Following the overachievement on the deficit targets in 2009–10 and 2010–11, the government is now projecting a $15.3 billion deficit for 2011-12 — $1.0 billion lower than outlined in the 2011 Budget. The Province is on track to meet the medium-term fiscal targets established in the 2011 Budget. This includes steadily declining deficits of $15.2 billion in 2012-13, $13.3 billion in 2013–14 and $10.7 billion in 2014–15.
|Interest on Debt||10.1||10.6||11.2||12.3|
|Note: Numbers may not add due to rounding.|
Total revenue is projected to grow at an average annual rate of 3.5 per cent over the 2011–12 to 2014–15 period.
Total expense is projected to increase at an average annual rate of 1.5 per cent over the same period, lower than the 2.2 per cent growth forecast in the 2011 Budget.
In recognition of considerable risks in the global economy, the fiscal plan includes prudence in the form of contingency funds totalling $0.5 billion in 2012–13, and a reserve of $1.0 billion in 2012–13, $1.2 billion in 2013-14 and $1.5 billion in 2014–15. The government has set the reserve higher than recent budgets and, consistent with the advice of the Commission on the Reform of Ontario's Public Services, increased it over time to reflect the uncertain nature of longer-term revenue and expense projections.
Implementing transformational initiatives to achieve the savings necessary to manage growth in program spending may require some upfront costs, such as transition costs, expenses associated with organizational changes and severance costs. To support these initiatives while protecting essential front-line core services, a transition fund of $1.0 billion over three years, including $500 million in 2012–13, is included in the fiscal plan to assist ministries in managing the cost of transformational activities.
The government's medium-term fiscal plan builds on managing growth in expense. For example, both the Conference Board of Canada and the Commission released projections in February 2012 that suggested if no action is taken to control growth in expense, a fiscal gap could emerge that would put the Province on a path of growing deficits and debt. The Commission estimated that if no changes were made to government policies, programs or practices, a deficit of $30.2 billion would emerge in 2017-18 instead of a balanced budget, and the net debt-to-GDP burden would be over 50 per cent.
This analysis illustrates what could happen if spending continued to rise due to factors such as inflation, population growth, demographic changes and higher demand for services, and no action is taken to meet the resulting fiscal challenge.
Using a similar "what-if" analysis, it is estimated that a fiscal gap of $13.9 billion would arise in 2014–15 against the government's deficit target that year if the action outlined in this Budget is not taken.
To meet this challenge, and building on the government's success in overachieving on its fiscal targets by controlling growth in expense, the medium-term fiscal plan projects that program spending growth will be held to an average annual rate of 1.0 per cent between 2011–12 and 2014–15. The fiscal actions outlined in this Budget mean that for every additional dollar in proposed new revenue measures, the plan includes four dollars of expense measures to close the fiscal gap that would emerge if no new action is taken to control growth in Provincial expense.
|Expense Management Measures||(1.0)||(1.7)||(2.2)||(4.9)|
|Total Expense Measures||(2.0)||(5.3)||(10.4)||(17.7)|
|Freeze the Corporate Income Tax Rate at 11.5 Per Cent, If Passed||0.1||0.5||0.8||1.5|
|Freeze Business Education Tax Reductions||0.1||0.2||0.3||0.6|
|Modernize the Ontario Lottery and Gaming Corporation||(0.1)||0.2||0.5||0.6|
|Optimize Liquor Control Board of Ontario Revenue Potential||–||–||0.1||0.1|
|Enhance Revenue Integrity and Other Measures||0.1||0.3||0.5||1.0|
|Fee Changes to Move Closer to Full Cost Recovery||0.1||0.2||0.4||0.6|
|Total Revenue Measures||0.3||1.4||2.7||4.4|
|Total Direct Impact of Fiscal Action||2.3||6.7||13.1||22.1|
|Interest on Debt Expense Avoided||0.1||0.3||0.8||1.1|
|Ratio of Expense Measures to
1 Includes compensation restraint for school boards, payments to physicians and public servants.
Note: Numbers may not add due to rounding.
For details of expense management measures: see Table 1.8 in Chapter I: Transforming Public Services.
