2015 Ontario Economic Outlook and Fiscal Review
Chapter II: A Balanced Path to a Balanced Budget

Ontario is committed to balancing the budget by 2017–18 in a fair and responsible way. The government’s path to balance is centred on Program Review, Renewal and Transformation; managing compensation costs; and addressing the underground economy and maintaining tax fairness. To date, the Province’s achievements include negotiating several net-zero compensation agreements and, through combating the underground economy, generating a $225 million revenue increase over what was reported in the 2015 Budget.

Ontario’s Path to Balance

Ontario is committed to balancing the budget by 2017–18 in a fair and responsible way.

In September, the Public Accounts of Ontario 2014–2015 reported that the 2014–15 deficit was $10.3 billion, down $2.2 billion from the 2014 Budget projection of $12.5 billion. This marked the sixth year in a row that Ontario beat its deficit target.

Looking forward, the government is projecting deficits of $7.5 billion in 2015–16 and $4.5 billion in 2016–17, and a return to balance in 2017–18. This reflects an improvement of $1.0 billion in 2015–16 and $0.3 billion in 2016–17 compared with the deficit targets laid out in the 2015 Budget.

The government’s plan to balance the budget is focused on managing growth in spending and delivering the best possible value for every dollar spent. It is centred on:

  • Program Review, Renewal and Transformation;
  • Managing compensation costs; and
  • Addressing the underground economy and maintaining tax fairness.

Average annual growth in revenue between 2014–15 and 2017–18 is projected to be 4.5 per cent, slightly above the growth projected in the 2015 Budget.

While Ontario’s economy continues to grow, external conditions, such as volatility in global financial and commodity markets and slow growth in most advanced economies, pose risks to its outlook. Should slower-than-expected revenue growth occur, the government will need to consider other tools to ensure that balance is achieved.

Average annual growth in program spending between 2014–15 and 2017–18 is forecast to be 0.9 per cent, in line with the 2015 Budget.

Interest on debt expense is currently forecast to be below the 2015 Budget estimate. As a result, total expense is projected to grow at an average annual rate of 1.3 per cent over the 2014–15 to 2017–18 period.

The reserve is unchanged from the 2015 Budget, remaining in place to protect against adverse changes in the Province’s revenue and expense.

The following sections of this chapter outline the government’s measures to achieve a balanced budget by 2017–18.

Transforming Government and Managing Costs

2015 Budget: Building Ontario Up

Program Review, Renewal and Transformation

The government introduced Program Review, Renewal and Transformation (PRRT) in 2014. It is a fundamentally new approach to multi-year planning and budgeting. Led by the President of the Treasury Board, and supported by a sub-committee of Treasury Board/Management Board of Cabinet, PRRT involves a careful review of every government program and service through four lenses:

  • The relevance of the program in realizing government priorities;
  • The program’s effectiveness in achieving desired outcomes;
  • The efficiency in converting resources into results; and
  • The sustainability of the program over the long term.

In the 2015 Budget, the government identified a number of major initiatives that aim to modernize public services, improve outcomes for Ontarians and support the fiscal objectives of the Province, including achieving savings towards the annual program review savings target of $500 million. The Province is also building capacity to better assess how programs are performing and to use evidence to inform decisions, while embedding Open Government principles of transparency and public engagement.

Managing Compensation

The 2015 Budget reiterated the government’s approach to compensation. Negotiated agreements are expected to be fair and reasonable to both employees and the public, and consistent with the fiscal plan. This means that any modest increases are offset by other measures to create a net-zero outcome.

Addressing the Underground Economy and Maintaining Tax Fairness

To combat the underground economy, the government outlined a number of measures, such as:

  • Taking legislative action to address electronic sales suppression and consulting with industry on technology-based approaches to further prevent the use of these illicit devices;
  • Further expanding the government’s tax verification initiatives to the broader public sector and agencies of the Crown;
  • Enhancing compliance activities (e.g., auditing) of provincially and federally administered taxes to address underground economy activities and aggressive corporate tax avoidance in Ontario; and
  • Continuing focused action in select industry sectors to help ensure compliance with provincial laws and to inform consumers and workers about the risks and potential liabilities associated with participation in the underground economy.

