Annex II
Ontario's Medium-term Fiscal Plan and Outlook

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Introduction

Section I: Ontario's Medium-term Fiscal Plan and Outlook
Key Elements of Ontario's Medium-term Fiscal Plan
Medium-term Fiscal Outlook
Medium-term Revenue Outlook
Medium-term Expense Outlook
Fiscal Prudence
Maintaining a Prudent Debt-to-GDP Ratio
Key Changes Since the 2006 Ontario Budget
Modernizing Government Update

Section II: 2006–07 Second-quarter Fiscal Update
2006–07 Fiscal Summary
2006–07 Expense Outlook

Introduction

In 2003–04, Ontario's deficit was $5.5 billion. In addition to the fiscal deficit, the province had significant deficits in health care, education and infrastructure. Through a prudent and disciplined fiscal approach, the government has made progress on restoring Ontario's financial health, while making historic, long-term investments in health, education, infrastructure and a strong economy.

The 2006 Budget outlined a medium-term fiscal plan that would return the Province to a sustainable fiscal balance by 2008–09. However, record-high oil prices, the strong Canadian dollar and a weaker outlook for growth in the United States — Ontario's largest trading partner — have led to slower projected economic growth than anticipated in the 2006 Budget. As a result, while the 2006–07 deficit outlook of $1.9 billion remains on track, the medium-term fiscal outlook includes deficits of $2.2 billion in 2007–08 and $1.0 billion in 2008–09 — reflecting the impact of more moderate economic growth on Ontario's revenue outlook. The Province will post a $0.5 billion surplus if the reserve is not required in 2008–09.

The government remains committed to eliminating the deficit. It will therefore continue to be prudent and disciplined in its approach to managing the Province's finances, including keeping program spending growth under control. This approach, in addition to ongoing strategic investments in health care, education, infrastructure and key economic sectors, will continue to strengthen the economy and ensure that the province is well positioned to manage both the challenges and opportunities ahead.

This Annex provides an overview of the following:

• Section I:   Ontario's Medium-term Fiscal Plan and Outlook
• Section II:  2006–07 Second-quarter Fiscal Update

Additional information can be found in Annex VII, Details of Ontario's Finances.

Section I: Ontario's Medium-term Fiscal Plan and Outlook

The inherited deficit in 2003–04 of $5.5 billion was the result of a prolonged period when annual growth in Provincial spending exceeded annual growth in Provincial revenue. By introducing a responsible and disciplined approach to fiscal planning, the government has made progress towards restoring the financial health of the Province by exceeding its planned deficit targets in each fiscal year since 2003–04. In 2004–05, the deficit was reduced to $1.6 billion, and the Consolidated Financial Statements for 2005–06 indicated that the Province's fiscal performance, projected to be a $1.4 billion deficit at the time of the 2006 Budget, had improved to a modest surplus of $0.3 billion.

Higher revenues, combined with lower interest on debt expenses, have given the government the flexibility to invest further in key priority areas and still improve upon the 2006 Budget deficit projection of $2.4 billion for 2006–07. In fact, the Province has already reported an improvement of $0.4 billion in the deficit outlook for 2006–07 from the 2006 Budget forecast.

While the 2006–07 deficit target remains unchanged from the $1.9 billion deficit projection outlined in the First Quarter Ontario Finances, or $0.9 billion if the reserve is not required, the medium-term economic growth outlook has softened, reflecting record-high oil prices, a stronger Canadian dollar and a slower projected growth outlook for the U.S. economy. The medium-term fiscal outlook, which includes reserves of $1.5 billion in 2007–08 and 2008–09, is now projected to be a deficit of $2.2 billion in 2007–08 and $1.0 billion in 2008–09, reflecting the impact of the slower economic growth on Provincial revenue. This represents a change of $0.7 billion in 2007–08 and $1.0 billion in 2008–09 from the fiscal targets presented in the 2006 Budget. The Province will post a deficit of $0.7 billion if the reserve is not required in 2007–08 and a $0.5 billion surplus if the reserve is not required in 2008–09. The government is committed to eliminating the fiscal and structural deficits through prudent fiscal management, including keeping expense growth under control.