Examples of cost avoidance include: managing cost pressures in agricultural business Risk Management Programs, demand-driven pressures in the Ontario Clean Energy Benefit, partial closure of Ontario Place, divestment of the Ontario Northland Transportation Commission, accelerating evidence-based health care, and shifting low-complexity, routine procedures from hospitals to specialized clinics.
|Total Revenue before Measures||111.9||114.7||118.4|
|Programs before Measures||117.8||122.3||128.4|
|Interest on Debt||10.7||11.5||13.1|
|Total Expense before Measures||128.5||133.8||141.5|
|Surplus/(Deficit) before Measures||(17.6)||(20.3)||(24.6)|
|Less: Expense Measures||(2.0)||(5.3)||(10.4)|
|Add: Revenue Measures||0.3||1.4||2.7|
|Less: Lower Interest on Debt Expense as a Result of Measures||(0.1)||(0.3)||(0.8)|
|Note: Numbers may not add due to rounding.|
The Province's total expense outlook is projected to grow by an average annual rate of 1.5 per cent between 2011–12 and 2014–15.
Program expense growth over the medium term is projected to be held at an average annual rate of 1.0 per cent — less than one-third the rate of growth in revenue over the same period. These projections reflect the government's commitment to control growth in program expense while protecting gains made in health and education.
The government is taking action to manage growth in expense to overcome the fiscal challenge facing the Province. Without the expense restraint action taken in this Budget, program spending would have grown at an average annual rate of almost four per cent, significantly higher than the 1.0 per cent projected over the medium term in this Budget.
|Outlook||Average Annual Growth
|Education Sector 1||23.3||23.9||24.1||24.5||1.7%|
|Postsecondary and Training Sector||7.3||7.5||7.7||7.7||1.9%|
|Children's and Social Services Sector||13.7||14.1||14.4||14.8||2.7%|
|Other Programs2||18.9||17.9||17.4||16.6||– 4.3 %|
|Interest on Debt||10.1||10.6||11.2||12.3||6.9%|
1Excludes Teachers' Pension Plan.
2Reflects a realignment of expenditures associated with the government real estate portfolio.
Note: Numbers may not add due to rounding.
Highlights of the program expense outlook over the medium term include the following:
Total health sector expense is projected to grow on average by 2.1 per cent per year between 2011–12 and 2014–15, an increase of $3.0 billion, mainly due to increased funding for community services, the Ontario Drug Benefit, hospital priority services and expenses associated with completed hospital projects. This growth rate reflects actions that are being taken to transform the largest sector of government expense and are necessary for the government to meet its commitment to balance the budget. The government will shift spending to where it has the greatest value and health care benefit. This includes providing better access to family health care, home care and community care to keep patients out of hospitals and receiving the care they need in the most appropriate place in a timely manner. Growth in sector expense could be 4.5 per cent per year without these transformative changes.
Total education sector expense is projected to grow on average by 1.7 per cent per year between 2011–12 and 2014–15, an increase of $1.2 billion, mainly due to the full implementation of full-day kindergarten by September 2014. This growth rate reflects action being taken to contain costs, including the compensation proposal for education sector staff based on a two-year freeze of salaries, including movement through the teacher qualification and experience grid, and ongoing savings from the elimination of retirement gratuities based on accumulated sick days. Eliminating the liability for sick-day banking would result in a one-time reduction in the associated non-cash expense as an in-year accounting adjustment. Other measures include a cap on successful high school credits and school board efficiencies, while maintaining class sizes and protecting classroom resources. Growth in sector expense could be 4.4 per cent per year without these government actions.
Total postsecondary and training sector expense is projected to grow on average by 1.9 per cent per year between 2011–12 and 2014–15, an increase of $0.4 billion, mainly due to funding to support enrolment growth in postsecondary institutions and continued support for the Second Career program. This growth rate reflects measures to contain costs, such as savings from efficiencies and elimination of lower-priority grants and scholarships to offset the costs of the new 30% Off Ontario Tuition grant. Growth in sector expense could be 3.4 per cent per year without these actions to contain costs.
Total children's and social services sector expense is projected to grow on average by 2.7 per cent per year between 2011–12 and 2014–15, an increase of $1.2 billion, mainly due to increased expense in social assistance and the increase in the maximum Ontario Child Benefit to $1,310 in July 2014. This growth reflects action that is being taken to transform services. The government will build on the advice of the Commission for the Review of Social Assistance in Ontario to ensure the long-term viability of the social assistance system. The government will also ensure that resources for other core services such as developmental services and child protection are utilized efficiently to achieve the best outcomes for Ontarians. Growth in sector expense could be over 5.0 per cent per year without these reforms.