First Nation Partnerships

The 2015 Budget also laid out the government’s commitment to continuing a dialogue with First Nation communities and leaders on tobacco and gasoline, including discussions focused on self-regulation of tobacco on-reserve and revenue sharing; reviewing the First Nations Cigarette Allocation System; and seeking First Nations’ advice on modernizing the Ontario Gas Card Program, focusing on improved customer service and better program integrity.

Measures to Address Contraband Tobacco

In the 2015 Budget, the Province committed to continue to closely monitor the new oversight of raw leaf tobacco and identify possible legislative measures to strengthen Ontario’s oversight.

The 2015 Budget also laid out the government’s commitments to:

  • Provide resources to the Ontario Provincial Police (OPP);
  • Ensure better coordination of tobacco retail inspections conducted by public health units and government officials;
  • Propose legislative changes to strengthen tobacco enforcement; and
  • Examine opportunities to regulate other tobacco product components, such as acetate tow, used in the creation of cigarette filters.

Progress since the 2015 Budget

Program Review, Renewal and Transformation

The government has implemented the following changes to refundable tax credits1:

  • Apprenticeship Training Tax Credit (ATTC) — changes to the ATTC are estimated to save the Province $30 million in 2015–16, $70 million in 2016–17 and $95 million in 2017–18;
  • Ontario Interactive Digital Media Tax Credit (OIDMTC) — changes to the OIDMTC are estimated to save the Province $35 million in 2015–16, $55 million in 2016–17 and $55 million in 2017–18;
  • Ontario Production Services Tax Credit (OPSTC) — changes to the OPSTC are estimated to save the Province $25 million in 2016–17 and $25 million in 2017–18; and
  • Ontario Computer Animation and Special Effects (OCASE) Tax Credit — changes to OCASE are estimated to save the Province $8 million in 2016–17 and $8 million in 2017–18.

To ensure patients can continue to access needed medications under a sustainable Ontario Drug Benefit (ODB) program, the government has also made some changes to ODB, which are expected to achieve savings of about $200 million annually, while supporting optimal patient care.

Transforming Government

Since the 2015 Budget, PRRT work has continued. The PRRT sub-committee of Treasury Board/Management Board of Cabinet has been examining major horizontal transformational initiatives and conducting ministry line-by-line reviews, focusing on modernizing services, finding savings and improving outcomes for Ontarians. The sub-committee has been considering transformational measures such as exploring options for postsecondary student financial assistance reform, reviewing business support programs and modernizing the government’s information technology services.

Ontario is also undertaking initiatives to support program transformation, improve access to public services and use technology to drive better value. The shift towards modern, open, evidence-based and digitally delivered public services will support the government’s fiscal objectives and improve outcomes for people. These initiatives include:

  • ServiceOntario Modernization — this initiative will improve value and customer service for Ontarians by bundling additional routine transactions and expanding the use of a single business number to provide one-stop access to government services. A key focus will be on advancing digital service design and delivery to ensure customers are offered the best service experience.
  • Open Government — access to government data is one of the priorities of the Open Government initiative. The new Open Data Directive will require ministries and provincial agencies to publish data unless there are legal, privacy, confidentiality or security reasons not to do so.
  • Centre of Excellence for Evidence-Based Decision Making — the centre’s mandate is to build capacity to assess program performance, using evidence to inform choices and lead change in critical public services.
  • Behavioural Insights Unit — this unit supports the use of a behavioural science lens in policy development and program implementation by building capacity, providing expert advice, and designing and evaluating innovative solutions.

Behavioural Insights Unit

Working with ServiceOntario, the Behavioural Insights Unit (BIU) ran a pilot project to increase the number of online licence-plate sticker renewals. Following a redesign of the renewal forms, an additional 13,000 licence-plate stickers were renewed online during the eight-week pilot.

The BIU has also worked with Trillium Gift of Life Network, ServiceOntario and the Ministry of Health and Long-Term Care to increase organ and tissue donations by piloting a simplified registration form at a large ServiceOntario centre.

