiscal accountability, transparency and sound public policy decision-making. To better align the development of accounting standards with these public policy objectives, a Joint Working Group of representatives from Ontario, the federal government and other provinces has been meeting with PSAB representatives for over a year. The Joint Working Group reviewed:
Following this extensive collaboration, the Joint Working Group provided its recommendations to PSAB and the Accounting Standards Oversight Council (AcSOC) in January 2009. The PSAB and AcSOC are currently reviewing the Joint Working Group's recommendations.
The government provides over $30 billion annually to Ontario hospitals, school boards and colleges. To comply with PSAB standards, the government began including the financial results of these organizations on a one-line basis with those of the Province, starting with the 2006 Budget and 2005–06 annual financial statements.
In January 2009, PSAB extended the transition period for the consolidation of these organizations on a line-by-line basis by one year. In the government's view, a one-line consolidation format for these sectors best represents the bottom-line fiscal accountability of these organizations to the Province for managing these public funds. It provides a more easily understood presentation of financial results and better respects the fiscal accountability of school boards, hospital boards and boards of governors of colleges to the communities they serve.
In its recent report, the interjurisdictional Joint Working Group recommended that PSAB consider amending its existing accounting standard to permit a one-line net expense presentation for inclusion of the financial results of these major public-sector organizations in government financial statements. The PSAB is currently reviewing the Joint Working Group's recommendations.
As part of continuing efforts to improve the financial management of provincial accounts receivable, the government is proposing an amendment to the Financial Administration Act to ensure the recognition of uncollectible accounts is consistent with the Province's accounting policies as set out in the Public Accounts and to clarify that any future obligations to a debtor continue to be eligible for offsets against any outstanding uncollectible amounts.
To effect the change in accounting policy to include interest during construction as part of the cost of constructing assets, the government is proposing to further amend the Financial Administration Act to add a new class of non-cash expenses that requires statutory authority.
To strengthen financial management of fees and other charges, the government is proposing to amend the Treasury Board Act, 1991 to clarify that Treasury Board of Cabinet may require Ministers to seek Board approval before exercising their powers related to fees or other charges.
The government will also introduce amendments to the Interim Appropriation for 2009–2010 Act, 2008 and introduce the Supplementary Interim Appropriation for 2009–2010 Act, 2009, proposing the authorization of government spending for 2009–10 before the enactment of supply for 2009–10.
In addition, to strengthen rights of access to financial information from organizations included in the Public Accounts of the Province, the government is proposing to amend the Ministry of Treasury and Economics Act.
This section provides information on the Province's historical performance, key fiscal indicators, as well as details on Ontario's fiscal plan and outlook.
|Interest on Debt1||8.9||9.3||9.9||11.1|
|Personal Income Tax||21,041||23,655||24,538||25,574||25,170|
|Retail Sales Tax||15,554||16,228||16,976||17,453||17,600|
|Employer Health Tax||4,197||4,371||4,605||4,664||4,687|
|Ontario Health Premium||2,350||2,589||2,713||2,799||2,829|
|Land Transfer Tax||1,159||1,197||1,363||1,051||895|
|Electricity Payments-In-Lieu of Taxes||951||757||546||816||685|
|Government of Canada|
|Canada Health Transfer||7,148||7,702||8,487||8,881||9,722|
|Canada Social Transfer||3,324||3,478||3,778||4,081||4,213|
|Labour Market Programs||127||289||664||863||1,193|
|Wait Times Reduction Fund||243||467||468||235||97|
|Other Federal Payments||1,604||1,377||2,468||1,823||1,419|
|Income from Investment in Government Business Enterprises|
|Ontario Lottery and Gaming Corporation||2,027||1,945||1,857||1,895||1,966|
|Liquor Control Board of Ontario||1,197||1,307||1,374||1,410||1,326|
|Ontario Power Generation Inc. and Hydro One Inc.||1,107||947||1,214||615||983|
|Other Government Enterprises||(23)||(3)||(8)||(11)||(8)|
|Other Non-Tax Revenue|
|Vehicle and Driver Registration Fees||763||970||1,051||1,044||1,065|
|Electricity Debt Retirement Charge||1,021||991||982||968||955|
|Sales and Rentals||465||1,108||553||609||619|
|Other Fees and Licences||550||624||668||656||815|
|Liquor Licence Revenue||516||467||475||458||457|
|Net Reduction of Power Purchase Contract Liability||396||412||398||373||348|
|Miscellaneous Other Non-Tax Revenue||773||790||943||904||880|
|Agriculture, Food and Rural Affairs1||861||796||731||899.9||1,116.1|
|Board of Internal Economy||150||163||257||198.3||173.3|
|Children and Youth Services||3,284||3,277||3,733||4,102.3||4,406.5|
|Citizenship and Immigration||89||112||90||88.5||106.7|
|Community and Social Services||6,714||7,178||7,544||8,003.1||8,327.3|
