2014 Ontario Budget
Chapter II: Ontario's Economic Outlook and Fiscal Plan

Section E: Ontario's Fiscal Plan

Medium-Term Fiscal Outlook

Ontario has a proven track record of strong fiscal management. This marks the fifth year in a row that the Province is on track to beat its deficit targets.

The deficit for 2013–14 is projected to be $11.3 billion — a $0.4 billion improvement compared with the 2013 Budget forecast. For 2013–14, the government is projecting to beat its deficit target despite lower-than-projected taxation revenue and transfers from the federal government, and unforeseen expense pressures related to the December 2013 ice storm.

Recognizing that now is the time to be making strategic investments in people, modern infrastructure, and a dynamic and innovative business climate, the government is moving forward with a 10-year plan for the economy that will put the province and its people in a position to succeed by helping to spur economic growth and create the new jobs necessary to support eliminating the deficit.

Alongside an ongoing commitment to make responsible spending choices and make every dollar count, the government is projecting deficits of $12.5 billion in 2014–15, $8.9 billion in 2015–16 and $5.3 billion in 2016–17. The government remains committed to balance the budget by 2017–18, despite a decline in the medium-term outlook for revenue compared to the 2010 Budget.

The government’s deficit targets include a reserve, which is in place to help protect the fiscal plan from the impact of ongoing global economic uncertainty. If the reserve is not needed by year-end, it will be applied to reduce the deficit.

TABLE 2.18 Medium-Term Fiscal Plan and Outlook
($ Billions)
  Interim
2013–14
Plan
2014–15
Outlook
2015–16 2016–17
Total Revenue 115.7 118.9 124.5 129.4
Expense        
Programs 116.4 119.4 120.1 120.2
Interest on Debt1 10.6 11.0 12.0 13.3
Total Expense 127 130.4 132.1 133.5
Surplus/(Deficit) Before Reserve (11.3) (11.5) (7.7) (4.1)
Reserve 1.0 1.2 1.2
Surplus/(Deficit) (11.3) (12.5) (8.9) (5.3)
1 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $0.2 billion in 2013–14, $0.3 billion in 2014–15, $0.3 billion in 2015–16 and $0.4 billion in 2016–17.
Note: Numbers may not add due to rounding.

Total revenue is projected to grow from $115.7 billion to $129.4 billion over the 2013–14 to 2016–17 period, resulting in an average annual growth rate of 3.8 per cent. The medium-term revenue outlook is below the 2013 Budget outlook, largely due to lower federal transfers resulting in part from the federal government’s decision to allow Ontario’s major transfers to decline in 2014–15 and slower-than-forecast economic growth in 2013 and 2014. For more information on the decline in federal transfers, see Chapter III: Federal Underfunding of Ontarians.

Over the same period, total expense is projected to increase from $127.0 billion to $133.5 billion, or an average annual growth rate of 1.7 per cent. This increase reflects strategic investments as part of Ontario’s 10-year plan for the economy and the government’s commitment to foster a more secure future and fair society for all Ontarians. It also reflects a responsible approach to managing program spending growth.

In recognition of ongoing risks in the global economy, the fiscal plan includes additional prudence in the form of contingency funds totalling $0.5 billion in 2014–15, and a reserve of $1.0 billion in 2014–15, and $1.2 billion in both 2015–16 and 2016–17.

Medium-Term Expense Outlook

The Province’s total expense outlook is projected to grow at an average annual rate of 1.7 per cent between 2013–14 and 2016–17.

While the government is making strategic investments now to spur economic growth for future prosperity, it is also committed to managing program expense growth over the medium term to support a balanced approach to eliminating the deficit.

The government has undertaken an expenditure review to find greater efficiencies as part of its plan to control spending while transforming public services for better value and outcomes. This expenditure review successfully identified savings opportunities and activities to manage down spending in 2013–14 — in fact, the government is projected to exceed the year-end savings target by more than 50 per cent. Building on this success, the government will introduce an annual program review savings target that will focus on maintaining or enhancing the delivery of public services while reducing costs that are not essential to delivering services. As a result, program expense growth will be held to an average of 1.1 per cent per year between 2013–14 and 2016–17, in line with the 1.4 per cent average annual growth in program spending between 2010–11 and 2013–14. For more details on the annual savings target, see Chapter I, Section E: Making Every Dollar Count.

