Ontario Finances: 2007-08 Third Quarter

2007-08 Third Quarter

Quarterly Update - December 31, 2007

Ministry of Finance

Fiscal Summary     2007–08  
($ Millions) Actual
2006–07
Budget
Plan
Current*
Outlook
In-Year
Change
Revenue 90,397 91,503 94,370 2,867
Expense        
Programs 79,297 82,030 84,553 2,523
Interest on Debt 8,831 9,123 9,067 (56)
Total Expense 88,128 91,153 93,620 2,467
Reserve 750 750
Surplus / (Deficit) 2,269 (400) 0 400
* Third-quarter fiscal forecast as at December 31, 2007.

 

2007–08 Fiscal Outlook

Bar chart: Ontario's Fiscal Performance, Fiscal Balance ($ billions)

The government is currently projecting a balanced budget for the Province in 2007–08. This represents an in-year improvement of $400 million from the 2007 Ontario Budget Plan and is consistent with the fiscal outlook presented in the 2007 Ontario Economic Outlook and Fiscal Review and the 2007–08 First Quarter Ontario Finances.

The government’s sound leadership and prudent fiscal management have resulted in a steady improvement from the inherited $5.5 billion deficit in 2003–04 to the $2.3 billion surplus recorded in 2006–07. With the third quarter of 2007–08 now complete, and the fiscal plan on track, there is reason for increased confidence that the $750 million reserve included in the 2007 Budget Plan will not be required in 2007–08. If the reserve is not required, the government would be on track to achieve a $750 million surplus, which would be its third consecutive surplus.

In the 2007 Economic Outlook and Fiscal Review, the government announced more than $3 billion in new investments and tax reductions aimed at strengthening Ontario’s economic advantage and helping the manufacturing, forestry, agriculture and tourism sectors weather economic challenges. Although the Ontario economy remains fundamentally strong and is on track to outperform the 2007 Budget forecast, private-sector economists predict that future economic growth prospects have been dampened by external challenges. Therefore, in order to continue to improve public services while delivering balanced budgets, the government must maintain its prudent and disciplined fiscal management in the face of external challenges.

Details of In-year Changes

FISCAL PERFORMANCE

Revenue at $94.4 Billion

The revenue outlook, at $94,370 million, has increased $270 million since the 2007 Economic Outlook and Fiscal Review, for a total of $2,867 million since the 2007 Budget. Changes since the 2007 Economic Outlook and Fiscal Review include:

  • a Corporations Tax forecast increase of $220 million based on stronger 2007 profit growth, and
  • higher Retail Sales Tax revenue of $50 million based on stronger growth in 2007 consumer spending.

The 2007–08 outlook maintains the prudent approach of the 2007 Economic Outlook and Fiscal Review. December tax receipts, largely final 2007 tax remittances from much of the financial sector, suggest potentially higher Corporations Tax revenues in 2007–08. Critical revenue information that could materially affect the forecast will arrive later in the year, notably receipt of final 2007 Corporations Tax instalment payments from the non-financial sector. Given continued risks and uncertainties over the remainder of the fiscal year, the 2007–08 taxation revenue outlook remains prudent.

Total Expense at $93.6 Billion

Total expense, at $93,620 million, has increased by a total of $2,467 million since the 2007 Budget and is $270 million higher than the forecast in the 2007 Economic Outlook and Fiscal Review. Ministry program expense changes this quarter, and the corresponding offsets, include:

  • Ministry of the Attorney General: An increase of $101 million for the Criminal Injuries Compensation Board to make a provision for the projected cost of the backlog of cases currently being reviewed.
  • Ministry of Community and Social Services: While the Ontario Works’ portions of social assistance expense remain as forecast in the 2007 Budget, an overall increase of $155 million is required to support people with disabilities who are in financial need through the Ontario Disability Support Program.
  • Ministry of Research and Innovation: An increase of $5 million to support innovative diagnostic imaging research projects and create additional research space at the new Institute for Diagnostic Imaging Research at the University of Windsor, fully offset from the Capital Contingency Fund.
  • Ministry of Tourism: An increase of $20 million to expand tourism marketing initiatives that will attract new domestic and international visitors to communities and major attractions across the province, fully offset by the Operating Contingency Fund.
  • Ministry of Transportation: An increase of $300 million for municipal transit, which includes $206 million in one-time transit funding for the City of Toronto to improve public transit service, and $94 million to be distributed to other municipalities for municipal transit state-of-good-repair investments, fully offset from the Capital Contingency Fund.
  • Operating Contingency Fund: A net decrease of $6 million in the Operating Contingency Fund mainly due to an increase of $14 million arising from revenue improvements identified since the 2007 Economic Outlook and Fiscal Review, which the government will invest in key priority areas, offset by a decrease of $20 million that was allocated to the Ministry of Tourism.
  • Capital Contingency Fund: A decrease of $305 million in the Capital Contingency Fund, allocated to fund ministries’ changes in expense as outlined.

