2015 Ontario Budget
Chapter II: Ontario’s Economic Outlook and Fiscal Plan

Section E: Ontario’s Fiscal Plan

Ontario’s Recovery Plan

The 2014 Budget outlined a plan to eliminate the deficit by 2017–18 based on managing growth in program spending while maintaining the integrity of Provincial revenues. The government is making progress on this plan and is building on its proven track record of strong fiscal management.

TABLE 2.11 Ontario's Recovery Plan
($ Billions)
  Plan
2015–16
Outlook
2016–17 2017–18
Total Revenue 124.4 129.4 134.4
Expense      
Programs 120.5 120.6 120.0
Interest on Debt1 11.4 12.4 13.2
Total Expense 131.9 133.0 133.2
Reserve 1.0 1.2 1.2
Surplus/(Deficit) (8.5) (4.8)
1 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $0.2 billion in each of 2015–16, 2016–17 and 2017–18.
Note: Numbers may not add due to rounding.

Key Changes since the 2014 Budget

As a result of lower projected total expense compared to the 2014 Budget, the government is now forecasting deficits of $8.5 billion in 2015–16, $4.8 billion in 2016–17, and a return to balance in 2017–18. This reflects an improvement of $0.4 billion in 2015–16 and $0.5 billion in 2016–17, compared with the deficit targets laid out in the 2014 Budget.

Total revenue is projected to grow from $124.4 billion to $134.4 billion over the 2015–16 to 2017–18 period. The medium-term revenue outlook is largely in line with the 2014 Budget outlook in 2015–16 and 2016–17, and is below the 2014 Budget outlook in 2017–18. Lower Taxation Revenues in 2015–16 and 2016–17 are largely offset by higher Other Non-Tax Revenues, which primarily reflect the asset optimization strategy discussed in Chapter I, Section C: Unlocking the Value of Provincial Assets. In 2017–18, lower revenues relative to the 2014 Budget are mainly the result of lower taxation revenues and major Government of Canada transfers, as well as lower net income from the Ontario Lottery and Gaming Corporation.

Over the 2015–16 to 2017–18 period, total expense is projected to increase from $131.9 billion to $133.2 billion. Total expense is projected to be lower than forecast at the time of the 2014 Budget, due to lower interest on debt expense, leading to lower-than-forecast deficits over the path to balance.

The program expense outlook over the medium term is projected to be higher in each of 2015–16, 2016–17 and 2017–18, compared with the medium-term forecast in the 2014 Budget. This increase reflects the government’s continued investment in priority areas and implementation of its plan to support economic growth and prosperity.

It also reflects the Province’s commitment to manage spending while transforming programs and services. Program expense growth will be held to an average of 0.9 per cent between 2013–14 and 2017–18, somewhat below the 1.5 per cent average annual growth in program spending over the past four years.

The fiscal plan also includes a reserve of $1.0 billion in 2015–16. The reserve has been set at $1.2 billion in each of 2016–17 and 2017–18, unchanged from the 2014 Budget.

TABLE 2.12 Change in Medium-Term Fiscal Outlook since the 2014 Budget
($ Billions)
  2015–16 2016–17 2017–18
Surplus/(Deficit) from the 2014 Budget (8.9) (5.3)
Revenue Changes      
Revenue Forecast (0.1) 0.0 (0.4)
Total Revenue Changes (0.1) 0.0 (0.4)
Expense Changes      
Net Program Expense Changes 0.4 0.3 0.6
Interest on Debt (0.6) (0.8) (1.0)
Total Expense Changes (0.2) (0.5) (0.4)
Change in Reserve (0.2)
Fiscal Improvement/(Deterioration) 0.4 0.5
2015 Budget Surplus/(Deficit) (8.5) (4.8)
Note: Numbers may not add due to rounding.

Ontario’s Revenue Outlook

Ontario’s revenues rely heavily on the level of economic activity in the province, growing roughly in line with nominal gross domestic product (GDP). For example, taxes are collected on the incomes and spending of Ontarians, and on the profits generated by businesses operating in Ontario.

However, there are important qualifications to this general rule.

Growth in several tax revenue sources, such as volume-based gasoline and fuel taxes, is more closely aligned to real GDP. These revenue sources are less influenced by changes in prices. Similarly, some revenues, such as vehicle and driver registration fees, tend to more closely track demographic factors such as growth in the driving-age population.

