2011 Ontario Budget: Chapter II: Ontario's Economic Outlook and Fiscal Plan
Section E: Ontario's Fiscal Plan
Medium-Term Fiscal Outlook
The 2010 Budget projected that the Province’s deficit would be cut in half in five years from its peak in 2009–10 and eliminated by 2017–18. The government’s realistic and responsible plan to balance the budget is working. The deficit for 2010–11 is now projected to be $3.0 billion lower than outlined in the 2010 Budget, an improvement of about 32 per cent from the 2009–10 deficit of $24.7 billion forecast in the fall of 2009. Over the next two years the government is on track to improve on its deficit projections by $1.7 billion — for a total improvement of $4.7 billion over three years.
| Interim 2010–11 |
Plan 2011–12 |
Outlook | ||
|---|---|---|---|---|
| 2012–13 | 2013–14 | |||
| Total Revenue | 106.2 | 108.5 | 111.8 | 117.0 |
| Expense | ||||
| Programs | 113.3 | 113.8 | 114.6 | 116.7 |
| Interest on Debt | 9.5 | 10.3 | 11.4 | 12.6 |
| Total Expense | 122.9 | 124.1 | 126.0 | 129.3 |
| Reserve | – | 0.7 | 1.0 | 1.0 |
| Surplus/(Deficit) | (16.7) | (16.3) | (15.2) | (13.3) |
Total revenue over the medium term is projected to increase at an average annual rate of 3.3 per cent between 2010–11 and 2013–14, as government revenues continue to recover from the impact of the global recession.
Over the same period, total expense is projected to increase at an average annual rate of 1.7 per cent — about half the rate of growth in revenue. This constrained rate of growth reflects the government’s continued commitment to steadfastly tackle the deficit without putting vital public services at risk or resorting to arbitrary, across-the-board cuts. It reflects the Province’s accelerated plan to achieve greater efficiencies in the delivery of public services.
To offset potential changes to revenue and expense that would otherwise impact the Province’s fiscal performance, the fiscal plan includes prudence in the form of contingency funds of $0.7 billion in 2011–12 and a reserve of $0.7 billion in 2011–12, and $1.0 billion in 2012–13 and 2013–14.
Key Changes Since the 2010 Budget
The government is on track for a cumulative improvement of $4.7 billion between 2010–11 and 2012–13 compared with the 2010 Budget deficit projections.
| 2010–11 | 2011–12 | 2012–13 | |
|---|---|---|---|
| Surplus/(Deficit) from 2010 Budget | (19.7) | (17.3) | (15.9) |
| Total Revenue Changes | (0.7) | 0.7 | (0.1) |
| Expense Changes | |||
| Net Program Expense Changes | (2.6) | 0.8 | 0.3 |
| Interest on Debt | (0.4) | (0.8) | (1.2) |
| Total Expense Changes | (3.0) | 0.0 | (0.9) |
| Change in Reserve | (0.7) | (0.3) | – |
| Fiscal Improvement/(Deterioration) | 3.0 | 1.0 | 0.7 |
| 2011 Budget Surplus/(Deficit) | (16.7) | (16.3) | (15.2) |
The medium-term revenue forecast is within one per cent of the 2010 Budget outlook in each year of the forecast. Complete details on changes to the revenue forecast are outlined in Section D of this chapter.
Program expense in 2010–11 is projected to be $2.6 billion lower than forecast in last year’s budget. Further details on the 2010–11 interim fiscal performance are outlined in Section B of this chapter.
For 2011–12, the net change in program expense mainly reflects revised implementation schedules for infrastructure projects, including economic stimulus projects. Otherwise, as is the case in 2012–13, overall program expense levels are largely consistent with the 2010 Budget projections.
Interest on debt expense is now lower than forecast, partly due to lower deficit projections, as well as lower-than-projected interest rates. The Province has taken advantage of the lower interest rate environment in 2010–11 and extended the term to maturity of its debt. This has allowed the Province to lock in low interest rates for a longer period, which reduces refinancing risks and helps offset the impact of expected higher interest rates.
The reserve for 2010–11 has been used to improve the Province’s fiscal performance and reduce the deficit. For 2011–12, consistent with previous years’ practice, the reserve has been lowered because there is more visibility into the economic outlook for 2011–12 than there was a year ago.