Interest on debt expense for the year remains unchanged from the 2007 Economic Outlook and Fiscal Review at $9,067 million.

Reserve at $0.8 Billion

The current fiscal outlook maintains a $750 million reserve to protect against unexpected and adverse changes in the Province’s revenue and expense outlook, including those resulting from changes in Ontario’s economic performance. Should this reserve not be required, it is projected that the Province would achieve a surplus of $750 million.

Fiscal Performance

Statement of Financial Transactions
($ Millions)
2003–04 2004–05 2005–06 Actual
2006–07
Current*
Outlook
2007–08
Revenue 68,400 77,841 84,225 90,397 94,370
Expense          
Programs 64,279 70,028 74,908 79,297 84,553
Interest on Debt 9,604 9,368 9,019 8,831 9,067
Total Expense 73,883 79,396 83,927 88,128 93,620
Reserve 750
Surplus / (Deficit) (5,483) (1,555) 298 2,269 0
Net Debt, 138,816 140,921 141,928 141,100 143,079
Accumulated Deficit 124,188 125,743 109,155 106,776 106,776
Note: Starting in 2005–06, the Province's financial reporting was expanded to include hospitals, school boards and colleges using one-line consolidation. Total expense prior to 2005–06 has not been restated to reflect expanded reporting.
* Third-quarter fiscal forecast as at December 31, 2007.
† Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in tangible capital assets and the change in net assets of hospitals, school boards and colleges. Accumulated Deficit is calculated as the difference between liabilities and total assets including tangible capital assets and net assets of hospitals, school boards and colleges. The annual change in the Accumulated Deficit is equal to the surplus/deficit. For fiscal 2005–06, the change in the Accumulated Deficit includes the opening combined net assets of hospitals, school boards and colleges that were recognized upon consolidation of these Broader Public Sector entities. For fiscal 2006–07, the change in the Accumulated Deficit includes an adjustment to the unfunded liability of the Ontario Electricity Financial Corporation made at the beginning of the year.
Net Debt is restated in 2003–04, 2004–05 and 2005–06 to reflect the value of hydro corridor lands transferred to the Province from Hydro One Inc.
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Selected Economic and Fiscal Statistics
  2003–04 2004–05 2005–06 Actual
2006–07
Current*
Outlook
2007–08
Gross Domestic Product (GDP) at Market Prices ($ Millions) 493,081 516,792 536,908 557,784 585,673
Ontario Population (000s) – July 1

12,263 12,420 12,565 12,705 12,804
Ontario Revenue as a per cent of GDP 13.9 15.1 15.7 16.2 16.1
Ontario Revenue Growth (%)

(0.7) 13.8 8.2 7.3 4.4
Ontario Total Expense as a per cent of GDP 15.0 15.4 15.6 15.8 16.0
Ontario Total Expense Growth (%)

7.4 7.5 5.7 5.0 6.2
Ontario Total Program Expense as a per cent of GDP 13.0 13.6 14.0 14.2 14.4
Ontario Total Program Expense Growth (%)

8.8 8.9 7.0 5.9 6.6
Ontario Interest on Debt as a per cent of Revenue 14.0 12.0 10.7 9.8 9.6
Ontario Interest on Debt as a per cent of Total Expense 13.0 11.8 10.7 10.0 9.7
Ontario Interest on Debt as a per cent of GDP

1.9 1.8 1.7 1.6 1.5
Ontario Surplus / (Deficit) as a per cent of GDP

(1.1) (0.3) 0.1 0.4 0.0
Net Debt per capita ($) 11,320 11,346 11,295 11,106 11,175
Net Debt as a per cent of GDP

28.2 27.3 26.4 25.3 24.4
Accumulated Deficit per capita ($) 10,127 10,124 8,687 8,404 8,339
Accumulated Deficit as a per cent of GDP 25.2 24.3 20.3 19.1 18.2
* Third-quarter fiscal forecast as at December 31, 2007.
Sources: Ontario Ministry of Finance and Statistics Canada.
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Economic Performance