Growth in some revenue sources, such as the Corporations Tax and Mining Tax, can diverge significantly from economic growth in any given year, due to the inherent volatility of business profits, as well as the use of tax provisions such as the option to carry losses forward or backward across different tax years.

The revenue forecast also often includes significant one-time adjustments, usually due to lags between the period in which revenues are earned and when the actual amounts are finally reported. For example, the Ministry of Finance will use the latest available information on Personal Income Tax (PIT) revenue earned by the Province for the 2014 tax year as the basis for the 2014–15 PIT revenue estimate to be published later this year in the Public Accounts of Ontario 2014–2015. Actual PIT revenue entitlements for 2014 and 2015, however, will not be known until early 2016 and 2017, respectively, after the majority of PIT returns for those tax years have been filed and assessed by the Canada Revenue Agency.

Moreover, additional tax information continues to arrive for years following the actual tax year due to late tax assessments and reassessments. The result is that even after the Public Accounts of Ontario 2014–2015 are released, new, updated tax assessment information will lead to revisions of the estimate for 2014–15 PIT revenues. Under Public Sector Accounting Board standards, revenue estimates already published in the Public Accounts are not restated for updated assessment information. Instead, these revisions are reported as “prior-year” adjustments in the current open year.

Medium-Term Revenue Outlook

The Province’s revenues are projected to grow at an average annual rate of 4.3 per cent over the forecast period, largely reflecting the Ministry of Finance’s outlook for economic growth (see Section D: Ontario’s Economic Outlook in this chapter).

TABLE 2.13 Summary of Medium-Term Outlook
($ Billions)
  Interim
2014–15
Plan
2015–16
Outlook
Revenue 2016–17 2017–18
Personal Income Tax 29.0 30.4 32.1 34.0
Sales Tax 21.7 23.0 24.0 25.0
Corporations Tax 10.1 11.3 12.1 12.6
Ontario Health Premium 3.4 3.5 3.6 3.8
Education Property Tax 5.6 5.7 5.8 5.8
All Other Taxes 12.8 13.5 14.0 14.4
Total Taxation Revenue 82.7 87.4 91.7 95.6
Government of Canada 21.7 22.9 24.0 24.8
Income from Government Business Enterprises 5.3 4.8 5.2 5.5
Other Non-Tax Revenue 8.8 9.3 8.5 8.4
Total Revenue 118.5 124.4 129.4 134.4
Note: Numbers may not add due to rounding.
TABLE 2.14 Personal Income Tax Revenue Outlook
($ Billions)
  Interim
2014–15
Plan
2015–16
Outlook
Revenue 2016–17 2017–18
Total Projected Revenue 29.0 30.4 32.1 34.0
Tax Measures1 0.8 0.8 0.9 1.0
Adjustments for Prior Years 0.2
Base Revenue2 28.1 29.5 31.2 33.0
Base Revenue Growth (Per Cent) 5.2 5.7 5.8
Compensation of Employees3 (Per Cent Change) 4.0 4.3 4.4
1 Represents the revenue impact of all tax measures, announced previously or proposed in this Budget.
2 Total Projected Revenue less the impact of tax measures or other one-time factors such as prior-year adjustments. Base Revenue reflects the impact of underlying macroeconomic factors.
3 Includes wages and salaries and employers' social contributions.
Note: Numbers may not add due to rounding.

The primary economic driver of the forecast for Personal Income Tax (PIT) revenue is the outlook for growth in the compensation of employees. Total Projected Revenue includes impacts of tax measures and adjustments related to prior tax years. Tax Measures include those proposed in the current and past budgets (see Chapter IV: A Fair and Sustainable Tax System) as well as the impact of past federal measures including, and up to, those announced in the fall of 2014. Adjustments for Prior Years of $0.2 billion in 2014–15 reflect a slight underestimation of PIT revenues in the Public Accounts of Ontario 2013–2014. After accounting for the impacts of tax measures and prior-year adjustments, the PIT revenue base is projected to grow at an average annual rate of 5.5 per cent over the forecast period. This compares to average annual growth of 4.2 per cent in compensation of employees over this period. Personal Income Tax revenue tends to grow at a faster rate than incomes due to the progressive structure of the PIT system.