Key Elements of Ontario's Medium-term Fiscal Plan

The key elements of the government's medium-term fiscal plan, which will ensure an ongoing commitment to a disciplined and prudent approach to fiscal planning, include:

• promoting a strong economy by investing in Ontario's infrastructure, health care, education, and postsecondary education and training
• making disciplined decisions that hold the annual rate of growth in total spending to 2.7 per cent on average over the medium term — significantly less than the 3.5 per cent average annual rate of growth in total revenue
• working constructively with the federal government towards a set of principled and sustainable federal–provincial fiscal arrangements
• responsibly maintaining a cautious and prudent fiscal planning process, including an annual reserve
• forming the Ontario Economic Forecasting Council, which will meet with the Minister of Finance to discuss macroeconomic projections
• identifying $750 million in program review savings by 2007–08.

Medium-term Fiscal Outlook

While the 2006–07 fiscal outlook is unchanged from the $1.9 billion deficit forecast in the First Quarter Ontario Finances, the medium-term fiscal outlook now projects a deficit of $2.2 billion in 2007–08 and $1.0 billion in 2008–09, including the reserve. This represents a change of $0.7 billion in 2007–08 and $1.0 billion in 2008–09 from the fiscal targets presented in the 2006 Budget. The Province will post a deficit of $0.7 billion if the reserve is not required in 2007–08 and a $0.5 billion surplus if the reserve is not required in 2008–09.

As per the Fiscal Transparency and Accountability Act, 2004, the following table provides details of projected revenue and expense from 2006–07 through to the 2008–09 fiscal year. Further details are included in Annex VII, Details of Ontario's Finances.

Medium-Term Fiscal Plan and Outlook
($ Billions)

	Actual 2005–06	Outlook 1
		2006–07	2007–08	2008–09
Revenue
Taxation Revenue	59.9	61.6	63.5	66.1
Government of Canada	13.3	14.0	15.4	15.5
Income from Government Enterprises	4.3	3.9	4.1	4.3
Other Non-Tax Revenue	6.7	7.5	7.0	7.3
Total Revenue	84.2	87.0	90.0	93.2
Expense
Programs
Health Sector	32.8	35.5	37.5	38.9
Education Sector 2	11.6	12.1	12.6	12.7
Postsecondary Education and Training Sector	4.7	5.2	5.9	6.0
Children's and Social Services Sector	10.1	10.3	10.5	10.6
Justice Sector	3.1	3.2	3.2	3.2
Other Programs	12.6	12.4	11.6	11.6
Total Programs	74.9	78.8	81.2	83.1
Interest on Debt	9.0	9.2	9.5	9.6
Total Expense	83.9	88.0	90.8	92.7
Surplus/(Deficit) Before Reserve	0.3	(0.9)	(0.7)	0.5
Reserve	–	1.0	1.5	1.5
Surplus/(Deficit)	0.3	(1.9)	(2.2)	(1.0)

¹ Second-quarter fiscal forecast as at September 30, 2006.
² Education sector includes Teachers' Pension Plan (TPP). Excluding TPP, total education sector expense is $11.3 billion in 2005–06, and projected at $11.7 billion in 2006–07, $12.1 billion in 2007–08 and $12.4 billion in 2008–09.
Note: Numbers may not add due to rounding.

Medium-term Revenue Outlook

The revenue forecast reflects developments to date and the current economic outlook, but there are risks to the forecast that the Province will continue to monitor over the coming months. Recent signs of weakness in corporate profits give rise to concerns for historically volatile Corporations Tax revenues. Uncertainty remains regarding the 2005 Canada–Ontario Agreement, posing a challenge to developing the revenue outlook and fiscal plan.  Ontario does not accept the federal position that the unanticipated measures announced by the federal government in its 2006 budget count towards the Agreement.  Issues surrounding federal transfers are discussed in greater detail in Annex III, Fairness for All Canadians.

Total revenue in 2008–09 is projected to be $93.2 billion, an increase of $6.2 billion over the level forecast for 2006–07. This represents an average annual growth rate of 3.5 per cent between 2006–07 and 2008–09.

Taxation revenue is forecast to increase by $4.6 billion between 2006–07 and 2008–09, with annual growth averaging 3.6 per cent. This is consistent with nominal GDP annual growth averaging 4.2 per cent from 2006 to 2008.