TABLE 2.19 Summary of Medium-Term Expense Outlook
($ Billions)
   Interim
2013–14
 Plan
2014–15
Outlook   Average
Annual
Growth
2013–14
to 2016–17
2015–16 2016–17
Programs          
Health Sector 48.8 50.1 51.0 52.1 2.2%
Education Sector1 23.8 24.8 25.3 25.6 2.3%
Postsecondary and Training Sector 7.6 7.8 7.8 7.8 1.0%
Children's and Social Services Sector 14.1 15.0 15.5 15.6 3.5%
Justice Sector 4.2 4.3 4.4 4.3 0.8%
Other Programs 17.9 17.4 16.1 14.9 –6.0%
Total Programs 116.4 119.4 120.1 120.2 1.1%
Interest on Debt 10.6 11.0 12.0 13.3 7.9%
Total Expense 127.0 130.4 132.1 133.5 1.7%
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:

  • Total health sector expense is projected to increase by $3.3 billion between 2013–14 and 2016–17, mainly due to investments to support continued implementation of Ontario’s Action Plan for Health Care, including investments to strengthen community services and home care as well as increased community infrastructure investments.
  • Total education sector expense is projected to increase by $1.7 billion between 2013–14 and 2016–17, mainly due to increased funding to school boards to support full implementation of full-day kindergarten, growth in student enrolment, increased capital expenses associated with completed school projects, and other school board sector expenses to implement Ontario’s renewed vision for education. The increase also reflects higher funding for the child care sector to support child care modernization, help stabilize child care operators and provide increased support for front-line child care workers.
  • Total postsecondary and training sector expense is projected to increase by $0.2 billion between 2013–14 and 2016–17, mainly due to continued funding to support enrolment growth in postsecondary institutions, growth in student financial assistance programs, and support for capital projects at colleges and universities announced as part of Building Together, Ontario’s long-term infrastructure plan. Growth in 2014–15 also takes into account the second year of Ontario’s Youth Jobs Strategy.
  • Total children’s and social services sector expense is projected to increase by $1.5 billion between 2013–14 and 2016–17. This increase primarily reflects the government’s support for vulnerable Ontarians through investments in social assistance and developmental services. These increased investments will also contribute to economic growth, as the supports provided are used to purchase basic household goods and services that are usually purchased locally.
  • Total justice sector expense is projected to increase by $0.1 billion between 2013–14 and 2016–17, primarily due to the continuing upload of court security costs from municipalities and the Province’s strategy to expand access to legal aid services for low-income Ontarians. The decrease in justice sector expense from 2015–16 to 2016–17 reflects the conclusion of Provincial support for security services for the 2015 Pan/Parapan American Games.
  • Other programs expense is projected to decrease by $3.0 billion between 2013–14 and 2016–17, largely from continued restraint measures to manage growth in spending while protecting core public services, lower-than-forecast pension expenses, including in the Teachers’ Pension Plan, lower planned expenses due to the legislated sunsetting of the Ontario Clean Energy Benefit, and the conclusion of Provincial support for the planning and delivery of the 2015 Pan/Parapan American Games.

The total expense outlook includes interest on debt expense, which is projected to increase by $2.7 billion from 2013–14 to 2016–17. This increase is mainly due to the forecast increase in interest rates and additional borrowing required to fund deficits and investment in capital assets.

Risks to Expense Outlook

Given continued global economic uncertainty and its impact on Ontario’s recovery and the federal government’s tendency to act unilaterally, potential risks may emerge that could impact the Province’s medium-term expense projections.

The government has proven to be a strong fiscal manager, having beaten its fiscal targets since the depths of the global recession. It will manage risks prudently to ensure it can continue to invest in people, modern infrastructure, and a dynamic and innovative business climate, while also taking a responsible approach to managing the Province’s finances and balancing the 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 are illustrative and can vary, depending on the nature and composition of potential risks.

TABLE 2.20 Selected Expense Risks and Sensitivities
Program/Sector 2014–15 Assumption 2014–15 Sensitivity
Health Sector Annual growth of 2.6 per cent. One per cent change in health spending: $500 million.
Hospitals' Sector Expense Annual growth of 0.7 per cent. One per cent change in hospitals' sector expense: $219 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 78,000 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $50,032. One per cent change in number of beds: approximately $39 million.
Home Care Approximately 24 million hours of homemaking and support services. One per cent change in hours of homemaking and support services: approximately $7.5 million.
   