TABLE 2.15 Sales Tax Revenue Outlook
($ Billions)
  Interim
2014–15
Plan
2015–16
Outlook
Revenue 2016–17 2017–18
Total Projected Sales Tax Revenue1 21.7 23.0 24.0 25.0
Tax Measures2 0.5 0.4 0.3 0.2
Other Adjustments (0.3)
Base Revenue3 21.6 22.6 23.7 24.8
Base Revenue Growth (Per Cent) 4.7 5.1 4.6
Nominal Consumption Growth (Per Cent) 4.2 4.2 4.1
1 Beginning July 1, 2010, most of the Retail Sales Tax was replaced with a value-added tax and combined with the federal Goods and Services Tax to create a federally administered Harmonized Sales Tax. Sales Tax Revenue is reported net of both the Ontario Sales Tax Credit and the energy component of the Ontario Energy and Property Tax Credit.
2 Represents the revenue impact of all tax measures, announced previously or proposed in this Budget.
3 Total Projected Revenue less the impact of tax measures or other one-time factors such as prior-year adjustments.
Base Revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.

The Sales Tax revenue projection is based primarily on growth in consumer spending. The Sales Tax revenue projection also reflects the impact of tax measures, as well as prior-year and other adjustments. Tax Measures primarily reflect the impact of transition measures such as input tax credits, which are being phased out starting in 2015–16. Other Adjustments reflect a one-time adjustment of $0.3 billion in 2014–15 related to a variance from Sales Tax revenue reported in the Public Accounts of Ontario 2013–2014. After accounting for the impacts of measures and other adjustments, the Sales Tax revenue base is projected to grow at an average annual rate of 4.8 per cent, roughly consistent with the average annual growth rate in nominal consumption of 4.2 per cent over this period.

TABLE 2.16 Corporations Tax Revenue Outlook
($ Billions)
  Interim
2014–15
Plan
2015–16
Outlook
Revenue 2016–17 2017–18
Total Projected Revenue 10.1 11.3 12.1 12.6
Tax Measures1 0.1 0.2 0.2 0.4
Other Adjustments2 (1.1) (0.3)
Base Revenue3 11.1 11.5 11.9 12.3
Base Revenue Growth (Per Cent) 3.1 3.5 3.3
Net Operating Surplus – Corporations Growth (Per Cent) 5.0 4.8 4.7
1 Represents the revenue impact of all tax measures, announced previously or proposed in this Budget.
2 Other Adjustments include net timing of payments adjustments due to the difference between projected Corporations Tax (CT) revenue entitlements and projected federal CT remittances.
3 Total Projected Revenue less the impact of tax measures or other one-time factors such as prior-year adjustments. Base Revenue reflects the impact of underlying macroeconomic factors.
Note: Numbers may not add due to rounding.

The forecast for Corporations Tax (CT) revenue is based on annual growth in the net operating surplus of corporations. The CT revenue outlook also reflects the impact of tax measures and prior-year and other adjustments. Tax Measures include those proposed in the current and past budgets (see Chapter IV: A Fair and Sustainable Tax System) as well as the impact of past federal measures including, and up to, those announced in the fall of 2014. Other Adjustments in 2014–15 and 2015–16 are due to the difference between projected CT revenue entitlements and federal CT remittances. One-time refunds related to prior-year assessments also lower revenues in 2014–15. After accounting for tax measures and other adjustments, the CT revenue base grows at an average annual rate of 3.3 per cent over the forecast period, compared to 4.8 per cent average annual growth in the net operating surplus of corporations. Corporations Tax revenue tends to grow more slowly than corporate profits due to tax provisions, including the carry-forward of losses for up to 20 years.

Ontario Health Premium revenue is based on the outlook for the growth in the compensation of employees. Ontario Health Premium revenue is projected to increase at an average annual rate of 4.4 per cent over the forecast period.

Education Property Tax revenue is projected to increase at an average annual rate of 1.2 per cent over the forecast period, largely due to growth in the property assessment base resulting from new construction activities. The forecast also reflects the ongoing impact of the measure announced in the 2012 Budget to freeze the Business Education Tax reduction plan.