Federal payments to Ontario are forecast to increase by $1.4 billion between 2006–07 and 2008–09, with annual growth averaging 5.0 per cent. The forecast is based on current federal‑provincial agreements, funding commitments, and formulas for major health and social transfers. The forecast includes $2.2 billion over three years in Canada–Ontario Agreement transfers and $1.1 billion over three years, representing Ontario's share of Government of Canada trusts.

Income from Government Enterprises is forecast to increase by $0.4 billion over the medium term.

Other Non-Tax revenue is forecast to decrease by $0.3 billion between 2006–07 and 2008–09. The decrease is due to the $0.6 billion one-time Sales and Rentals revenues in 2006–07 from the Teranet IPO. Adjusting for this, Other Non-Tax revenue increases by $0.3 billion between 2006–07 and 2008–09, representing an average annual growth rate of 2.2 per cent.

Medium-term Expense Outlook

Over the medium term, total expense will rise from $88.0 billion in 2006–07 to $92.7 billion in 2008–09 — an increase of $4.7 billion. To put the Province's finances on track towards a sustainable fiscal balance, annual average growth in spending over the medium term will be held to less than the annual average rate of growth in revenue. Annual growth in total expense is expected to average 2.7 per cent over this period, which is less than the 3.5 per cent average annual growth in revenue forecast over the medium term.

Details of Expense Outlook

• Total health sector spending, including the impact of consolidating the Province's 156 hospitals (including four specialty psychiatric hospitals), will grow by $2.7 billion to $35.5 billion in 2006–07. Between 2005–06 and 2008–09, total health spending will increase by $6.1 billion.
• Total education sector spending, including the impact of consolidating the Province's 103 school boards and authorities, will grow by $0.5 billion to $12.1 billion in 2006–07, increasing to $12.7 billion by 2008–09. Excluding Teachers' Pension Plan expense, education sector spending will grow by $0.4 billion to $11.7 billion in 2006–07, increasing to $12.4 billion by 2008–09.
• Total postsecondary education and training sector spending, including the impact of consolidating the Province's 24 colleges of applied arts and technology, will grow by $0.5 billion to $5.2 billion in 2006–07, increasing to $6.0 billion by 2008–09.
• Children's and Social Services sector funding to support vulnerable adults, families and at-risk youth will grow by an additional $0.3 billion in 2006–07 to $10.3 billion, rising to $10.6 billion by 2008–09.
• Justice sector spending will grow by $0.1 billion to $3.2 billion in 2006–07 and remain at that level throughout the medium term.
• Other Programs spending will total $12.4 billion in 2006–07, but will decrease to $11.6 billion in 2007–08 and 2008–09, mainly reflecting one-time investments in 2006–07 such as those related to the Teranet IPO proceeds, the Ontario Home Electricity Relief program, and additional forest fire fighting costs.
• Interest on debt expense is forecast to grow by $0.4 billion between 2006–07 and 2008–09, reflecting the government's deficit targets and interest rates that are forecast to increase from historically low levels. In 2006–07, interest on debt costs will amount to about 11 per cent of total Provincial revenue and will fall to about 10 per cent in 2008–09. This represents an improvement over 2003–04, when interest on debt expense represented 14 per cent of total Provincial revenue.

Fiscal Prudence

The government is applying a disciplined approach to balancing strategic investments in key priority areas with a plan to achieve a sustainable fiscal balance. The government's medium-term fiscal plan also includes prudence in recognition of the risks that could materialize as a result of changes in the economic and fiscal outlook.

Fiscal prudence is particularly important in the current context, where the economic outlook has softened due to record-high oil prices, a strong Canadian dollar and a slower projected growth outlook for the U.S. economy. The government's medium-term fiscal plan continues to include reserves of $1.0 billion in 2006–07 and $1.5 billion in 2007–08 and 2008–09 to protect the fiscal plan against the impact of external adverse developments. The 2007–08 and 2008–09 reserves are $0.5 billion higher than the $1.0 billion reserve in 2006–07 to better reflect the risks and uncertain nature of medium-term fiscal projections.

Consistent with the principles of increased fiscal transparency and accountability, the government provides quarterly fiscal and economic updates using the best available information.

