Ontario has a proven track record of beating its deficit targets. Looking ahead to the 2013–14 fiscal year, the government is projected to be more than $1.0 billion ahead of the fiscal target outlined in the 2012 Budget. It also remains on track to meet the steadily declining projected deficits of $10.1 billion in 2014–15 and $7.2 billion in 2015–16.
|Interest on Debt1||10.4||10.6||11.1||12.2|
|1 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $0.2 billion in 2012–13, $0.3 billion in 2013–14, $0.4 billion in 2014–15 and $0.4 billion in 2015–16.|
|Note: Numbers may not add due to rounding.|
Total revenue is projected to grow from $114.2 billion to $124.9 billion over the 2012–13 to 2015–16 period, reflecting average annual growth of 3.0 per cent.
Slower growth in revenue than projected in the 2012 Budget illustrates how fiscal balance cannot be expected to be restored by revenue growth alone. As a result, over the same period, average annual growth in program spending will be held to half the average annual rate of growth in revenue — or 1.5 per cent. Total expense is projected to increase from $124.0 billion to $131.0 billion, or by an average annual growth rate of 1.8 per cent.
In recognition of the global economic uncertainty that remains, the fiscal plan includes prudence in the form of contingency funds totalling $0.6 billion in 2013–14, as well as a reserve of $1.0 billion in 2013–14, and $1.2 billion in both 2014–15 and 2015–16.
The Province's total expense outlook is projected to grow by an average annual rate of 1.8 per cent between 2012–13 and 2015–16. In addition, the total expense outlook is lower in each and every year compared with the medium-term forecast in the 2012 Budget — representing a projected cumulative reduction in total expense of $3.8 billion over three years.
Program spending for 2013–14 remains unchanged from the forecast in last year's Budget. Program expense growth over the medium term is projected to be held at an average annual rate of 1.5 per cent — half the rate of growth in revenue over the same period. These projections reflect the investments the government is making in the Budget as well as a commitment to protect key priorities such as health care, education and infrastructure, while maintaining a balanced approach to eliminating the deficit.
|Postsecondary and Training Sector||7.4||7.7||7.8||7.8||2.0%|
|Children's and Social Services Sector||13.8||14.3||15.0||15.2||3.4%|
|Interest on Debt||10.4||10.6||11.1||12.2||5.5%|
|1 Excludes Teachers' Pension Plan. Teachers' Pension Plan expense is included in Other Programs.|
|Note: Numbers may not add due to rounding.|
Highlights of the program expense outlook over the medium term include the following:
The total expense outlook includes interest on debt expense, which is projected to increase by $1.8 billion from 2012–13 to 2015–16. This increase is mainly due to additional borrowing required to fund deficits and investment in capital assets.
Ontario, like other open economies, is not immune to the effects of continued global economic uncertainty and potential risks may emerge that would impact the Province's expense projections.
The Province has a proven track record of beating its fiscal targets. The government will manage risks prudently to ensure it can invest in key priorities such as health care, education and infrastructure, while continuing to reduce the deficit.
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||2013–14 Assumption||2013–14 Sensitivity|
|Health Sector||Annual growth of 2.3 per cent.||One per cent change in health spending: $489 million.|
|Hospitals' Sector Expense||Annual growth of 1.7 per cent.||One per cent change in hospitals' sector expense: $217 million.|
|Drug Programs||Annual growth of 5.4 per cent.||One per cent change in program expenditure of drug programs: $36 million.|
|Long-Term Care Homes||78,000 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $49,120.||One per cent change in number of beds: approximately $38 million.|
|Home Care||Approximately 23 million hours of homemaking and support services.||One per cent change in hours of homemaking and support services: approximately $7 million.|
|Approximately 8 million nursing and professional visits.||One per cent change in nursing and professional visits: approximately $6 million.|
|Elementary and Secondary Schools||1,850,000 average daily pupil enrolment.||One per cent enrolment increase: over $140 million.|
|University Students||377,000 full-time undergraduate and graduate students.||One per cent enrolment change: $35 million.|
|College Students||190,500 full-time students.||One per cent enrolment change: $14 million.|
|Ontario Works||270,319 average annual caseload.||One per cent caseload change: $26 million.|
|Ontario Disability Support Program||316,655 average annual caseload.||One per cent caseload change: $42 million.|
|Correctional System||3.2 million adult inmate days per year. Average cost $184 per inmate per day.||One per cent change in inmate days: $5.9 million.|
|Interest on Debt||Average cost of 10-year borrowing in 2013–14 is forecast to be approximately 3.4 per cent.||The 2013–14 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $408 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 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 2011–12 Annual Report and Consolidated Financial Statements, released in September 2012.