Revenues from All Other Taxes are projected to increase at an average annual rate of 4.0 per cent over the forecast period. This includes revenues from volume-based taxes such as Gasoline Tax, Fuel Tax, Tobacco Tax, and Beer and Wine Tax, as well as other taxes such as Land Transfer Tax, electricity payments in lieu of taxes and the Mining Tax.

The forecast for Government of Canada transfers is based on existing federal–provincial funding arrangements. Revenues are projected to grow at an average annual rate of 4.6 per cent over the forecast period, largely reflecting growth in major ongoing federal funding programs such as the Canada Health Transfer, Canada Social Transfer and Equalization.

The forecast for Income from Government Business Enterprises (GBEs) is based on information provided by the individual enterprises. Overall revenue from GBEs is projected to increase by $0.2 billion between 2014–15 and 2017–18, or at an average annual rate of 1.4 per cent. The projected increase over the medium term is primarily due to higher projected net incomes from the Liquor Control Board of Ontario and the Ontario Lottery and Gaming Corporation.

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies. The forecast includes the projected net impacts of the Province’s asset optimization strategy as discussed in Chapter I, Section C: Unlocking the Value of Provincial Assets. Between 2014–15 and 2017–18, Other Non-Tax Revenues are projected to decrease by $0.5 billion, largely reflecting declining electricity sector-related revenues such as the debt retirement charge and fiscally neutral power-supply contract recoveries.

Key Changes in the Medium-Term Revenue Outlook since the 2014 Budget

Compared to the 2014 Budget, revenues are lower in 2014–15 but close to budget projections in both 2015–16 and 2016–17.

TABLE 2.17 Summary of Medium-Term Revenue Changes since the 2014 Budget
($ Billions)
  2014–15 2015–16 2016–17
Lower Tax Revenue Base (0.5) (0.5) (0.5)
Economic Growth 0.7 0.2 0.2
One-Time Impacts (0.9) (0.4) 0.0
Government of Canada Transfers (0.2) 0.2 (0.0)
Government Business Enterprises 0.3 (0.1) (0.3)
Other Non-Tax Revenue 0.2 0.7 0.6
Subtotal Revenue Changes (0.4) (0.1) (0.0)
2015 Budget Tax Revenue Measures 0.0 0.0 0.1
Total Revenue Changes (0.4) (0.1) 0.0
Note: Numbers may not add due to rounding.

Tax data received during 2014 lowered the tax revenue base upon which growth is applied. In particular, Personal Income Tax, Corporations Tax and Sales Tax revenues were lower than projected in the 2014 Budget. Also, tax receipts for provincially administered taxes in 2014–15 were lower than projected in the 2014 Budget.

The medium-term taxation revenue outlook is boosted in 2014–15 as a result of stronger economic growth in 2014. Lower nominal GDP growth in 2015 and 2016, however, results in more moderate revenue growth thereafter.

Lower revenues from one-time impacts in 2014–15 largely reflect prior-year adjustments related to ongoing corporate income tax assessments, during 2014 and for 2013 and prior years. The one-time decrease in 2015–16 mainly reflects a repayment to the federal government due to a projected overpayment of corporate tax to the Province by the Canada Revenue Agency for the 2014 tax year.

Government of Canada Transfers are projected to be lower in 2014–15, largely reflecting lower transfers for infrastructure projects due to revised timelines in the Building Canada Fund and lower transfers to government agencies. The 2015–16 change reflects higher Ontario Equalization payments based on updated economic information from the federal Department of Finance. Lower Government of Canada Transfers in 2016–17 largely reflect the impact of a lower population share on Ontario’s Canada Health Transfer and Canada Social Transfer payments.

Income from Government Business Enterprises (GBEs) is higher in 2014–15 due to stronger performance by Ontario Power Generation Inc., Hydro One Inc. and the Liquor Control Board of Ontario (LCBO). The decline in 2015–16 and 2016–17 reflects lower projected net income from the Ontario Lottery and Gaming Corporation (OLG).

The increase in Other Non-Tax Revenue over the forecast period is largely due to higher projected impacts under the asset optimization strategy announced in the 2014 Budget. For a more detailed discussion, see Chapter I, Section C: Unlocking the Value of Provincial Assets.