Maintaining a Prudent Debt-to-GDP Ratio

The government's medium-term fiscal plan includes a commitment to maintain a prudent level of Provincial debt relative to the size of Ontario's economy as measured by nominal GDP. Ongoing debt accumulation can significantly limit the extent to which vital public services can be funded, as increasing debt charges crowd out funds available for spending on government priorities. Responsible fiscal management, therefore, needs to be long term to ensure that future generations are not burdened with an unsustainable debt load.

As per the Fiscal Transparency and Accountability Act, 2004, Provincial debt is defined as accumulated deficit, which is the sum of all past Provincial surpluses and deficits.

Consistent with the medium-term fiscal outlook provided in this update, the Province's debt‑to‑GDP ratio is projected to decline from 25.2 per cent in 2003–04 to 20.0 per cent in 2006–07 and 19.0 per cent by 2008–09.

Key Changes Since the 2006 Ontario Budget

The government's medium-term fiscal outlook has been updated to reflect revenue and expense changes since the Budget, including updates to the Province's interest on debt forecast. Further details are included in Annex I, Ontario's Economic and Revenue Outlook, and Annex VII, Details of Ontario's Finances.

In 2005–06, the Province recorded a modest surplus of $298 million, which is an improvement from the interim deficit projection of $1.4 billion reported in the 2006 Budget. This modest surplus, confirmed by the Auditor General in the 2005–06 Consolidated Financial Statements, can be primarily attributed to higher-than-expected tax revenues and lower-than-expected net expenses of hospitals, colleges and school boards. Higher revenues in 2006–07, combined with lower interest on debt expense, have given the government the flexibility to invest further in key priority areas and still improve upon the 2006 Budget deficit projection of $2.4 billion for 2006–07. However, the deficit is now projected to be $2.2 billion in 2007–08 and $1.0 billion in 2008–09, including the reserve, reflecting the medium-term impact of slower economic growth on Provincial revenues. The Province will post a $0.5 billion surplus if the reserve is not required in 2008–09.

The following table provides an overview of the key changes to the medium-term revenue and expense outlooks and the reserve since the release of the 2006 Budget. Additional details on key changes to the 2006–07 fiscal outlook since the 2006 Budget are provided in Section II of this Annex.

Impact of Key Changes to the Medium-term Deficit Targets
($ Billions)

	Outlook
	2006–07	2007–08	2008–09
Surplus/(Deficit) as per 2006 Budget	(2.4)	(1.5)	0.0
Total Revenue Changes Since 2006 Budget	1.3	(0.3)	(0.8)
Key Expense Changes Since 2006 Budget:
Additional Funding to Reduce Health Wait Times	0.1	0.2	0.2
Investment of Teranet IPO Proceeds into Priorities (see Section II)	0.5	–	–
Spending Related to Federal Trusts	0.5	0.5	0.2
Other Expense (Net), Including Interest on Debt Savings	(0.2)	(0.2)	(0.1)
Total Expense Changes Since 2006 Budget	0.9	0.5	0.3
Total Changes Since 2006 Budget	0.4	(0.7)	(1.0)
Surplus/(Deficit)	(1.9)	(2.2)	(1.0)
Reserve	1.0	1.5	1.5
Surplus/(Deficit) Before Reserve	(0.9)	(0.7)	0.5

Note: Numbers may not add due to rounding.

Details of Key Revenue Changes

Since the 2006 Ontario Budget, the economic growth outlook for 2006 to 2008 has softened, reflecting higher oil prices, a stronger Canadian dollar and a slower growth outlook for the U.S. economy. The negative revenue impact of slower economic growth is offset in 2006–07 by proceeds from the Teranet Income Fund IPO and higher revenues related to processing of prior years' tax returns. The revenue increase related to prior years is largely one-time in nature, with only a portion of the increase carrying forward over the medium term. Also contributing to higher revenues is Ontario's share of Government of Canada transfers to all provinces and territories under the trusts announced in the 2006 federal budget.

All other medium-term revenue changes lower the revenue outlook over the medium term. The medium-term revenue outlook changes are discussed in greater detail in Annex I, Ontario's Economic and Revenue Outlook.