|Community Safety and Correctional Services||1,728||1,856||1,982||2,146.6||2,260.0|
|School Boards' Net Expense||10,886||11,290||11,830||12,839.9||13,693.5|
|Energy and Infrastructure1||325||525||401||343.1||764.7|
|Francophone Affairs, Office of||4||4||5||5.5||5.1|
|Health and Long-Term Care||17,797||19,119||20,373||21,776.0||22,955.4|
|Hospitals' Net Expense||14,816||16,145||17,381||18,567.4||19,214.4|
|International Trade and Investment||40||48||55||67.2||72.2|
|Municipal Affairs and Housing1||926||843||744||751.7||703.9|
|Northern Development and Mines||332||314||341||349.9||378.4|
|Research and Innovation1||332||316||301||313.5||482.7|
|Small Business and Consumer Services||39||39||46||47.1||48.8|
|Training, Colleges and Universities1||3,509||4,115||4,384||4,657.6||4,736.7|
|Colleges' Net Expense1||1,185||1,273||1,403||1,445.7||1,549.5|
|Interest on Debt2||9,019||8,831||8,914||8,854.0||9,301.0|
|One-Time Expense for the First Nations Gaming Agreement||–||–||201||–||–|
|Agriculture, Food and Rural Affairs|
|One-Time Extraordinary Assistance||125||259||274||–||–|
|Teachers' Pension Plan1||295||345||342||49.0||259.0|
|Energy and Infrastructure|
|Capital Contingency Fund||–||–||–||–||200.0|
|One-Time Investments in Municipal Infrastructure||–||140||450||–||–|
|Time-Limited Investments in Infrastructure||–||–||–||–||2,647.3|
|Investing in Ontario Act Investments||–||–||1,149||–||–|
|Ontario Municipal Partnership Fund||714||758||907||905.4||782.9|
|Operating Contingency Fund||–||–||–||250.0||3,210.0|
|Pension and Other Employee Future Benefits||729||557||531||685.0||932.0|
|Municipal Affairs and Housing|
|One-Time Investment in Municipal Social Housing Stock||–||–||100||–||352.2|
|Research and Innovation|
|Training, Colleges and Universities|
|Time-Limited Investments – Training, Colleges and Universities||–||–||699||–||212.4|
|Time-Limited Investments – Colleges' Net Expense||–||–||–||–||77.3|
|One-Time Transit and Infrastructure Investments||1,546||872||1,536||–||–|
|Total Other Expense||4,369||3,813||7,490||2,909.6||9,821.1|
|Sector||Total Infrastructure Expenditures
|2009–10 Plan||2010–11 Plan|
|Investment in Capital Assets||Transfers and Other Expenditures on Infrastructure1||Total Infrastructure Expenditures||Total Infrastructure Expenditures|
|Municipal and Local Infrastructure3||267.9||19.5||399.0||418.5||431.5|
|New Short-Term Stimulus Investments||0.0||702.0||2,728.6||3,430.6||3,449.8|
|Less: Other Partner Funding4||706.5||501.0||0.0||501.0||526.0|
|Total Excluding Partner Funding||7,829.8||10,112.5||4,982.2||15,094.7||17,454.3|
|Total Provincial Expenditure||7,614.4||9,499.2||3,205.5||12,704.7||14,761.1|
|Interest on Debt||10,873||10,337||9,694||9,604||9,368||9,019||8,831||8,914||8,854||9,301|
|Gross Domestic Product (GDP) at Market Prices||440,759||453,701||477,763||493,081||516,106||536,844||559,778||584,957||594,962||580,703|
|Population — July (000s)||11,683||11,897||12,091||12,242||12,391||12,528||12,665||12,794||12,929||13,051|
|Net Debt per Capita (dollars)||11,341||11,106||10,971||11,339||11,373||11,328||11,141||11,132||11,552||13,013|
|Personal Income per Capita (dollars)||29,756||30,360||30,553||31,132||32,363||33,450||34,846||36,288||37,384||37,250|
|Total Expense as a per cent of GDP||14.6||14.6||14.4||15.0||15.4||15.6||15.7||16.5||16.4||18.7|
|Interest on Debt as a per cent of Revenue||16.4||15.5||14.1||14.0||12.0||10.7||9.8||9.2||9.5||9.7|
|Net Debt as a per cent of GDP||30.1||29.1||27.8||28.2||27.3||26.4||25.2||24.3||25.1||29.2|
|Accumulated Deficit as a per cent of GDP||30.1||29.1||24.8||25.2||24.4||20.3||19.1||18.1||18.4||21.3|
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.
|Revenue from Lotteries, Charity Casinos and Slot Machines at Racetracks:|
|Operation of Hospitals||1,567||1,634|
|Ontario Trillium Foundation||110||120|
|Problem Gambling and Related Programs||39||40|
|Ontario Amateur Sports||10||10|
|Revenue from Commercial Casinos:|
|General Government Priorities||169||162|
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 $1,634 million in net revenue from lotteries, charity casinos and slot machines at racetracks will be applied to support the operation of hospitals in 2009–10.
In 2009–10, the Ontario Trillium Foundation will receive $120 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 $40 million for 2009–10, is allocated for problem gambling prevention, treatment and research programs.
The Quest for Gold lottery will provide an estimated $10 million in 2009–10 for direct financial support to Ontario's high-performance amateur athletes.
In 2009–10, net Provincial revenue from commercial casinos, estimated at $162 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 11,600 direct jobs in Ontario and provide vital tourism and economic development attractions for their respective communities.
Approximately 20 per cent of gross revenue from slot machines at racetracks is used to promote the economic growth of the horse-racing industry. Since 1998, this initiative has provided over $2.6 billion to the horse-racing industry in Ontario, a key component of the Province's agricultural sector. For 2009–10, additional support is estimated at $349 million.
A portion of gross slot-machine revenue, estimated at $81 million in 2009–10, will be provided to municipalities that host charity casinos and slot operations at racetracks. These revenues will help offset local infrastructure and service costs.