The 2015 Budget Tax Revenue Measures include proposals to parallel federal changes to the tax treatment of trusts and estates, changes to the Provincial Land Tax, and elimination of the Ontario Resource Tax Credit and the Additional Tax on Crown Royalties. For more details, see Chapter IV: A Fair and Sustainable Tax System.

Risks to the Revenue Outlook

Ontario’s revenue outlook is based on reasonable assumptions about the pace of growth in Ontario’s economy. There are both positive and negative risks to the economic projections underlying the revenue forecast. Some of these risks are discussed in Section D: Ontario’s Economic Outlook in this chapter.

This section highlights some of the key sensitivities and risks to the fiscal plan that could arise from unexpected changes in economic conditions. These estimates are only guidelines and actual results will vary depending on the composition and interaction of the various factors. The risks are those that could have the most material impact on the largest revenue sources. A broader range of additional risks are not included because they are either less material or difficult to quantify. For example, the outlook for Government of Canada transfers is subject to changes in economic variables that affect federal funding, as well as changes by the federal government to the funding arrangements themselves.

TABLE 2.18 Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2015–16 Assumption 2015–16 Sensitivities
Total Revenues    
Nominal GDP 4.2 per cent growth in 2015 $885 million revenue change for each percentage point change in nominal GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
Total Taxation Revenues    
Revenue Base1 3.8 per cent growth in 2015–16  
Nominal GDP 4.2 per cent growth in 2015 $585 million revenue change for each percentage point change in nominal GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
Personal Income Tax (PIT) Revenues    
Revenue Base 5.2 per cent growth in 2015–16  
Compensation of Employees 4.0 per cent growth in 2015 $336 million revenue change for each percentage point change in compensation of employees growth.
2014 Tax-Year Assessments2 $27.9 billion $279 million revenue change for each percentage point change in 2014 PIT assessments.2
2013 Tax-Year and Prior Assessments $1.4 billion $14 million revenue change for each percentage point change in 2013 and prior-year PIT assessments.2
Sales Tax Revenues    
Revenue Base 4.7 per cent growth in 2015–16  
Nominal Household Consumption 4.2 per cent growth in 2015 $195 million revenue change for each percentage point change in nominal household consumption growth.
2013 Gross Revenue Pool3 $23.3 billion $233 million revenue change for each percentage point change in 2013 gross revenue pool.
2014 Gross Revenue Pool3 $24.7 billion $247 million revenue change for each percentage point change in 2014 gross revenue pool.
2015 Gross Revenue Pool3 $25.5 billion $255 million revenue change for each percentage point change in 2015 gross revenue pool.
Corporations Tax Revenues    
Revenue Base 3.1 per cent growth in 2015–16  
Net Operating Surplus — Corporations 5.0 per cent growth in 2015 $90 million change in revenue for each percentage point change in net operating surplus — corporations growth.
2014 Tax Assessments2 $9.0 billion $90 million change in revenue for each percentage point change in 2014 Tax Assessments.
2015 Canada Corporate Taxable Income $287.2 billion $125 million change in revenue for each percentage point change in the federal estimate of 2015 Canada Corporate Taxable Income.
2016 Canada Corporate Taxable Income $303.7 billion $32 million change in revenue for each percentage point change in 2016 Canada Corporate Taxable Income.
Employer Health Tax Revenues    
Revenue Base 3.9 per cent growth in 2015–16  
Compensation of Employees 4.0 per cent growth in 2015 $57 million revenue change for each percentage point change in compensation of employees growth.
Ontario Health Premium (OHP) Revenues    
Revenue Base 4.7 per cent growth in 2015–16  
Compensation of Employees 4.0 per cent growth in 2015 $22 million revenue change for each percentage point change in compensation of employees growth.
2014 Tax-Year Assessments $3.1 billion $31 million revenue change for each percentage point change in 2014 OHP assessments.
Gasoline Tax Revenues    
Revenue Base 0.7 per cent growth in 2015–16  
Gasoline Pump Prices 106.5 cents per litre in 2015 $3 million revenue decrease (increase) for each cent per litre increase (decrease) in gasoline pump prices.
Fuel Tax Revenues    
Revenue Base 2.3 per cent growth in 2015–16  
Real GDP 2.7 per cent growth in 2015 $11 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenues    
Revenue Base 1.5 per cent increase in 2015–16  
Housing Resales 1.6 per cent decline in 2015–16 $18 million revenue change for each percentage point change in both the number and prices of housing resales.
Resale Prices 2.8 per cent increase in 2015–16  
Canada Health Transfer    
Ontario Population Share 38.4 per cent in 2015–16 $34 million revenue change for each tenth of a percentage point change in Ontario's population share.
Canada Social Transfer    
Ontario Population Share 38.4 per cent in 2015–16 $13 million revenue change for each tenth of a percentage point change in Ontario's population share.
Equalization Entitlements    
Three-Year Weighted-Average Population 1.0 per cent growth over 2015–16 1.0 per cent relative increase (decrease) in the three-year weighted-average population for Ontario will result in $0.5 billion higher (lower) Equalization entitlement for Ontario.
Three-Year Weighted-Average Fiscal Capacity 3.0 per cent growth over 2015–16 1.0 per cent relative increase (decrease) in Ontario's three-year weighted average fiscal capacity will result in $0.5 billion lower (higher) Equalization entitlement for Ontario.
1 Revenue Base is revenue excluding the impact of measures, adjustments for past Public Accounts estimate variances and other one-time factors.
2 Ontario 2014 Personal Income Tax and Corporations Tax are estimates because 2014 tax returns are yet to be assessed by the Canada Revenue Agency.
3 The Gross Revenue Pool is a federal Department of Finance estimate and excludes the impact of Ontario measures.