Total justice sector expense is projected to grow on average by 0.4 per cent per year between 2011–12 and 2014–15, an increase of less than $0.1 billion, mainly due to increased expense for programs that provide support for victims and for policing services. This growth rate reflects the action being taken to transform services and contain costs. The sector will manage costs over the medium term by containing growth in compensation, which represents approximately 70 per cent of total expenditures. The government will work to transform services, including modernizing court services to make them available online, which will improve access to the justice system for Ontarians. Without transformative and cost-management measures, growth in sector expense could be over 3.2 per cent per year.
Other programs expense is projected to decrease by 4.3 per cent between 2011–12 and 2014–15, a decrease of $2.4 billion, consistent with the government's approach to managing growth in spending while protecting core public services such as education and health care. Transformative levers used to reduce growth over the medium term include divesting non-essential assets and services of the Ontario Northland Transportation Commission to the private sector; reducing business support programs by focusing on productivity growth in the private sector; transforming some service delivery by delegating regulatory functions to outside agencies; and managing open-ended pressures through program changes in areas such as business risk management and the Ontario Clean Energy Benefit. Growth in sector expense could be 1.1 per cent per year without these actions to contain costs.
The total expense outlook includes interest on debt expense, which is projected to increase by $2.2 billion from 2011–12 to 2014–15. This increase is mainly due to additional borrowing required to fund deficits and investment in capital assets.
Given the increasingly challenging economic environment that Ontario has faced in recent years, potential risks may emerge that could cause variances from the Province's expense projections. In addition to ensuring key public services are protected, the government will rigorously pursue prudent expenditure management to ensure the return to a balanced budget by 2017–18.
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. These sensitivities and risks are illustrative and can vary, depending on the nature and composition of potential risks.
|Program/Sector||2012–13 Assumption||2012–13 Sensitivity|
|Health Sector||Annual growth of 2.3 per cent.||One per cent change in health spending: $484 million.|
|Hospitals' Sector Expense||Annual growth of 1.3 per cent.||One per cent change in hospitals' sector expense: $215 million.|
|Drug Programs||Annual growth of 3.1 per cent.||One per cent change in program expenditure of drug programs: $36 million.|
|Long-Term Care Homes||77,500 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $47,940.||One per cent change in number of beds: approximately $37 million.|
|Home Care||Approximately 21 million hours of homemaking and support services.
Approximately 7 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||1,871,000 average daily pupil enrolment.||One per cent enrolment increase: over $144 million.|
|University Students||370,500 full-time undergraduate and graduate students.||One per cent enrolment change: $35 million.|
|College Students||186,300 full-time students.||One per cent enrolment change: $14 million.|
|Ontario Works||270,546 average annual caseload.||One per cent caseload change: $25 million.|
|Ontario Disability Support Program||303,968 average annual caseload.||One per cent caseload change: $40 million.|
|Correctional System||3.2 million adult inmate days per year. Average cost $183 per inmate per day.||One per cent change in inmate days: $6.1 million.|
|Interest on Debt||Average cost of 10-year borrowing in 2012–13 is forecast to be approximately 3.6 per cent.||The 2012–13 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $467 million.|
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. Any significant contingent liabilities were disclosed as part of the 2010–11 Annual Report and Consolidated Financial Statements, 1 released in August 2011.
In addition to overachieving on its fiscal targets in each of the last three fiscal years, the Province is on track to meet the medium-term deficit projections set out in the 2011 Budget.
|Surplus/(Deficit) from 2011 Budget||(16.3)||(15.2)||(13.3)|
|Total Revenue Changes||(0.0)||(0.4)||(1.8)|
|Net Program Expense Changes||(0.2)||0.3||(0.6)|
|Interest on Debt||(0.2)||(0.8)||(1.4)|
|Total Expense Changes||(0.4)||(0.4)||(2.0)|
|Change in Reserve||(0.7)||–||0.2|
1Revenue and expense have been restated to reflect a fiscally neutral accounting change related to the reclassification of government agencies and organizations as described in the 2011 Ontario Economic Outlook and Fiscal Review. Starting in this Budget, revenue and expense have been restated to reflect a fiscally neutral reclassification of a number of tax expenditures as described in Section F of this chapter. For purposes of comparison, 2011 Budget amounts were restated on the same basis.
