2010 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section E: Ontario's Fiscal Plan

Medium-Term Fiscal Outlook

The government’s plan over the medium term manages down growth in expenses and continues to follow through on policies that support jobs and growth to ensure future opportunity and prosperity. Details are provided in the table below.

Table 21
Medium-Term Fiscal Plan and Outlook1
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12 2012–13
Total Revenue 96.4 106.9 107.7 112.0
Expense        
Programs 108.8 115.9 112.9 114.3
Interest on Debt 8.9 10.0 11.1 12.5
Total Expense 117.7 125.9 124.1 126.9
Reserve 0.7 1.0 1.0
Surplus/(Deficit) (21.3) (19.7) (17.3) (15.9)
  • 1 Both revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes.
  • Note: Numbers may not add due to rounding.

Medium-term revenue is projected to increase at an annual average rate of 5.1 per cent between 2009–10 and 2012–13, consistent with the economic outlook for nominal GDP growth.

Total expense is projected to increase by an average annual rate of 2.5 per cent from 2009–10 to 2012–13, which is about half the projected growth in revenue over the same period. This reflects the government’s continued commitment to follow through on policies that support jobs and growth while managing down growth in expenses.

Recognizing that the fragility of the global economy is a threat to Ontario’s continuing economic recovery, the fiscal plan includes prudence in the form of contingency funds of $2.0 billion in 2010–11 to offset potential expense changes, and a reserve of $0.7 billion in 2010–11 and $1.0 billion in 2011–12 and 2012–13.

Key Changes since the Fall 2009 Ontario Economic Outlook and Fiscal Review

As discussed further in the Addendum to the 2010 Ontario Budget: Ontario’s Plan to Enhance Accountability, Transparency and Financial Management, Education Property Taxes are now explicitly included in Provincial revenue and are no longer netted against Education expense. The following table shows the medium-term fiscal outlook as published in the Fall 2009 Ontario Economic Outlook and Fiscal Review, restated for this accounting change.

Table 22
Fall 2009 Ontario Economic Outlook and Fiscal Review1
Restated Medium-Term Fiscal Outlook
($ Billions)
  2009–10 2010–11 2011–12
Total Revenue 96.6 105.8 106.6
Expense      
Programs 110.8 115.2 112.9
Interest on Debt 9.4 10.6 11.9
Total Expense 120.2 125.8 124.8
Reserve 1.2 1.2 1.2
Surplus/(Deficit) (24.7) (21.1) (19.4)
  • 1 Both revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes.
  • Note: Numbers may not add due to rounding.

The following table outlines key changes to Ontario’s medium-term fiscal plan since the Fall 2009 Ontario Economic Outlook and Fiscal Review after it has been restated to reflect the accounting change.

Table 23
Change in Fiscal Outlook since the Fall
2009 Ontario Economic Outlook and Fiscal Review
($ Billions)
 
2009–10
2010–11
2011–12
Surplus / (Deficit) from Fall 2009 Ontario
Economic Outlook and Fiscal Review
(24.7)
(21.1)
(19.4)
Total Revenue Changes
(0.2)
1.0
1.2
Programs
Change in Infrastructure Expense
(1.6)
1.0
0.2
All Other Program Expense Changes
(0.4)
(0.3)
(0.2)
Total Program Expense Changes
(1.9)
0.7
0.0
Change in Interest on Debt Projections
(0.5)
(0.6)
(0.8)
Total Expense Changes
(2.4)
0.1
(0.7)
Change in Reserve
(1.2)
(0.5)
(0.2)
Fiscal Improvement since Fall 2009 Ontario
Economic Outlook and Fiscal Review
3.4
1.4
2.1
2010 Budget Surplus / (Deficit) (21.3) (19.7) (17.3)
  • Note: Numbers may not add due to rounding.

As outlined in the previous section, the medium-term forecast for total revenue is slightly lower in 2009–10 but higher in 2010–11 and 2011–12 compared with the Fall 2009 Ontario Economic Outlook and Fiscal Review.

Holding the line on program expense growth is a key reason the government has been able to improve on the fiscal targets outlined in the Fall 2009 Ontario Economic Outlook and Fiscal Review. In fact, the government’s medium-term expense outlook is on track with the projections included in the fall forecast. While immediate actions undertaken by the government to restrain spending are contributing to a projected decline in program expense of $1.9 billion this year, changes to the Province’s 2010–11 program expense forecast are mainly related to the revised timelines for the completion of infrastructure stimulus projects. As stimulus is wound down as planned at the end of 2010–11, the Province’s 2011–12 program expense outlook at $112.9 billion is unchanged from the projection in the Fall 2009 Ontario Economic Outlook and Fiscal Review.

Interest on debt expense is now lower than forecast in the Fall 2009 Ontario Economic Outlook and Fiscal Review. This change partly reflects the improved deficit projections over the medium term.

The reserve for 2009–10 has been drawn down to help offset the impact of slower economic growth on the Province’s fiscal performance. The reserve for 2010–11 and 2011–12 has been lowered to reflect the fact that the Ontario economy has stabilized and is showing signs of recovery.

In total, the fiscal outlook for the Province of Ontario has improved by $3.4 billion in 2009–10, $1.4 billion in 2010–11 and $2.1 billion in 2011–12, compared to the projections included in the Fall 2009 Ontario Economic Outlook and Fiscal Review.