User Fees and Other Non-Tax Revenue

Other Non-Tax Revenue (NTR)

Other Non-Tax Revenue includes user fees, fines and penalties, property rental revenues and other forms of revenue that are not derived from taxation, Government of Canada transfers, or income from Government Business Enterprises (e.g., Liquor Control Board of Ontario or Ontario Lottery and Gaming Corporation).

Where a government program or service has a direct benefit to an end-user, user fees provide a means of ensuring that the costs of providing that program or service are borne by the end-user of that program or service, rather than taxpayers generally. When user fees are not increased in line with the costs of providing these programs and services, an increased proportion of funding must be provided through taxation revenue, impacting the government’s ability to direct spending towards priority areas such as health care and education.

As noted by the Auditor General in 2009, Ontario’s user fees, per capita, are among the lowest in Canada. Ontario is also one of the only jurisdictions in Canada that does not regularly review user fees or index them to inflation. To bring Ontario’s user-fee policies in line with those of other Canadian jurisdictions, the government is implementing a strategy that will increase fees while balancing end-user needs, with the objective of sustaining Ontario’s public services.

Both the Commission on the Reform of Ontario’s Public Services and the Auditor General recommended a revised approach to user-fee rates. Where the Province charges a user fee for a service, both recommended that the fee should recover the full cost of providing the service where it is reasonable and practical to do so. The Commission also suggested that the ideal approach would be a blend of full-cost recovery and indexation.

The federal government and the Province of Quebec have implemented measures to regularly review user fees and, where appropriate, index fees to the rate of inflation. For example, in 2013, Parks Canada began the indexation of all annual fees, as well as some seasonal fees, based on Statistics Canada’s Consumer Price Index (CPI). In 2012, the Government of Quebec began to systematically review the costs of services for which existing or potential user fees apply, determine self-financing targets for each fee-based service, and index increases in fees annually at the same rate as any increase to the personal taxation system.

In line with these recommendations, the government is continuing to implement incremental increases to existing user fees, such as driver and vehicle fees, hazardous waste fees, and family court fees, and will also be moving forward with a multi-year, full-cost recovery and indexation strategy, based on clearly articulated principles.

User Fees

User fees are charges collected to defray the costs of a specific good or service provided by the government or to regulate conduct using a regulatory scheme. Examples of user fees charged in Ontario include fees charged for driver and vehicle licensing, business registration, camping in Ontario parks, fishing and hunting licences, court applications, liquor licences and event permits.

The implementation of this strategy will begin in 2015 with a comprehensive review of all user fees the government currently charges and will be done in an open and transparent way. This review will inform a detailed multi-year implementation plan on full-cost recovery and user-fee indexation for the 2016 Budget. The strategy will carefully consider factors such as adverse social and economic impacts on stakeholder groups, including vulnerable Ontarians, who could face financial challenges, and deterring or encouraging behaviour in line with public policy objectives.