Approximately 7 million nursing and professional visits. One per cent change in nursing and professional visits: approximately $5.3 million.
Elementary and Secondary Schools 1,970,000 average daily pupil enrolment. One per cent enrolment change: approximately $150 million.
University Students 378,000 full-time undergraduate and graduate students. One per cent enrolment change: $32 million.
College Students 196,000 full-time students. One per cent enrolment change: $13 million.
Ontario Works 254,678 average annual caseload. One per cent caseload change: $24 million.
Ontario Disability Support Program 327,799 average annual caseload. One per cent caseload change: $44 million.
Correctional System 3.2 million adult inmate days per year. Average cost of $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 2014–15 is forecast to be approximately 4.1 per cent. The 2014–15 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $400 million.

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. Any significant contingent liabilities were disclosed as part of the 2012–2013 Annual Report and Consolidated Financial Statements, released in September 2013.

Key Changes in the Medium-Term Fiscal Outlook since the 2013 Budget

Despite a lower revenue outlook compared to the 2013 Budget forecast, the government is projected to beat its 2013–14 fiscal target as a result of a responsible and balanced approach to fiscal management and a commitment to ensure value for taxpayers’ money by making every dollar count.

Continued challenges in the broader economic environment are holding back economic growth in Ontario and the outlook for Provincial revenue. Ontario is not alone in facing these challenges — several provinces have had to extend their balanced-budget timelines, and the federal government has also seen declining revenue projections. However, Ontario continues to move forward with plans to meet its original balanced-budget target date of 2017–18.

TABLE 2.21 Change in Medium-Term Fiscal Outlook since the 2013 Budget
($ Billions
  2013–14 2014–15 2015–16
Surplus/(Deficit) from 2013 Budget (11.7) (10.1) (7.2)
Revenue Changes      
Underlying Revenue Forecast (1.3) (3.5) (2.4)
Revenue Measures 0.2 1.9 1.9
Total Revenue Changes (1.2) (1.6) (0.5)
Expense Changes      
Net Program Expense Changes (0.6) 1.1 1.3
Interest on Debt (0.0) (0.1) (0.2)
Total Expense Changes (0.6) 0.9 1.2
Change in Reserve (1.0) (0.2)
Fiscal Improvement/(Deterioration) 0.4 (2.4) (1.6)
2014 Budget Surplus/(Deficit) (11.3) (12.5) (8.9)
Note: Numbers may not add due to rounding.

As outlined in Section D: Ontario’s Revenue Outlook of this chapter, the underlying revenue forecast is lower than in the 2013 Budget due to slower economic growth, a lower tax base and lower federal transfers. The revenue measures proposed by the government only partially mitigate this decline relative to the 2013 Budget forecast.

Total expense and program expense are projected to be lower in 2013–14 compared with the 2013 Budget Plan, reflecting the government’s efforts to manage spending in a fair and responsible way. Total expense and program expense are projected to be higher in 2014–15 and 2015–16 compared with the medium-term forecast in the 2013 Budget. This reflects the investments in people, modern infrastructure, and a dynamic and innovative business climate as part of the government’s 10-year plan for the economy, as well as investments aimed at promoting a fair society. These investments — made now — will spur economic growth and create the new jobs necessary to support eliminating the deficit.

Across-the-board cuts at this time would harm Ontario’s economic and fiscal prospects in the short and long term. Cuts to transfers to individuals or income support programs would result in a dampening of consumer spending, a key driver of economic growth. Cutting back on infrastructure investments would result in an economy that cannot grow to its full potential in the long term. Public investments, especially in transportation infrastructure, provide a foundation for economic growth and increased productivity.

Ontario is managing program expense growth while maintaining its investments in core services. In 2014–15, the government is investing $1.1 billion more in programs than outlined in the 2013 Budget despite a $3.5 billion weakening in the underlying revenue forecast before measures.

The outlook for program spending also includes an annual program review savings target, which reflects the government’s commitment to continue to review programs that will focus on maintaining or enhancing the delivery of public services while reducing costs that are not essential to delivering service. This target is set at $250 million in 2014–15 and $500 million in each of 2015–16 and 2016–17.

For 2014–15 and 2015–16, interest on debt expense is projected to be lower than forecast in the 2013 Budget, primarily reflecting lower forecasts for Ontario’s interest rates.

The reserve for 2013–14 has been used to partially mitigate the impact of the $1.2 billion decline in the Province’s revenue outlook. The reserve in 2014–15 has been adjusted as there is more insight into the 2014–15 economic outlook than there was a year ago.