Update on the Proceeds from the Initial Public Offering (IPO) of Teranet

The First Quarter Ontario Finances reported that an estimated $570 million was expected from the Teranet IPO proceeds, of which $54 million was devoted to service improvements and system enhancements of Teranet.

The amount included $410 million in cash received from the IPO on June 16, 2006. The $160 million cash component of the transaction received by the Province in a deferred payment was dependent upon the market price of the income fund units at the time the Province's designees sold their income fund units and paid the Province the deferred payment. In September, the Province's designees sold their income fund units and paid the Province $163 million, resulting in an additional $3 million in revenue.

The proceeds from the Teranet IPO have been added to the Ministry of Finance Operating Contingency Fund and the government will continue to determine priority areas in which to invest the proceeds.  Details on priority areas where the government is proposing to invest the Teranet IPO proceeds can be found in Section II of this Annex.

Details of Key Expense Changes

Major changes to the medium-term expense outlook since the 2006 Budget include:

• increases in total health sector expense by $0.1 billion in 2006–07, $0.2 billion in 2007–08 and $0.2 billion onwards, to reflect enhancements to the government's Wait Times Strategy
• an amount of $0.5 billion allocated to the Contingency Fund until priority projects to be funded by the proceeds from the Teranet Income Fund IPO in 2006–07 are determined; details on key investments to date can be found in Section II of this Annex
• spending related to the Government of Canada transfers under the federal trusts, which amount to $0.5 billion in 2006–07 and 2007–08, and $0.2 billion in 2008–09, pending satisfactory resolution of issues related to the Canada–Ontario Agreement
• a net decrease in other expenses by $0.2 billion in 2006–07 and 2007–08, and $0.1 billion in 2008–09, mainly due to the impact of lower interest on debt costs arising from continued cost-effective debt management and lower interest rates than were forecast at the time of the 2006 Budget.

Modernizing Government Update

The government's modernization plan contains three objectives:

• program review — achieving savings of $750 million by 2007–08 from more cost-effective programs
• efficient government — delivering higher-quality services in an efficient and effective manner
• controlling long-term costs — improving health care, education and other key services in a way that is affordable and fiscally sustainable.

Achievement of Savings

Since taking office, the government has undertaken a comprehensive review to ensure that key programs and services are being delivered in the most cost-effective way possible and to secure their long-term viability. A critical component of the fiscal plan has been the program review target of $750 million to be achieved by 2007–08.

As indicated in the 2006 Budget, $407 million in savings had been found — $350 million in direct program savings and a further $57 million through more efficient management of the Province's revenues. To keep pace with the rising expectations of citizens for high-quality, cost-effective public services, the government is modernizing and improving programs and services both internally and externally. Examples include:

• decreased procurement costs resulting from a more streamlined purchasing process, vendor rebates and 33 new vendors of record
• savings generated by changes in the application of information technology services and products, including the consolidation of key infrastructure services across the Ontario Public Service (e.g., service/datacentre consolidation and common computer applications and services)
• more effective management of government revenues through improved collection of the government's accounts receivable
  
• reduced ministry accommodation costs and more energy-efficient government buildings — Ontario is leading by example in reducing energy consumption
• improved and more cost-effective service delivery to both citizens and business customers through the implementation of ServiceOntario.

Since the 2005 Budget, ministries across the government have reviewed their baseline expenditures for efficiencies to ensure all expenditures are aligned with the government's priorities. As a result of the review, combined with the work underway to modernize government, the remaining $343 million of the $750 million program review target has been realized and exceeded. All government ministries have realized sufficient savings from program review to absorb almost $400 million in salary and wage and other inflationary pressures. Total savings from modernization equal $806 million annually.

The 2006 Budget confirmed that the government has continued to move forward on the modernization initiatives. For example, the new Securities Transfer Act, coming into force January 2007, creates the first fully harmonized provincial commercial law in Canada. The modernization of Ontario's commercial law framework will help businesses compete in the global economy and facilitate economic growth.

The continued work to modernize government and review all expenditures demonstrates Ontario's commitment to achieving efficiency, effectiveness and economy throughout government.

In November 2005, the first money-back service guarantee was implemented for the Online Birth Certificate Service. As of September 2006, of the 250,189 eligible applications received, 80 refunds have been issued to applicants who did not receive their birth certificate within 15 business days.