Moving forward with the full-cost recovery and indexation of user fees will help sustain Ontario’s public services, while aligning its user-fee policies with other Canadian jurisdictions that have introduced user-fee indexation and policies to regularly review fee rates to ensure cost recovery.

In 2013–14, Other Non-Tax Revenue in Ontario represented approximately $8.3 billion, or seven per cent, of all Provincial revenue. Of this, approximately $2.0 billion, or 24 per cent, was derived from user fees. The following chart provides a detailed breakdown of non-tax revenue in Ontario.

Medium-Term Expense Outlook

The Province’s program expense outlook is projected to grow at an average annual rate of 0.9 per cent between 2013–14 and 2017–18.

While the government continues to invest in priority areas and implement its plan to support economic growth and prosperity, it is also committed to managing program expense growth over the medium term to support a balanced and thoughtful approach to eliminating the deficit.

To deliver on this plan, the government launched Program Review, Renewal and Transformation (PRRT), a fundamentally new approach to multi-year planning and budgeting that will result in improved outcomes and the best possible value for every dollar spent.

TABLE 2.19 Summary of Medium-Term Expense Outlook
($ Billions)
  Actual
2013–14
Interim
2014–15
Plan
2015–16
Outlook Average
Annual
Growth
2013–14
to 2017–18
2016–17 2017–18
Programs            
Health Sector 48.9 50.2 50.8 51.7 52.7 1.9%
Education Sector1 23.6 24.6 25.2 25.6 25.6 2.0%
Postsecondary and Training Sector 7.6 7.7 7.8 7.8 7.6 0.1%
Children's and Social Services Sector 14.0 14.7 15.4 15.7 15.7 2.9%
Justice Sector 4.2 4.3 4.4 4.4 4.4 1.5%
Other Programs 17.5 17.2 16.8 15.4 14.0 –5.5%
Total Programs 115.8 118.8 120.5 120.6 120.0 0.9%
Interest on Debt 10.6 10.7 11.4 12.4 13.2 5.7%
Total Expense 126.4 129.5 131.9 133.0 133.2 1.3%
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 grow on average by 1.9 per cent per year between 2013–14 and 2017–18. Growth will be managed by implementation of the plan for physician services; a continued shift in the hospital funding model from a provider-centred, global funding approach to an activity-based funding approach; and continued emphasis on the sustainability of the Ontario Drug Benefit Program. These measures would allow for investments in other areas of the health care sector that are critical to the Patients First: Action Plan for Health Care, such as ongoing investments in home and community care.
  • Total education sector expense is projected to grow on average by 2.0 per cent per year between 2013–14 and 2017–18, mainly due to increased funding to school boards to support growth in student enrolment and full implementation of full-day kindergarten; increased capital expenses associated with completed school projects; and higher funding for the child care sector to support child care modernization and wage increases for front-line child care workers as announced in the 2014 Budget. The growth rate reflects actions being taken to modernize and transform the education system and manage costs, including through more efficient use of school space by consolidating schools, sharing space with other school boards and fostering community partnerships.
  • Total postsecondary and training sector expense is projected to be largely unchanged between 2013–14 and 2017–18, as funding to support growth in postsecondary enrolment and student financial assistance programs is offset by actions being taken to control costs. Measures to manage expenses in the sector include integrating Ontario’s employment and training programs and redirecting funding from programs and services across government that are no longer effective to new or renewed initiatives, including the Canada–Ontario Job Grant and extension of the Ontario Youth Jobs Strategy.
  • Total children’s and social services sector expense is projected to grow on average by 2.9 per cent between 2013–14 and 2017–18, primarily due to transformation and service-delivery modernization of programs such as social assistance, developmental services and child welfare to improve the programs’ financial sustainability while providing better outcomes for Ontario’s most vulnerable people.
  • Total justice sector expense is projected to grow on average by 1.5 per cent between 2013–14 and 2017–18, mainly due to the continuing upload of court security costs from municipalities and the expansion of access to legal aid services for low-income Ontarians. The sector continues to manage its spending through operational efficiencies and cost-effective delivery of infrastructure projects, and is exploring long-term transformation opportunities to modernize the justice system.
  • Other programs expense is projected to decrease on average by 5.5 per cent per year between 2013–14 and 2017–18, largely as a result of finding ways to deliver the best possible value for every dollar spent, lower pension expenses (including in the Teachers’ Pension Plan), and lower planned expenses due to the legislated sunsetting of the Ontario Clean Energy Benefit.