Note: Numbers may not add due to rounding.
As outlined in Section D of this chapter, the revenue outlook for 2012–13 and 2013–14 has deteriorated mainly due to a slower economic growth outlook.
Excluding the impact of the $500 million transition fund in 2012–13, program expense and total expense are both on track to be lower than projected in the 2011 Budget for 2011–12, 2012–13 and 2013–14. This is consistent with the government's approach to managing growth in total expense, reflected in the reduction to the projected average annual growth rate over this period from 2.2 per cent in the 2011 Budget to 1.5 per cent in this Budget. This reduced growth also directly reflects the $4.9 billion in savings, as well as the actions to contain cost increases that total $12.8 billion, for a total of $17.7 billion in restraint measures over the next three years.
For 2012–13 and 2013–14, interest on debt expense is projected to be lower than forecast in the 2011 Budget, primarily due to lower interest rates together with the lower deficits for 2010–11 and 2011–12.
The reserve in 2013–14 has been set higher than in recent budgets to reflect the uncertain nature of longer-term revenue and expense projections.
As the Ontario economy continues on a steady pace of growth following the global economic recession, the government will transform public services so that the Province's finances are firmly on a path towards a balanced budget and long-term sustainability.
Between 2010–11 and 2017–18, program spending growth will be held to an average of 0.9 per cent — in line with the recommendation of the Commission on the Reform of Ontario's Public Services. Given the government's record of overachieving on its fiscal targets by managing growth in recent years, this target for expense growth is achievable, underpinned by the $17.7 billion in restraint measures in the 2012 Budget.
While a return to balanced budgets is a key fiscal objective, it alone is not a goal — it is a means to an end: ensuring that Ontario families continue to receive the best value through the best education and health care in the world, and a strong economy that creates jobs. In fact, even before the budget achieves balance in 2017–18, the measures in this Budget will help support the Province in improving fiscal health and sustainability — which will provide a strong foundation for the longer-term sustainability of core services such as health and education.
Additional indicators to assess the return to fiscal sustainability, vulnerability and flexibility of the Province over the recovery period include ratios of net debt-to-GDP, deficit-to-GDP, interest on debt expense-to-revenue and the government's primary budget balance.
While the deficit will not be eliminated until 2017–18, the government is projecting it will fall from 2.4 per cent of GDP in 2011–12 to about 1 per cent of GDP by 2015–16. Similarly, beginning in 2015–16, Provincial net debt relative to the economy is expected to decline.
Another indicator that the government's fiscal plan is on track for sustainability is measuring the Province's primary budget balance — the surplus/deficit excluding interest on debt expense. Achieving a primary surplus is generally an important step in reducing the net debt-to-GDP ratio. Consistent with the peaking of the Province's net debt-to-GDP ratio, Ontario is expected to achieve a primary budget balance by 2014–15.
Together, these indicators suggest that while the budget will not be balanced until 2017–18, the measures in this Budget between 2012–13 and 2014–15 will ensure that key elements of fiscal recovery will already be evident in Ontario earlier.
Meeting deficit reduction targets in a sustained way will also limit the extent to which interest on debt expense crowds out spending on core programs such as health and education. Interest on debt as a share of Provincial revenue over the recovery period is projected to be lower than the 2011 Budget forecast, thereby allowing for a greater proportion of government resources to be spent on these core programs rather than to service debt.
Other key elements of the government's plan to balance the budget by 2017–18 include:
|Interest on Debt||10.1||10.6||11.2||12.3||14.1||15.1||15.4|
|Note: Numbers may not add due to rounding.|
Along with the transformative changes that will ensure the Province achieves its fiscal targets, the government continues to maintain a prudent approach to managing growth in expenditures.
As required by 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 reserve has been set higher than in recent budgets and increases in each year over the medium term until it is maintained at $1.5 billion from 2014–15 onwards, to reflect the uncertain nature of longer-term revenue and expense projections.
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. Consistent with the Commission's advice, the contingency funds will only be used to fund ministry expense pressures in cases where health and safety might be compromised or services to the most vulnerable are jeopardized.
In keeping with sound fiscal practices, the Province's revenue outlook is based on prudent economic assumptions.
1 For further information, visit www.fin.gov.on.ca/en/budget/paccts/2011/11_ar.html.