The 2012 Budget outlined a fiscal plan that included projected deficits of $14.8 billion in 2012–13, $12.8 billion in 2013–14 and $10.1 billion in 2014–15. In keeping with the recent success the government has had in exceeding its fiscal targets, the government is projected to beat the 2012 Budget targets in 2012–13 and 2013–14, and remains on track to meet the target outlined for 2014–15.
|Surplus/(Deficit) from 2012 Budget||(14.8)||(12.8)||(10.1)|
|Total Revenue Changes||1.7||0.2||(1.1)|
|Net Program Expense Changes||(2.1)||(0.0)||0.4|
|Interest on Debt||(0.2)||(0.6)||(1.2)|
|Total Expense Changes||(2.4)||(0.6)||(0.8)|
|Change in Reserve||(1.0)||(0.2)||(0.3)|
|2013 Budget Surplus/(Deficit)||(9.8)||(11.7)||(10.1)|
|1 Reflects the 2012 Budget Plan as outlined in the April 25, 2012 fiscal update.|
|Note: Numbers may not add due to rounding.|
As outlined in Section D: Ontario's Revenue Outlook in this chapter, revenues are projected to be higher in 2012–13 compared to the 2012 Budget outlook mainly due to one-time factors. Slower economic growth, particularly for 2012 and 2013, results in lower revenues by 2014–15.
Total expense is projected to be lower in each and every year compared with the medium-term forecast in the 2012 Budget, reflecting the government's ability to effectively manage growth in program spending and lower interest on debt expense.
A key contributor to reductions in program spending since the 2012 Budget is the outlook for pension expense. The Province's fiscal plan includes the expense associated with five major pension plans, including the Public Service Pension Plan along with the four jointly sponsored pension plans (OPSEU Pension Plan, Ontario Teachers' Pension Plan, Healthcare of Ontario Pension Plan and the Colleges of Applied Arts and Technology Pension Plan).
Over the past year, the government reached agreements with all four of the jointly sponsored pension plans consolidated in the Province's financial statements to freeze contribution rates until the deficit is eliminated. These agreements will require reductions in future benefits to address new funding shortfalls. Any reduction in future benefits will help to mitigate associated growth in pension expense. More details on changes to pensions and pension expense forecasts can be found in Chapter I, Section C: Fiscally Responsible and Accountable Government.
Changes to the forecast for pension expense over the medium term since the 2012 Budget have contributed to the government's success in managing growth in program spending while investing in key priorities such as health, education and infrastructure. In addition, with this Budget, the government is able to begin implementing social assistance reform and take measures to encourage jobs and growth, while keeping 2013–14 program spending unchanged from the 2012 Budget Plan and holding projected growth in program spending to 1.5 per cent over the medium term.
For 2013–14 and 2014–15, interest on debt expense is projected to be lower than forecast in the 2012 Budget, primarily reflecting the impact of lower-than-forecast interest rates and lower deficits for 2012–13 and 2013–14.
The reserve for 2012–13 has been used to improve the Province's fiscal performance and reduce the deficit. Similar to previous years, the reserve for 2013–14 and 2014–15 has been reset as there is more insight into the economic outlook for these years than there was a year ago.
The government continues to maintain a prudent approach to managing the fiscal plan, as evidenced by the fact that total expense is lower in each and every year over the medium term and the 2013–14 program expense forecast is unchanged from the projected total in the 2012 Budget. The government has also included prudence as part of the fiscal plan to ensure the Province continues to meet its fiscal targets.
As required by the Fiscal Transparency and Accountability Act, 2004 (FTAA), 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 at $1.0 billion for 2013–14, $1.2 billion for both 2014–15 and 2015–16, and increases to $1.5 billion for 2016–17 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. In an effort to control the growth in program expense, 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 planning practices, the Province's revenue outlook is based on prudent economic assumptions. The Ontario Economic Forecast Council, established under FTAA, reviewed the Ministry of Finance's economic assumptions in March 2013. All council members found the assumptions reasonable.
Ontario’s deficit projections for 2012–13 through 2015–16. The 2012 Budget Plan as outlined in the April 25, 2012 fiscal update projected a deficit of $14.8 billion for 2012–13, $12.8 billion for 2013–14, $10.1 billion for 2014–15 and $7.2 billion for 2015–16. This 2013 Budget projects a deficit of $9.8 billion for 2012–13, $11.7 billion for 2013–14, $10.1 billion for 2014–15 and $7.2 billion for 2015–16.