Similar to last year, the outlook for program spending includes a program review savings target for each of 2015–16, 2016–17 and 2017–18, set at $500 million annually.

The total expense outlook includes interest on debt expense, which is projected to increase on average by 5.7 per cent between 2013–14 and 2017–18. 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 potential impact on Ontario’s economic growth as well as other unforeseen circumstances, risks may emerge that could impact the Province’s medium-term expense projections.

The government has proven to be a strong fiscal manager, having held average annual growth in program spending to 1.5 per cent, below CPI inflation, from 2010–11 through 2014–15. It will manage risks prudently to ensure it can continue to invest in key priorities, while also taking a thoughtful and fiscally responsible approach to 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 Sensitivities
Program/Sector 2015–16 Assumption 2015–16 Sensitivity
Health Sector Annual growth of 1.2 per cent. One per cent change in health spending: $508 million.
Hospitals’ Sector Expense Annual growth of 1.4 per cent. One per cent change in hospitals’ sector expense: $222 million.
Drug Programs Utilization Annual growth of approximately 4.0 per cent. One per cent change in program expenditure of drug programs: $38 million.
Long-Term Care Homes 77,600 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $51,000. One per cent change in number of beds: approximately $40 million.
Home Care Approximately 26 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 $7.8 million.

One per cent change in nursing and professional visits: approximately $5.5 million.
Elementary and Secondary Schools Approximately 1,960,000 average daily pupil enrolment. One per cent enrolment change: approximately $150 million.
University Students 372,000 full-time undergraduate and graduate students. One per cent enrolment change: $32 million.
College Students 191,000 full-time students. One per cent enrolment change: $13 million.
Ontario Works 245,461 average annual caseload. One per cent caseload change: $25 million.
Ontario Disability Support Program 337,780 average annual caseload. One per cent caseload change: $47 million.
Interest on Debt Average cost of 10-year borrowing in 2015–16 is forecast to be approximately 3.4 per cent. The 2015–16 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 2013–2014 Annual Report and Consolidated Financial Statements, released in September 2014.

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 Province 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 continues to incorporate 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 2015–16, and has been set at $1.2 billion in each of 2016–17 and 2017–18, unchanged from the 2014 Budget.

The fiscal plan also includes contingency funds to help mitigate expense risks — particularly in cases where health and safety may be compromised or services to the most vulnerable are jeopardized — that may otherwise negatively impact Ontario’s fiscal performance.

In keeping with sound fiscal practices, the Province’s revenue outlook is based on prudent economic assumptions. The Ontario Economic Forecast Council, established under the FTAA, reviewed the Ministry of Finance’s economic assumptions in February 2015. All council members found the assumptions to be reasonable.

Chart Descriptions

Chart 2.22: Sources of Provincial Revenue, 2013–14

This chart shows the share of total revenue collected by Ontario in 2013–14. Total revenue in 2013–14 was $115.9 billion.

The largest source of revenue was taxation revenue, which was $80.0 billion, accounting for 69.0 per cent of total revenue.

The remaining sources of total revenue included Government of Canada transfers at $22.3 billion, or 19.2 per cent; income from Government Business Enterprises at $5.3 billion, or 4.6 per cent; and Other Non-Tax Revenue at $8.3 billion, or 7.2 per cent.

The $8.3 billion in Other Non-Tax Revenue included $0.8 billion from the recovery of prior years’ expenditures; $1.2 billion in sales and rentals; $0.2 billion from royalties; $0.1 billion from fines and penalties; $3.1 billion in miscellaneous revenue (miscellaneous revenue includes revenue from power supply contract recoveries, the electricity debt retirement charge, net reduction of power purchase contracts, Independent Electricity System Operator revenue, and other miscellaneous non-tax revenue sources); $1.0 billion in reimbursement of expenditures; and $2.0 billion in user fees.

Return to Chart 2.22