Managing Compensation

Since the 2015 Budget, the following agreements have been negotiated:

  • In the electricity sector, the Power Workers’ Union ratified agreements with Ontario Power Generation (OPG) in May and with Hydro One Inc. in July. Both three-year agreements will achieve a net-zero increase in total labour compensation cost over their terms, largely through adjustments to workforce flexibility. The Society of Energy Professionals also ratified a net-zero agreement with Hydro One in September, and has ratified a net-zero agreement with OPG. Each of these agreements includes substantial movement on pension sustainability, aligning with the recommendations contained in the “Report on the Sustainability of Electricity Sector Pension Plans to the Minister of Finance” (submitted by Jim Leech, Special Adviser).
  • The United Steelworkers and the Teamsters — Rail unions ratified agreements with the Ontario Northland Transportation Commission (ONTC) in March and July, respectively. Both agreements are consistent with the net-zero framework, and include offsets within benefit reductions and workforce restructuring savings, along with a number of other changes to support ONTC’s transformation plan.
  • The government and the Ontario Public Service Employees Union (OPSEU) recently reached a three-year, net-zero collective agreement applicable to most of the union’s Ontario Public Service members. Modest wage enhancements were offset through changes to employee benefits and entitlements over the three-year term of the contract, including a freeze on salary progression in 2016 and 2017, and capping of termination payments.
  • Education sector collective bargaining continues under a net-zero compensation framework. Central agreements have been reached with the Ontario Secondary School Teachers’ Federation, representing 46,000 English public secondary school teachers, with the Ontario English Catholic Teachers’ Association, representing 49,000 English Catholic teachers, with the Association des enseignantes et des enseignants franco-ontariens, representing 12,000 teachers at French-language school boards, and with the Elementary Teachers’ Federation of Ontario, representing 85,000 public elementary school teachers. A tentative agreement was recently reached with the Canadian Union of Public Employees, representing 63,000 education workers.

Since July 2012, the average annual negotiated wage increase across Ontario’s provincial public sector has been 0.7 per cent. This is lower than Ontario’s municipal public sector (1.9 per cent), federal public sector in Ontario (1.7 per cent) and private sector in Ontario (1.9 per cent).

Broader Public Sector Executive Compensation

In the spring of 2015, the government proclaimed the Broader Public Sector Executive Compensation Act, 2014. This new law allows the government to directly manage senior executive compensation in the broader public sector.

The government is taking a multi-phased approach to implementing sector-specific executive compensation frameworks. Framework development is underway in a number of sectors, with compensation information being sought from colleges, universities and several provincial agencies.

Creating compensation frameworks is a complex undertaking that must balance sector-specific considerations with the need to prudently manage public funds.

The Province will continue with a phased approach until all sectors are complete.

Addressing the Underground Economy and Maintaining Tax Fairness

The government has made significant progress on several fronts:

  • Through initiatives that include a suite of ongoing enhanced compliance-focused measures, the government has generated over $825 million for Ontario since 2013–14 — a $225 million increase over what was reported in the 2015 Budget.
  • The Province has made the use, manufacture and distribution of electronic sales suppression devices an offence under the Taxation Act, 2007. The amendments introduced fines and, in the most egregious cases, imprisonment for those who do not play by the rules.
  • Consultations have also begun with industry to initiate a dialogue on preventing the illicit use of electronic sales suppression devices, without being unnecessarily burdensome. To support this effort, the government published a discussion paper in early November to guide dialogue and generate feedback.
  • The government continues to ensure that those businesses that are awarded a government contract are tax-compliant before work begins. Recently, this process was enhanced to include additional federally administered taxes. To date, the government has verified compliance with tax obligations for over 1,500 contracts. The Province remains committed to expanding this process to the broader public sector and provincial agencies.

Ontario’s focus on select high-risk industry sectors continues:

  • In the auto body repair sector, over 100 auto body repair facilities in Ontario have been inspected to date to address underground economy activity and assess compliance with provincial legislation. As part of this initiative, all businesses were provided with educational materials to help them comply with their legal obligations, and inspection activities continue.
  • In the residential roofing sector, 576 field inspections were conducted across the province during regular and after-hours inspections. Over the course of this initiative, nearly 1,600 orders for compliance were issued, and over 180 prosecutions have been initiated. Inspectors also handed out over 430 information packages to homeowners that detail the hazards of supporting the underground economy, as well as tips on how to avoid participation when undertaking construction projects.

Parliamentary Assistant Laura Albanese will also consult with the construction sector in the coming months on measures the Province could take to level the playing field and enhance the competitiveness of legitimate contractors. Establishing partnerships with the residential construction industry is key to addressing the underground economy because, according to Statistics Canada, the industry accounts for the largest segment of illicit activity.