In the 2013 Ontario Economic Outlook and Fiscal Review, the government made its priority clear — it will continue to protect investments in jobs, growth and families ahead of short-term targets. As a result, it is now projecting a deficit of $12.5 billion in 2014–15, $8.9 billion in 2015–16 and $5.3 billion in 2016–17.

Ontario’s Path to Balance

Ontario’s performance against its fiscal targets to date is the result of a responsible and balanced approach to fiscal management and a commitment to ensure value for taxpayers’ money by making every dollar count. Program expense in 2013–14 is currently projected to be $0.6 billion lower than outlined in the 2013 Budget. As a result, the Province is on track to have lower-than-forecast program expense in each of the last five years.

The government is also projected to beat its deficit target for the fifth year in a row, resulting in the accumulated deficit now being more than $24 billion lower than it otherwise would have been.

Responsible Choices

While the government remains committed to continue managing spending in a fair and responsible way, it cannot ignore the ongoing challenges in the broader environment, which are holding back economic growth in Ontario and the outlook for Provincial revenues.

These challenges mean the government needs to think long term about the choices it makes. Ontario already has the lowest per-capita program spending among Canadian provinces. As the Commission on the Reform of Ontario’s Public Services noted, across-the-board cuts would hurt public services and undermine programs that are providing high-quality services to Ontarians. Such across-the-board cuts at this time would also harm Ontario’s prospects for stronger economic growth.

Now is the time to be making smart investments in people, modern infrastructure, and a dynamic and innovative business climate — investments that will help to spur economic growth and create the new jobs necessary to support eliminating the deficit.

Actions to Eliminate the Deficit

Together with the strategic investments the government is making to support Ontario’s 10-year economic plan, it will also be taking deliberate actions to ensure it can continue to manage spending and enhance tax fairness for people and business. These combined measures will help meet or beat the fiscal targets outlined in this Budget, and eliminate the deficit by 2017–18.

These deliberate actions will together help ensure that the priority programs and services that people rely on are maintained and enhanced while the deficit is eliminated:

  • Responsible management of program spending;
  • Maintaining the integrity of Provincial revenues;
  • Enhancing tax fairness measures for people and businesses; and
  • Unlocking the value of Provincial assets.

Examples of key actions to support the responsible management of spending will include:

  • Holding the average annual growth in program spending to 1.1 per cent over the medium term — consistent with the 1.4 per cent average annual growth in program spending since 2010–11.
  • Continuing to move ahead with the Commission on the Reform of Ontario’s Public Services’ recommendations — over 80 per cent of the recommendations are now being acted on, enabling sustainable transformation and supporting successful expenditure management.
  • Managing the growth rate of health care spending, currently more than 40 per cent of Provincial program spending, to an annual average of 2.2 per cent over the medium term. Through implementation of Ontario’s Action Plan for Health Care, the growth rate of spending has been reduced to a projected 2.5 per cent in 2013–14 from 5.8 per cent in 2009–10.
  • Building on the success of the government’s 2013–14 expenditure review by introducing an annual program review savings target of $250 million in 2014–15 and $500 million in 2015–16 and 2016–17, with a particular focus on maintaining or enhancing the delivery of public services while reducing costs that are not essential to delivering service.
  • Ending the Ontario Clean Energy Benefit on December 31, 2015, and replacing it with a planned rate-base program, with the Ontario Energy Board to report back on program options that would be targeted to Ontario’s most vulnerable, who spend a higher proportion of their disposable income on energy and electricity.
  • Managing public-sector and executive compensation from within Ontario’s existing fiscal framework so that any modest wage increases that are negotiated will need to be absorbed within funding envelopes, and within Ontario’s overall fiscal plan, through efficiency and productivity gains, or other tradeoffs that continue to deliver the service levels to meet public needs. This action reduces funding pressures on the government as over half of the Province’s total program spending is for compensation. By way of example, a one per cent increase in compensation costs would amount to approximately $600 million without productivity or other offsets.
  • Modernizing and managing public-sector benefit costs by bringing public service retirement benefits in line with practices in the private sector and other jurisdictions, which will save over $1.4 billion by 2017–18.
  • Continuing to take action to reduce pension costs and enhance the affordability of public-sector pension plans. The government’s successful efforts to date to constrain public-sector wage growth, along with better-than-expected investment performance, have reduced total pension expense costs over the medium term by $1.1 billion since the 2013 Budget.