Ontario Economic OutlookBar chart: Ontario Economic Outlook for 2007 to 2010 - Real Gross Domestic Product Growth

In the 2007 Economic Outlook and Fiscal Review, the Ministry of Finance projected real gross domestic product (GDP) growth of 1.9 per cent for 2007, 1.8 per cent in 2008, 2.4 per cent in 2009 and 2.8 per cent in 2010. These projections were 0.1 percentage point below the average private-sector forecast at that time. The moderate rate of economic growth in the near term primarily reflects weaker growth in the U.S. economy, as well as the negative impact of the high dollar and high oil prices.

Ontario Real GDP Moderates in July-September Quarter

  • Ontario’s real GDP grew by 0.5 per cent (2.0 per cent annualized) in the third calendar quarter of 2007, following growth of 0.7 per cent in the second quarter.
  • The increase in real GDP reflected a build-up in business inventories and solid gains in household and business spending.

Job Creation Steady in 2007

  • Ontario employment rose by 101,100 jobs (1.6 per cent) in 2007, while the unemployment rate averaged 6.4 per cent. 
  • In the fourth quarter of 2007, Ontario employment advanced by 46,700 jobs, following an increase of 35,300 jobs in the third quarter. The unemployment rate was 6.2 per cent in the fourth quarter.

Retail Sales Up in 2007

  • Over the first 11 months of 2007, Ontario retail sales were up 4.0 per cent compared to the same period in 2006.

Inflation Moderates in November

  • The Ontario Consumer Price Index inflation rate was 1.8 per cent in 2007, identical to the rate in 2006.

Housing Market Activity

  • Ontario home resales reached a level of 15,353 units in November, up 10.3 per cent from the same month in 2006 and the best November on record.  On a year-to-date basis, sales of existing Ontario homes were up 10.2 per cent over the first 11 months of 2007, compared to the same period in 2006.
  • Ontario recorded 68,100 housing starts in 2007, down 7.2 per cent from 2006.

Manufacturing Sales and International Exports in 2007

  • Over the first 11 months of 2007, Ontario manufacturing sales were 0.4 per cent below their value for the same period last year.
  • Over the first 11 months of 2007, the value of Ontario international merchandise exports was up 2.1 per cent, compared to the same period in 2006, while imports, on the same basis, were up 3.7 per cent.
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Economic Trends and Performance

Key Economic Indicators
(Per cent change from previous period, unless indicated otherwise)
    Annual Annual Quarterly
    2006 2007 06:3 06:4 07:1 07:2 07:3
Output (Seasonally Adjusted at Annual Rates)              
Real GDP Ontario 2.1 N/A 0.4 2.8 2.7 2.8 2.0
Nominal GDP Ontario 3.9 N/A 2.1 5.2 6.6 7.7 3.4
    Annual Annual Monthly 2007
    2006 2007 Aug Sep Oct Nov Dec
Other Indicators (Seasonally Adjusted)              
Labour Markets                
Labour Force (Change in 000s)   78 116 (6) 15 24 12 2
Employment (Change in 000s)   95 101 9 30 32 (5) (16)
Unemployment Rate (%)   6.3 6.4 6.4 6.2 6.0 6.2 6.5
Household Sector                
Retail Sales   4.1 N/A 1.9 0.0 (0.3) 1.0 N/A
Housing Starts (000s)*   73.4 68.1 68.8 84.4 67.4 74.9 51.7
MLS Home Resales**   (1.1) N/A 11.2 1.2 12.3 10.3 N/A
Manufacturing Shipments   (3.2) N/A (5.8) 0.1 (0.3) 1.4 N/A
Transportation Equipment   (7.1) N/A (13.8) 9.4 (4.1) 1.3 N/A
Consumer Price Index**   1.8 1.8 1.6 2.3 2.3 2.4 2.1
* Monthly housing starts are expressed at a seasonally adjusted annual rate.
** Per cent change from a year earlier.
N/A = Data not available.
Sources: Statistics Canada, Ontario Ministry of Finance, Canada Mortgage and Housing Corporation and Canadian Real Estate Association.
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ONTARIO FINANCES
Financial Tables