Building on the success of the Online Birth Certificate service guarantee, an Online Marriage and Death Certificates Application money-back guarantee will be launched in January 2007, enabling customers quick and convenient access to these vital documents.

The government is also working with broader public-sector (BPS) partners to manage the rate of growth in spending, while improving their respective service levels.  OntarioBuys, a Ministry of Finance program, is working with BPS partners to improve their supply chain functions.  For instance, an e-supply chain project involving 46 hospital facilities across the province is already yielding significant annual savings available for front-line services. The BPS is demonstrating keen interest in this program and new projects are being initiated.  Existing OntarioBuys projects in the health and education sectors, once implemented, will yield demonstrable savings and improve service quality.

The program review savings target was $750 million and has been exceeded. The following table presents total achieved program review savings.

Total Program Review Savings 2007-08
($ Millions)

Previously Reported Savings ($407 Million)
Supply Chain and Transactional Services	200
Information and Information Technology	100
Accommodation Savings Review	50
Revenue Savings	57
Subtotal	407
Remaining Savings/Efficiencies ($399 Million)
Salary and Wage Pressures Absorbed	366
Ministry Efficiencies – Absorbing Inflationary Costs	18
Central Agency Review/Integration	15
Subtotal	399
Total	806

Section II: 2006–07 Second-quarter Fiscal Update

2006–07 Fiscal Summary

The 2006 Budget Plan projected a deficit of $2,350 million for 2006–07. As at September 30, 2006, a deficit of $1,949 million is projected for 2006–07, an in-year improvement of $401 million from the deficit projected in the 2006 Budget. Additional information can be found in Annex VII, Details of Ontario's Finances.

2006–07 Fiscal Outlook — In-year Change
($ Millions)

	Budget Plan 2006–07	Outlook 1 2006–07	In-Year Change
Revenue	85,730	87,044	1,314
Expense
Programs	77,651	78,789	1,138
Interest on Debt	9,429	9,204	(225)
Total Expense	87,080	87,993	913
Surplus/(Deficit) Before Reserve	(1,350)	(949)	401
Reserve	1,000	1,000	–
Surplus/(Deficit)	(2,350)	(1,949)	401

¹ Second-quarter fiscal forecast as at September 30, 2006.

Total revenue in 2006–07 is currently projected to be $87,044 million, an increase of $1,314 million from the 2006 Budget Plan. In-year revenue changes are discussed in greater detail in Annex I, Ontario's Economic and Revenue Outlook.

Total expense is projected to increase to $87,993 million, up a net $913 million from the 2006 Budget Plan and up $494 million from the outlook presented in the First Quarter Ontario Finances. This is mainly due to an in-year increase in the Operating Contingency Fund of $456 million related to the federal trusts and the $519 million in proceeds from the Teranet IPO, offset by interest on debt savings of $225 million.

The reserve, included to protect the fiscal plan against unexpected and adverse changes in the economic and fiscal outlook, is unchanged at $1.0 billion. Any portion of the reserve not required at year-end will be used to reduce the deficit.

The 2006–07 fiscal outlook continues to include funding from the 2005 Canada–Ontario Agreement. Issues surrounding federal transfers are discussed in greater detail in Annex III, Fairness for All Canadians.

2006–07 Expense Outlook

Summary of In-Year Expense Changes Since Budget
($ Millions)

