2011 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section B: 2010–11 Interim Fiscal Performance

The 2010 Budget projected a deficit of $19.7 billion in 2010–11. The deficit for 2010–11 is now projected to be $16.7 billion — $3.0 billion lower than outlined in the 2010 Budget and an improvement of about 32 per cent from the 2009–10 deficit of $24.7 billion forecast in the fall of 2009. This fiscal improvement is in large part the outcome of the government’s continued efforts to control growth in expense while protecting the public services that matter most to Ontarians, such as education and health care.

The government has a responsible plan to balance the budget. As demonstrated by the 2010–11 interim results, this plan is working.

TABLE 2. 2010–11 In-Year Fiscal Performance
($ Millions)
  Budget Plan Interim In-Year Change
Revenue 106,867 106,185 (682)
Expense      
Programs 115,896 113,344 (2,552)
Interest on Debt 9,961 9,527 (434)
Total Expense 125,857 122,871 (2,986)
Reserve 700 (700)
Surplus/(Deficit) (19,690) (16,686) 3,004

The interim outlook for 2010–11 indicates a revenue decrease of $0.7 billion from the 2010 Budget forecast. Total expense for 2010–11 is projected to decrease by $3.0 billion from the forecast published in the 2010 Budget. This is the second consecutive year for which the government is expecting a decrease in total expense when compared with the Budget Plan for that year. These results demonstrate the government’s ability to control the growth in expense through prudent fiscal management while protecting public services.

As expense is forecast to come in under budget, the $700 million reserve, put in place to protect against unexpected changes in the economic and fiscal outlook, has been used to improve the Province’s fiscal performance and reduce the 2010–11 deficit.

The interim results for 2010–11 are based on the best information available as of early March 2011. Given the preliminary nature of these estimates, the interim forecast is subject to change as actual Provincial revenue and expense are finalized in the 2010–11 Public Accounts this summer.

In-Year Revenue Performance

Total revenue in 2010–11 is estimated to be $106,185 million. This is $682 million (0.6 per cent) below the amount projected in the 2010 Budget. This would be a relatively small variance from forecast when compared with the experience of recent years. Revenue became much more predictable as the Ontario economy stabilized and economic growth occurred, broadly in line with the 2010 Budget planning assumptions. Most of the net revenue variance reflects changes in 2010–11 expenses, including a decrease in infrastructure funding offset by lower capital spending and a decrease in power supply contract recoveries fully offset by lower power supply contract costs. Excluding these decreases, revenue is estimated at $140 million, or 0.1 per cent, below the 2010 Budget forecast.

TABLE 3. Summary of Revenue Changes Since 2010 Budget
($ Millions)
    Interim
2010–11
Taxation Revenue    
Personal Income Tax (2,181)  
Corporations Tax 860  
Education Property Tax 441  
Land Transfer Tax 226  
Tobacco Tax 192  
Electricity Payments-In-Lieu of Taxes (186)  
Ontario Health Premium 96  
Sales Tax (90)  
Employer Health Tax 83  
All Other Taxes 222  
    (337)
Government of Canada    
Infrastructure (438)  
All Other Government of Canada (247)  
    (685)
Income from Government Business Enterprises    
Ontario Power Generation Inc./Hydro One Inc. 82  
Liquor Control Board of Ontario 79  
Ontario Lottery and Gaming Corporation 66  
All Other Government Business Enterprises 6  
    233
Other Non-Tax Revenue    
Power Supply Contract Recoveries (104)  
All Other Non-Tax Revenue 211  
    107
Total Revenue Changes Since 2010 Budget   (682)

Revenue Changes

Highlights of key 2010–11 revenue changes from the 2010 Budget forecast are as follows:

  • Personal Income Tax (PIT) revenues are estimated to be $2,181 million lower, mainly due to weaker revenues from processing 2009 tax returns. Since the 2010 Budget, processing of 2009 tax returns has lowered the base upon which growth is applied in forecasting PIT revenues for 2010–11. Lower revenues than estimated at the time of the 2009–10 Public Accounts resulted in a one-time decrease of $477 million in 2010–11 as variances from past Public Accounts are reflected in the current year. Stronger-than-expected growth of wages and employment in 2010 offset some of the reduction related to weaker 2009 results.
  • Corporations Tax (CT) revenues are estimated to be $860 million higher as a result of processing 2009 tax returns since the 2010 Budget. This has raised the 2009–10 CT base upon which growth is applied in forecasting revenues for 2010–11.
  • Education Property Tax (EPT) revenues are projected to be $441 million higher, largely due to a revenue-neutral reporting change whereby the energy component of the Ontario Energy and Property Tax Credit is now netted against sales tax rather than EPT.
  • Land Transfer Tax (LTT) revenues are estimated to be $226 million above the 2010 Budget Plan due to strength in the housing market.
  • Tobacco Tax revenues are estimated to be $192 million higher due to improved enforcement activities.
  • Electricity Payments-In-Lieu of Taxes (PILs) are estimated to be $186 million lower than the 2010 Budget Plan, primarily due to lower Ontario Power Generation (OPG) income tax PILs, resulting from the resolution of tax uncertainties related to the completion of prior-year tax audits.
  • Ontario Health Premium revenue is $96 million above the 2010 Budget Plan, reflecting stronger personal income growth and a one-time positive adjustment of $39 million in 2010–11 for understating revenues in prior years’ Public Accounts.
  • Sales Tax revenue is projected to be $90 million lower, reflecting the revenue-neutral reporting change with respect to EPT noted above, partially offset by stronger-than-forecast consumption spending growth.
  • Employer Health Tax revenues are estimated to be $83 million higher due to stronger growth in wages and salaries.
  • All Other Taxes revenues combined are estimated to be $222 million higher on a net basis, largely reflecting higher revenues from the Preferred Share Dividend Tax as well as from Fuel and Gasoline taxes.
  • Transfers from the Government of Canada for Infrastructure projects are estimated to be $438 million below forecast, largely due to revised timelines for spending on infrastructure projects.
  • All Other Government of Canada transfers were $247 million lower, largely due to a deferral of Canada Health Infoway funding to future years and lower transfers to consolidated agencies.
  • The combined net income of Ontario Power Generation Inc. and Hydro One Inc. is estimated to be $82 million above the 2010 Budget forecast, largely due to higher transmission revenues at Hydro One as a result of higher peak-energy demand in the summer of 2010 and lower operating costs at Hydro One and OPG. This is partly offset by the impact of lower OPG hydroelectric production due to low water levels.
  • Net income from the Liquor Control Board of Ontario is projected to be $79 million higher due to strong sales, expense management and stronger returns on store capital investment.
  • Net income from the Ontario Lottery and Gaming Corporation is projected to be $66 million higher, largely due to higher gaming revenues from lotteries and decreased operating costs across all lines of business.
  • Net income from All Other Government Business Enterprises combined is $6 million higher.
  • Power Supply Contract Recoveries are expected to be $104 million lower, primarily due to lower support payments under the Lambton and Nanticoke contingent support agreement as a result of higher electricity market prices in 2010. This decrease is fully offset by lower power supply contract costs.
  • All Other Non-Tax Revenue combined is $211 million higher, largely reflecting the sale of a portion of the Province’s General Motors shares and the Province’s share of civil settlement agreements with certain tobacco manufacturers related to the movement of contraband tobacco in the early 1990s.

In-Year Expense Performance

Total expense in 2010–11 is currently projected to be $122,871 million, a decrease of $2,986.1 million from the 2010 Budget forecast. Program expense in 2010–11 is also projected to be lower than forecast in the 2010 Budget. This decrease reflects the government’s prudent approach to managing expense, which resulted in 21 of 29 ministries now projecting to spend below their 2010 Budget allocation, and a portion of the contingency funds being available to be redirected to reduce the 2010–11 deficit. The improvement in expense performance is also due to revised schedules in implementing infrastructure projects, including economic stimulus projects.

Interest on debt expense is $434.2 million lower than forecast in the 2010 Budget, primarily reflecting lower interest rates and a lower deficit than projected at the time of the Budget.

TABLE 4. Summary of Expense Changes Since 2010 Budget
($ Millions)
  Interim
2010–11
Program Expense Changes1  
Health Sector (454.0)
Education Sector2 8.2
Postsecondary and Training Sector (462.6)
Children's and Social Services Sector 13.1
Justice Sector (70.9)
Other Programs (281.2)
Unused Contingency Funds (1,304.5)
Total Program Expense Changes (2,551.9)
Interest on Debt (434.2)
Total Expense Changes Since 2010 Budget (2,986.1)
1 Excludes fiscally neutral transfers between ministries.
2 Excludes Teachers' Pension Plan.

Expense Changes

With almost three-quarters of ministries expecting to spend below their 2010 Budget allocation, interim expense projections in most sectors are considerably lower than originally forecast. Highlights of key expense changes since the 2010 Budget include the following:

  • Health sector expense is projected to decrease by $454.0 million, primarily due to revised Electronic Health Record project plans, lower-than-expected uptake in vaccine and assistive devices programs, and the extended deadline for short-term stimulus projects.
  • Education sector expense is projected to be largely on target with the 2010 Budget.
  • Postsecondary and Training sector expense is projected to decline by $462.6 million, primarily due to lower-than-expected demand for labour-market and training programs as a result of improvements in the economy, and revised implementation schedules for infrastructure projects.
  • Children’s and Social Services sector expense increased by $13.1 million, mainly due to an increase of $33.5 million in the Ministry of Children and Youth Services, primarily to support child protection services, offset by net direct operating savings of $20.4 million within the Ministry of Community and Social Services.
  • Justice sector expense decreased by $70.9 million, primarily due to revised schedules for justice infrastructure projects, including courthouses and correctional facilities.
  • Other programs expense is projected to decrease by $281.2 million, reflecting the balance of changes in program expense. These include ministries’ savings as a result of prudent management of expense, underspending due to revised schedules for implementing infrastructure projects and the decrease in costs corresponding to the decrease in power supply contract recoveries outlined earlier in this section.
  • Contingency Funds, included in the 2010 Budget to protect against unforeseen changes in expense, have decreased by a total of $1,304.5 million to $250.0 million, as the government’s prudent approach to managing expense meant that the full amounts were not required to fund programs and are available to reduce the 2010–11 deficit.
  • Interest on Debt expense is $434.2 million lower than forecast in the 2010 Budget, primarily reflecting lower interest rates and a lower deficit than projected at the time of the Budget.

The expense changes in Table 4 are net of fiscally neutral interministry transfers. Of particular note is the transfer of $836.7 million of child care policy and program responsibilities to the Ministry of Education from the Ministry of Children and Youth Services to facilitate smoother transitions for children from the child care system to the education system.