Revenue

($ Millions)   2007–08
  Actual
2006–07
Budget
Plan
Current*
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 23,655 23,285 24,318 1,033
Retail Sales Tax 16,228 16,682 16,761 79
Corporations Tax 10,845 10,605 11,641 1,036
Employer Health Tax 4,371 4,550 4,598 48
Ontario Health Premium 2,589 2,638 2,730 92
Gasoline Tax 2,310 2,401 2,348 (53)
Fuel Tax 723 741 748 7
Tobacco Tax 1,236 1,217 1,139 (78)
Land Transfer Tax 1,197 1,187 1,370 183
Electricity Payments-In-Lieu of Taxes 757 706 664 (42)
Other Taxes 399 307 396 89
  64,310 64,319 66,713 2,394
Government of Canada        
Canada Health Transfer (CHT) 7,702 8,104 8,439 335
Canada Social Transfer (CST) 3,478 3,740 3,869 129
Social Housing 532 528 528
Infrastructure Programs 191 161 161
Wait Times Reduction Fund 467 468 468
Other Government of Canada 1,666 3,105 3,245 140
  14,036 16,106 16,710 604
Income from Investment in Government Business Enterprises  
Ontario Lottery and Gaming Corporation 1,945 1,801 1,786 (15)
Liquor Control Board of Ontario 1,307 1,343 1,343
Ontario Power Generation Inc. and Hydro One Inc. 947 840 756 (84)
Other Government Enterprises (3) 2 2
  4,196 3,986 3,887 (99)
Other Non-Tax Revenue        
Reimbursements 1,415 1,491 1,448 (43)
Electricity Debt Retirement Charge 991 1,013 1,013
Vehicle and Driver Registration Fees 970 1,032 1,032
Power Sales 863 831 831
Other Fees and Licences 624 583 585 2
Liquor Licence Revenue 467 455 455
Net Reduction of Power Purchase Contract Liability 412 398 398
Sales and Rentals 1,108 429 430 1
Royalties 215 217 217
Miscellaneous Other Non-Tax Revenue 790 643 651 8
  7,855 7,092 7,060 (32)
Total Revenue 90,397 91,503 94,370 2,867
* Third-quarter fiscal forecast as at December 31, 2007.
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Total Expense

($ Millions)   2007–08
  Actual
2006–07
Budget
Plan
Current*
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs 25 28 38 10
Agriculture, Food and Rural Affairs 800 876 880 4
Attorney General 1,347 1,387 1,510 123
Board of Internal Economy 163 245 245
Children and Youth Services 3,260 3,574 3,669 95
Citizenship and Immigration 116 86 86
Community and Social Services 7,182 7,341 7,528 187
Community Safety and Correctional Services 1,877 1,927 1,931 4
Culture 410 350 350
Democratic Renewal Secretariat 6 8 8
Economic Development and Trade 199 327 332 5
Education 423 437 451 14
School Boards' Net Expense 11,290 11,989 12,102 113
Energy 229 290 312 22
Environment 314 325 327 2
Executive Offices 19 18 18
Finance 569 464 445 (19)
Ontario Municipal Partnership Fund 758 917 917
Francophone Affairs, Office of 4 4 5 1
Government and Consumer Services 856 818 885 67
Health and Long-Term Care** 19,162 20,168 20,207 39
Hospitals' Net Expense** 16,145 17,384 17,384
Health Promotion 391 373 373
Intergovernmental Affairs 11 9 9
Labour 147 161 161
Municipal Affairs and Housing 843 760 760
Natural Resources 734 726 782 56
Northern Development and Mines 318 356 356
Public Infrastructure Renewal 426 138 444 306
Research and Innovation 316 325 333 8
Revenue 563 578 598 20
Small Business and Entrepreneurship 25 26 26
Tourism 204 195 229 34
Training, Colleges and Universities 4,110 4,402 4,452 50
Colleges' Net Expense 1,273 1,453 1,454 1
Transportation 2,733 1,977 2,356 379
Other Expense        
Capital Contingency Fund 175 810 635
Interest on Debt 8,831 9,123 9,067 (56)
MoveOntario 6
One-Time and Extraordinary Assistance to Agriculture Sector 278 20 359 339
Operating Contingency Fund 580 608 28
Pension and Other Employee Future Benefits 557 533 533
Power Purchases 863 831 831
Teachers' Pension Plan 345 349 349
Year-End Savings (900) (900)
Total Expense 88,128 91,153 93,620 2,467
* Third-quarter fiscal forecast as at December 31, 2007.
** The 2007–08 figures reflect a change in the presentation of expense in the Health Sector to be consistent with the 2006–07 Public Accounts. This change in presentation does not affect total expense.
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2007–08 Infrastructure Expenditures