Medium-Term Expense Outlook
The Province’s total expense outlook is projected to grow by an average annual rate of only 1.7 per cent between 2010–11 and 2013–14. Moreover, excluding the estimated impact associated with the federal–provincial announcement to extend the funding deadline for completion of infrastructure stimulus projects to October 31, 2011, the Province’s 2011–12 program expense outlook is unchanged year over year, compared with the 2010–11 interim estimate. This outlook reflects the government’s commitment to control growth in program expense while protecting the public services that matter most to Ontarians.
| Interim 2010–11 |
Plan 2011–12 |
Outlook | ||
|---|---|---|---|---|
| 2012–13 | 2013–14 | |||
| Programs | ||||
| Health Sector | 45.6 | 47.6 | 49.2 | 50.6 |
| Education Sector1 | 22.2 | 23.2 | 24.0 | 24.3 |
| Postsecondary and Training Sector | 7.6 | 7.1 | 7.1 | 7.4 |
| Children's and Social Services Sector | 13.1 | 13.7 | 14.0 | 14.4 |
| Justice Sector | 4.4 | 4.7 | 4.6 | 4.2 |
| Other Programs | 20.3 | 17.4 | 15.7 | 15.9 |
| Total Programs | 113.3 | 113.8 | 114.6 | 116.7 |
| Interest on Debt | 9.5 | 10.3 | 11.4 | 12.6 |
| Total Expense | 122.9 | 124.1 | 126.0 | 129.3 |
Note: Numbers may not add due to rounding.
Between 2010–11 and 2013–14, total program expense is projected to increase by an average annual rate of only 1.0 per cent. Highlights of key program expense changes over the medium term include the following:
- Total health sector expense is projected to increase by $5.0 billion from 2010–11 to 2013–14. Funding maintains growth in major program areas such as hospitals and OHIP. It also supports increased investments in the community services sector, including long-term care homes, to improve services and help divert pressures from acute care and emergency rooms.
- Total education sector funding is projected to increase by $2.1 billion from 2010–11 to 2013–14. This increase includes additional Provincial grants to support student achievement and funding for the ongoing implementation of the government’s full-day kindergarten program.
- Total postsecondary and training sector expense is projected to decrease by $0.5 billion in 2011–12 primarily due to the phase-out of time-limited stimulus funding. From 2011–12 to 2013–14, expense is projected to increase to support postsecondary enrolment growth.
- Total children’s and social services sector funding is projected to increase by $1.3 billion from 2010–11 to 2013–14. This is primarily due to increased expenses in social assistance.
- Total justice sector expense is projected to decrease by approximately $0.2 billion from 2010–11 to 2013–14. This decrease is primarily due to the expected completion of previously approved capital projects, including courthouses and correctional facilities.
- Other programs expense is projected to decrease by $4.4 billion from 2010–11 to 2013–14. This decrease is mainly due to the phase-out of time-limited investments intended to help the Province emerge from the global recession and temporary relief for the transition to the new sales tax system.
The total expense outlook includes interest on debt expense, net of interest capitalized during construction of tangible capital assets, and is projected to increase by $3.1 billion from 2010–11 to 2013–14. This increase is mainly due to additional borrowing required to fund investments in infrastructure and deficits.
Risks to Expense Outlook
As is the case every year, potential risks may emerge causing variances to both the Province’s revenue and expense outlooks. Yet, by maintaining a prudent approach towards fiscal management, the government has overachieved on its budget targets in five of the last seven fiscal years.
The government’s 2011–12 expense plan includes contingency funds totalling $0.7 billion. The contingency funds provide flexibility for the government to respond, in a timely manner, to any further challenges that may arise to Ontario’s fiscal outlook. Contingency funds are also built into the fiscal plan over the medium term.