		In-Year Change
Expense Changes This Quarter: 1
Ministry of Finance — Increase to Operating Contingency Fund for the federal trusts		456
Ministry of Natural Resources — Additional forest fire fighting costs		124
Ministry of Health and Long-Term Care 2 — Wait Times Strategy		109
Ministry of Community and Social Services — Ontario Disability Support Program		25
Ministry of Children and Youth Services — Youth Challenge Fund		15
Ministry of Education — TVOntario Strategic Plan implementation		8
Ministry of Public Infrastructure Renewal — Caledonia — Purchase of Douglas Creek Estates		6
Ministry of Finance — Increase to Operating Contingency Fund for additional proceeds from the Teranet IPO		3
Interest on Debt — Savings		(74)
Sub-Total		672
Proposed Investments Related to Teranet IPO Proceeds
Ministry of Transportation — Toronto Transit Vehicle Assistance	150
Ministry of Agriculture, Food and Rural Affairs — Assistance to Farmers	101
Ministry of Agriculture, Food and Rural Affairs — Rural Infrastructure	70
Ministry of Agriculture, Food and Rural Affairs — Rural Development	5
Total Proposed Investments Related to Teranet IPO Proceeds		326
Total Expense Changes, Including Investments Related to Teranet IPO Proceeds		998
Ministry of Finance — Operating Contingency Fund offsets		(498)
Ministry of Public Infrastructure Renewal — Capital Contingency Fund offsets		(6)
Net Expense Changes This Quarter		494
Net Expense Changes Reported in First Quarter Ontario Finances		419
Total Expense Changes Since Budget		913

¹ Second-quarter fiscal forecast as at September 30, 2006.
² Includes amounts allocated to hospitals' net expense for Wait Times Strategy.

The following is a detailed explanation of the in-year changes this quarter.

• The Province proposes that the Operating Contingency Fund under the Ministry of Finance be increased by $456 million in 2006–07 to reflect spending related to the federal trusts, pending satisfactory resolution of issues related to the Canada–Ontario Agreement.
• An in-year increase of $124 million in the Ministry of Natural Resources for additional personnel and equipment resources is required to support forest fire fighting, due to the above-average number of fires this season, fully offset from the Operating Contingency Fund.
• Health sector expense increased by $109 million, reflecting enhancements to the government's Wait Times Strategy, including about $50 million for 127,200 additional key procedures (hip and knee replacements, cataract surgeries, MRI exams and CT scans) and about $59 million to improve supporting programs and services.
• An increase of $25 million in the Ministry of Community and Social Services is a result of the elimination of the four-month limit on retroactive payments for the Ontario Disability Support Program, fully offset from the Operating Contingency Fund.
• An increase of $15 million in the Ministry of Children and Youth Services is supporting the Youth Challenge Fund to provide prevention and early intervention initiatives for youth at risk, fully offset from the Operating Contingency Fund.
• An in-year increase of $8 million in the Ministry of Education is supporting the modernization of TVOntario through its conversion to digital broadcasting, fully offset from the Operating Contingency Fund.
• The Ministry of Public Infrastructure Renewal has paid $22 million to acquire the Douglas Creek Estate Lands. The net impact on the ministry's allocation is an increase of $6 million, fully offset from the Capital Contingency Fund. As part of its broader response and strategy to provide support and assistance to individuals and businesses of Caledonia, the government has provided $25 million this fiscal year, of which $2 million was reported in the First Quarter Ontario Finances for business assistance.
• An increase of $3 million in the Ministry of Finance Operating Contingency Fund resulting from the additional revenue from the Teranet IPO when the Province's designees sold their income fund units and paid the Province.
• Savings of $74 million in Interest on Debt costs for 2006–07 are mainly due to cost-effective debt management and lower-than-forecast long-term interest rates.

The following provides details of the government's investments to date related to the Teranet IPO proceeds in the Operating Contingency Fund.

• A $150 million increase in the Ministry of Transportation is for the contribution to the City of Toronto to help fund the replacement and refurbishment of Toronto Transit Commission (TTC) vehicles, fully offset from the Teranet IPO proceeds in the Operating Contingency Fund. This contribution recognizes the unique funding requirements of the TTC — Canada's largest municipal transit agency.
• There is an increase in the Ministry of Agriculture, Food and Rural Affairs of $96 million in assistance to farmers to match the federal Canadian Agricultural Income Stabilization Inventory Transition Initiative, and $5 million to support horticulture producers through the Self-Directed Risk Management Program, fully offset from the Teranet IPO proceeds in the Operating Contingency Fund.
• An investment of $70 million in the Ministry of Agriculture, Food and Rural Affairs is for rural communities to support projects such as water and wastewater infrastructure, and roads and bridges, fully offset from the Teranet IPO proceeds in the Operating Contingency Fund.
• An increase of $5 million in the Ministry of Agriculture, Food and Rural Affairs is assisting rural communities with economic development projects, fully offset from the Teranet IPO proceeds in the Operating Contingency Fund.