Key actions to protect the integrity of Provincial revenues will include:

  • Supporting a fair and efficient tax administration system that ensures everyone pays their fair share of taxes through enhanced tax compliance measures.
  • Increasing the tobacco tax rate to generate more than $100 million a year in new revenues.

Key actions include ensuring that those with the greatest ability to pay contribute more through their taxes. The Province is proposing to increase Personal Income Tax on taxable income above $150,000, which would raise $0.7 billion by 2016–17.

Key actions to unlock the value of Provincial assets include:

  • Exploring options to unlock the full value of a wide range of valuable Provincial assets, including those of large and complex Government Business Enterprises (GBEs) — specifically, the LCBO, Hydro One and Ontario Power Generation.
  • Establishing the Premier’s Advisory Council on Government Assets to examine key government assets and generate better returns.
TABLE 2.22 Ontario's Recovery Plan
($ Billions)
  Interim
2013–14
Plan
2014–15
Medium-Term
Outlook
Extended
Outlook
2017–18
2015–16 2016–17
Revenue 115.7 118.9 124.5 129.4 134.8
Expense          
Programs 116.4 119.4 120.1 120.2 119.4
Interest on Debt 10.6 11 12 13.3 14.2
Total Expense 127 130.4 132.1 133.5 133.6
Surplus/(Deficit) Before Reserve (11.3) (11.5) (7.7) (4.1) 1.2
Reserve 1 1.2 1.2 1.2
Surplus/(Deficit) (11.3) (12.5) (8.9) (5.3)
Note: Numbers may not add due to rounding.

Fiscal Prudence

The government continues to maintain a balanced approach to managing the fiscal plan and making responsible choices about strategic investments to support the economic prosperity of the province. The government has also included prudence as part of the fiscal plan to help ensure it meets future fiscal targets as it moves towards a balanced budget in 2017–18.

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 in 2014–15, and $1.2 billion in each of 2015–16, 2016–17 and 2017–18.

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 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 February 2014. All council members found the assumptions reasonable.

Intergenerational Fairness

The people of Ontario expect their government to be able to continue to provide high-quality public services and opportunities now and for generations to come. Therefore, there is an obligation to ensure that the cost of these supports does not lead to unsustainable debt levels and high interest costs for future generations.

The government is taking a fair and balanced approach to eliminating the deficit by 2017–18, and maintains a target of reducing Ontario’s net debt-to-GDP ratio to its pre-recession level of 27 per cent. This will help keep interest on debt at a manageable level and protect future generations from rising interest costs, which could otherwise crowd out spending on government priorities. Taking a balanced approach to eliminating the deficit and reducing net debt-to-GDP will help strengthen the economy so it can create jobs. It is good fiscal policy and it is fair to future generations.

Chart Descriptions

Chart 2.24: Ontario’s Record Against Deficit Targets

This chart shows Ontario’s actual deficits versus deficit targets from 2009–10 through 2013–14.

In the 2009 Ontario Economic Outlook and Fiscal Review, Ontario projected a $24.7 billion deficit for 2009–10. The actual result for 2009–10 was a deficit of $19.3 billion. The 2010 Budget projected deficits of $19.7 billion for 2010–11, $17.3 billion for 2011–12, $15.9 billion for 2012–13 and $13.3 billion for 2013–14. The actual result for 2010–11 was a deficit of $14.0 billion. The actual result for 2011–12 was a deficit of $13.0 billion. The actual result for 2012–13 was a deficit of $9.2 billion. The interim projection for 2013–14 is a deficit of $11.3 billion.

Return to Chart 2.24

Chart 2.25: Ontario’s Plan to Eliminate the Deficit

This chart shows Ontario’s 2014 Budget Plan to eliminate the deficit, including a projected decline in Ontario’s deficits from 2014–15 through 2017–18. For the medium-term and extended outlook, the current fiscal projections are a deficit of $12.5 billion for 2014–15, a deficit of $8.9 billion for 2015–16, a deficit of $5.3 billion for 2016–17 and a return to balance for 2017–18.

The government’s deficit targets include a reserve of $1.0 billion in 2014–15, and $1.2 billion in each of 2015–16, 2016–17 and 2017–18. The chart also shows that for the medium-term and extended outlook, the current fiscal projections before the reserve are a deficit of $11.5 billion for 2014–15, a deficit of $7.7 billion for 2015–16, a deficit of $4.1 billion for 2016–17 and a surplus of $1.2 billion in 2017–18.

Return to Chart 2.25