First Nation Partnerships

Ontario continues to support two First Nation tobacco pilot projects with the Mohawk Council of Akwesasne and the Chippewas of the Thames First Nation. Discussions with these two communities remain focused on exploring self-regulation of tobacco on-reserve, with the goal of reaching mutually beneficial agreements for self-regulation of tobacco on-reserve and revenue sharing. In addition, the government continues to welcome similar dialogue with other First Nation communities on tobacco.

Two expert co-facilitators were retained to lead the formal review of the First Nations Cigarette Allocation System. They have actively engaged with First Nation communities, the tobacco industry and public health experts, and will provide the government with a final report by the end of 2015, outlining options for modernizing the allocation system or alternative approaches that can be explored.

The government plans to seek First Nations’ advice and guidance on modernizing the Ontario Gas Card Program, beginning in the winter of 2016.

Measures to Address Contraband Tobacco

The Province has been working closely with tobacco growers and the industry to support its oversight of raw leaf tobacco, resulting in over 300 registrants. This represents an 18 per cent increase in the number of registrants compared to the previous oversight administration, which licensed only producers and dealers.

In June, the government enacted legislative amendments announced in the 2015 Budget that strengthen enforcement of the Tobacco Tax Act. These amendments include providing tobacco investigation staff with peace officer status, enacting fines and penalties for interfering with inspections, and enhancing information-sharing.

To further enhance its raw leaf tobacco oversight regime, the Province is proposing amendments to the Tobacco Tax Act and regulations to:

  • Require tracking labels to be affixed to bales and boxes of raw leaf tobacco. This requirement will be in effect for the 2016 growing season;
  • Include fines and penalties related to non-compliance with raw leaf tobacco tracking provisions, and increase fines and penalties to address non-compliance with raw leaf tobacco registration requirements; and
  • Strengthen raw leaf tobacco record-keeping, information-sharing and reporting requirements.

Going Forward

The Province is continuing to build on its commitments by:

  • Working with the OPP to finalize the establishment of a dedicated contraband tobacco enforcement team that will focus on addressing the link between contraband tobacco and organized crime.
  • Moving ahead to better coordinate the effectiveness of tobacco retail inspections. In the coming months, Ontario will partner with specific public health units to undertake several pilot projects where tobacco inspection officers will be cross-designated under both the Tobacco Tax Act and Smoke-Free Ontario Act. This will allow tobacco inspection officials to more effectively identify and seize illegal tobacco products if found in retail locations across the province.
  • Exploring the possibility of regulating additional tobacco product components, such as acetate tow, a key component of cigarette filters. Reducing the availability of these key components would help restrict the supply of contraband tobacco in Ontario. The government is engaging with key partners and stakeholders on this issue.

[1] For a description of the tax changes, please refer to the 2015 Budget.

Chart 2.1: Ontario’s Plan to Eliminate the Deficit

This bar chart shows Ontario’s actual deficits versus deficit targets from 2009–10 through 2014–15. It also shows current projected deficit targets outlined in the 2015 Ontario Economic Outlook and Fiscal Review versus the 2015 Budget projected deficit targets for 2015–16 to 2017–18.

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 deficits were $14.0 billion in 2010–11, $13.0 billion in 2011–12, $9.2 billion in 2012–13 and $10.5 billion in 2013–14. In the 2014 Budget, Ontario projected a $12.5 billion deficit for 2014–15. The actual result for 2014–15 was a deficit of $10.3 billion.

The 2015 Budget projected deficits of $8.5 billion for 2015–16 and $4.8 billion for 2016–17, and a balanced budget in 2017–18. Ontario is now projecting revised deficits of $7.5 billion in 2015–16 and $4.5 billion in 2016–17. The projection of a balanced budget in 2017–18 remains unchanged.

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Chart 2.2: Bargained Average Wage Increases, April 2010 to September 2015

This line chart shows average bargained wage increases for the provincial public sector, the municipal public sector, the federal public sector in Ontario, and the private sector in two periods, from April 2010 to July 2012, and from July 2012 to September 2015. The provincial public sector average wage increase decreases sharply from 1.6 per cent to 0.6 per cent during the April 2010 to July 2012 period, and increases slightly from 0.6 per cent to 0.7 per cent during the July 2012 to September 2015 period. The other three sectors remain steady between 1.7 per cent and 2.0 per cent.

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