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.
| Program/Sector | 2011–12 Assumption | 2011–12 Sensitivity |
|---|---|---|
| Health Sector | Annual growth of 4.3 per cent. | One per cent change in health spending: $476 million. |
| Hospitals' Sector Expense | Annual growth of 4.7 per cent. | One per cent change in hospitals' sector expense: $212 million. |
| Drug Programs Utilization | Annual growth of less than 4.8 per cent. | One per cent change in program expenditure of all drug programs: $43 million (seniors and social assistance recipients). |
| Long-Term Care Homes | 77,800 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $48,300. | One per cent change in number of beds: approximately $38 million. |
| Home Care | Approximately 20 million hours of homemaking and support services. Approximately 8 million nursing and professional visits. |
One per cent change in hours of homemaking and support services: approximately $6 million. One per cent change in nursing and professional visits: approximately $6 million. |
| Elementary and Secondary Schools | 1,877,000 average daily pupil enrolment. | One per cent enrolment increase: $140 million. |
| University Students | 366,000 full-time undergraduate and graduate students. | One per cent enrolment change: $35 million. |
| College Students | 182,600 full-time students. | One per cent enrolment change: $13 million. |
| Ontario Works | 260,423 average annual caseload. | One per cent caseload change: $23 million. |
| Ontario Disability Support Program | 290,172 average annual caseload. | One per cent caseload change: $38 million. |
| Correctional System | 3.2 million adult inmate days per year. Average cost $180 per inmate per day. | One per cent change in inmate days: $5.8 million. |
| Interest on Debt | Average cost of 2011–12 borrowing is forecast to be approximately 4.5 per cent. | The 2011–12 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $500 million. |
Compensation costs and wage settlements are also key cost drivers. Consistent with the government’s broader public-sector compensation policy statement, the fiscal plan provides no funding for incremental compensation increases for the first two years of any future collective agreements.
Contingent Liabilities
In addition to the key demand sensitivities and economic risks to the fiscal plan, there are 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 2009–10 Annual Report and Consolidated Financial Statements, released in August 2010.1
Plan to Eliminate the Deficit
The Open Ontario plan, along with the government’s continuing approach to prudent fiscal management, provides a solid foundation for supporting the economic recovery and ensuring long-term prosperity for the province.
The balanced pace of deficit reduction ensures that the Province will overcome the fiscal challenge it faces through realistic and responsible means, not by putting vital public services at risk or resorting to arbitrary, across-the-board cuts. The plan is working.
The government is on track for a cumulative improvement of $4.7 billion between 2010–11 and 2012–13 compared with the 2010 Budget deficit projections. This improvement is in large part a result of the government’s continued efforts to control expense while protecting the public services that matter most to Ontarians, such as education and health care.
Key elements of the government’s plan to eliminate the deficit by 2017–18 include:
- holding annual growth in program expense to an average of 1.0 per cent between 2010–11 and 2013–14;
- initiatives to improve the delivery of public services and ensure that Ontarians receive the best value for their tax dollars;
- promoting principled and sustainable federal–provincial fiscal arrangements;
- maintaining a cautious and prudent fiscal plan, including contingency funds and a reserve; and
- continuing support for Ontario’s recovery as the economy turns the corner on the recession.
| Interim 10–11 |
Plan 11–12 |
Medium-Term Outlook | Extended Outlook | |||||
|---|---|---|---|---|---|---|---|---|
| 12–13 | 13–14 | 14–15 | 15–16 | 16–17 | 17–18 | |||
| Revenue | 106.2 | 108.5 | 111.8 | 117.0 | 122.8 | 129.0 | 135.4 | 142.2 |
| Expense | ||||||||
| Programs | 113.3 | 113.8 | 114.6 | 116.7 | 118.8 | 121.0 | 122.9 | 124.9 |
| Interest on Debt | 9.5 | 10.3 | 11.4 | 12.6 | 13.7 | 14.8 | 15.7 | 16.3 |
| Total Expense | 122.9 | 124.1 | 126.0 | 129.3 | 132.6 | 135.8 | 138.6 | 141.2 |
| Reserve | – | 0.7 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 |
| Surplus/ (Deficit) | (16.7) | (16.3) | (15.2) | (13.3) | (10.7) | (7.8) | (4.2) | 0.0 |
Fiscal Prudence
In addition to maintaining a prudent and responsible approach to managing growth in expenditures, each year the fiscal plan includes other elements of prudence 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) to help mitigate expense risks that may otherwise have a negative impact on results.
1For further information, visit www.fin.gov.on.ca/en/budget/paccts/2010.