Ontario’s Medium-Term Expense Outlook

Table 24
Summary of Medium-Term Expense Outlook1
($ Billions)
  Interim
2009–10
Plan
2010–11
Outlook
2011–12
2012–13
Programs
Health Sector 43.5 46.1 48.0 49.5
Education Sector2 20.6 21.4 22.3 23.0
Postsecondary and Training Sector 7.2 8.1 7.1 7.0
Children's and Social Services Sector 13.1 13.9 14.2 14.7
Justice Sector 3.9 4.4 4.6 4.7
Other Programs 20.5 22.0 16.7 15.5
Total Programs 108.8 115.9 112.9 114.3
Interest on Debt 8.9 10.0 11.1 12.5
Total Expense 117.7 125.9 124.1 126.9
  • 1 Both revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes.
  • 2 Excludes Teachers’ Pension Plan.
  • Note: Numbers may not add due to rounding.

Highlights of key program expenses over the medium term include the following:

  • Total health sector expense is projected to increase by $6.0 billion from 2009–10 to 2012–13. In addition to maintaining funding growth in major program areas such as hospitals, OHIP and long-term care, the government will continue to support priorities such as reducing emergency-room wait times and achieving results through the Ontario Diabetes Strategy.
  • Total education sector funding is projected to increase by $2.4 billion from 2009–10 to 2012–13. This increase includes additional Provincial grants to school boards to support improved student achievement and implementation of the government’s full-day learning initiative.
  • Total postsecondary and training sector expense is projected to increase by $0.9 billion in 2010–11, primarily due to new funding to support postsecondary enrolment growth and revised implementation schedules for various capital projects. From 2010–11 to 2012–13, expense stabilizes after accounting for one-time stimulus funding.
  • Total children’s and social services sector funding is projected to increase by $1.6 billion from 2009–10 to 2012–13. This is primarily due to increased expenses in social assistance, the Ontario Child Benefit and developmental services to cushion the effect of the recession on families and communities. It also takes into account $63.5 million in annual provincial funding for child care to permanently fill the gap left by the federal government.
  • Total justice sector expense is projected to increase by $0.8 billion between 2009–10 and 2012–13. This increase includes investments for various justice and community safety initiatives, including capital funding for courthouses and correctional facilities.
  • Other Programs expense is projected to decrease by $5.0 billion between 2010–11 and 2012–13. This decrease is mainly due to the phase-out of time-limited investments intended to help the Province emerge from the economic downturn and temporary relief for the transition to the new sales tax system, while also reflecting steps taken to manage overall expense.

Included in the total expense outlook is interest on debt, which is expected to increase by $3.6 billion over the medium term, mainly due to additional borrowing required to fund investments in infrastructure and deficits.

The government’s medium-term total expense outlook — which projects growth of no more than 2.5 per cent — also reflects the new measures announced in this Budget to restrain spending in support of the Province’s return to balance in 2017–18. This includes efficiency measures aimed at managing the overall rate of growth in spending — such as freezing base operating expenses at or below 2010–11 levels over the medium term and adjusting the timing of key infrastructure investments — as well as a new plan to support the transformation of key public services.

Risks to Expense Outlook

A heightened degree of global economic uncertainty remains despite clear signs of recovery. Ontario’s economy has been hit hard by the global economic downturn and this will continue to impact the Province’s overall fiscal plan, including the expense outlook.

The government’s 2010–11 expense plan includes contingency funds totalling $2.0 billion. The contingency funds will provide the government with the flexibility to respond in a timely manner to further challenges that may arise to Ontario’s continuing recovery.

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 noted that these sensitivities and risks are illustrative and can vary, depending on the nature and composition of potential risks.

Table 25
Selected Expense Risks and Sensitivities
Program/Sector 2010–11 Assumption 2010–11 Sensitivity
Health Sector Annual growth of 6.0 per cent. One per cent change in health spending: $461 million.
Hospitals’ Sector Expense Annual growth of 4.9 per cent. One per cent change in hospitals’ sector expense: $206 million.
Drug Programs Utilization Annual growth of less than 7 per cent. One per cent change in program expenditure of all drug programs: $41 million (seniors and social assistance recipients).
Long-Term Care Homes 77,027 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 $34 million.
Home Care Approximately 19 million hours of homemaking and support services. One per cent change in hours of homemaking and support services: approximately $5 million.
Approximately 8 million nursing and professional visits. One per cent change in nursing and professional visits: approximately $6 million.
University Students1 357,700 full-time undergraduate and graduate students. One per cent enrolment change: $34 million.
College Students 177,000 full-time students. One per cent enrolment change: $13 million.
Ontario Works 267,195 average annual caseload. One per cent caseload change: $23 million.
Ontario Disability Support Program 274,469 average annual caseload. One per cent caseload change: $35 million.
Correctional System 3.2 million adult inmate days per year. Average cost $173 per inmate per day. One per cent change in inmate days: $5.6 million.
Interest on Debt Average cost of 2010–11 borrowing is forecast to be approximately 4.9 per cent. The 2010–11 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $480 million.
  • 1 Based on 2009–10 estimates.

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.

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 were disclosed as part of the 2008–09 Annual Report and Consolidated Financial Statements, released in September 2009.1

Fiscal Prudence

In addition to maintaining a prudent and responsible approach to managing growth in expenditures, 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 also includes contingency funds (both operating and capital) totalling $2.0 billion in 2010–11 to help mitigate expense risks that may otherwise have a negative impact on results.