($ Millions)   2007–08 Current Outlook*
Sector Total
Infrastructure
Expenditures
2006–07 Actual
Investment
in Capital
Assets
Transfers
and Other
Expenditures in
Infrastructure**
Total
Infrastructure
Expenditures
Transportation        
Transit 1,624 598 587 1,185
Highways 1,426 1,549 154 1,703
Other Transportation 76 5 28 33
Health        
Hospitals 375 623 5 628
Other Health 183 50 176 226
Education        
School Boards 1,000 1,016 1,016
Colleges 73 184 184
Universities 52 77 77
Water/Environment 360 32 230 262
Municipal and Local Infrastructure 473 2 549 551
Justice 102 89 47 136
Other 682 287 864 1,151
Total†† 6,426 3,419 3,733 7,152
* Third-quarter fiscal forecast as at December 31, 2007.
** Mainly consists of transfers for capital purposes to municipalities and universities, expenditures for servicing capital-related debt of schools, and expenditures for the repair and rehabilitation of schools. These expenditures are included in the Province's Total Expenses in the Total Expense Table.
† Municipal and local water and wastewater infrastructure investments are included in the Water/Environment sector.
†† Total expenditures include $86 million in flow-throughs in Investment in Capital Assets (for provincial highways) and $160 million in flow-throughs in Transfers and Other Expenditures in Infrastructure ($28 million in Transportation, $45 million in Water/Environment and $87 million in Municipal and Local Infrastructure).
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Ontario’s 2007–08 Financing Program

Consolidated Province and Ontario Electricity Financial Corporation
($ Millions)
  Actual
2006–07
2007–08
Budget
Plan
Current*
Outlook
In-Year
Change
Deficit / (Surplus) (2,269) 400 0 (400)
Non-Cash Adjustments 1,720 (468) (945) (477)
Investment in Capital Assets 2,120 3,334 3,419 85
Net Loans / Investments 1,736 1,173 2,314 1,141
Debt Maturities 13,966 14,413 13,742 (671)
Debt Redemptions 1,041 887 1,314 427
Total Funding Requirement 18,314 19,739 19,844 105
Canada Pension Plan Borrowing (185) (431) (346) 85
Decrease / (Increase) in Short-Term Borrowing 1,370 (550) (1,370) (820)
Increase / (Decrease) in Cash and Cash Equivalents (804) (455) (455)
Total Long-Term Public Borrowing Requirement 18,695 18,758 17,673 (1,085)
* Third-quarter fiscal forecast as at December 31, 2007.
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Borrowing Program Status (as at December 31, 2007)
($ Billions)
  Completed Remaining Total
Province 12.0 3.2 15.2
Ontario Electricity Financial Corporation 2.2 0.3 2.5
Total 14.2 3.5 17.7
Numbers may not add due to rounding.      
  • Long-Term Public Borrowing completed as at December 31, 2007, totalled $14.2 billion as follows:
  ($ Billions)
Ontario Savings Bonds 1.3
Domestic Issues 11.9
Global/US Dollar Issues 1.1
Total 14.2
Numbers may not add due to rounding.
  • As reported in the 2007–08 First Quarter Ontario Finances, the $477 million decline in Non-Cash Adjustments is mainly due to additional cash transfers to the Province from the federal trusts.
  • The $1,141 million increase in Net Loans/Investments is mainly due to an increase in loans to Ontario Power Generation, and, as reported in the 2007 Economic Outlook and Fiscal Review, the transfer of third-party asset-backed commercial paper (ABCP) to a long-term investment portfolio.
  • The $671 million decline in Debt Maturities, of which $166 million occurred prior to September 30, 2007, is mainly a result of the Province extending the maturity of a number of debt issues.
  • The $427 million increase in Debt Redemptions is a result of higher-than-forecast redemptions of Ontario Savings Bonds in June and December. 
  • Short-term borrowing increased by $820 million, primarily to offset the transfer of ABCP to Net Loans/Investments, and to finance increased loans to the Ontario Lottery and Gaming Corporation and the Royal Ontario Museum.

 

For further information contact
Communications and Corporate Affairs Branch
(416) 325-0333
Frost Building North, Queen’s Park
Toronto  M7A 1Z1

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