Ontario Finances: 2008-09 First Quarter

Ontario Finances

2008-09 First Quarter

Quarterly Update - JuNe 30, 2008

Ministry of Finance

 

Fiscal Summary     2008–09  
($ Millions) Interim
2007–08
Budget
Plan
Current*
Outlook
In-Year
Change
Revenue 96,563 96,920 96,920
Expense        
Programs 86,997 87,279 87,279
Interest on Debt 8,966 8,891 8,891
Total Expense 95,963 96,170 96,170
Reserve 750 750
Surplus / (Deficit) 600 0 0
* First-quarter fiscal forecast as at June 30, 2008.

2008–09 Fiscal Outlook

In the 2008 Ontario Budget, the government outlined a fiscal plan that projected a $600 million surplus in 200708, and ongoing balanced budgets between 200809 and 201011.

The 200809 first-quarter results indicate that the government remains on track to achieve the balanced budget outlook presented in the 2008 Budget. The revenue outlook at $96,920 million, and the total expense outlook at $96,170 million, are both unchanged from the fiscal outlook presented in the 2008 Budget.

The 200809 current outlook continues to include a $750 million reserve to help protect the fiscal plan against adverse changes in the Provinces revenue and expense, including those resulting from changes in Ontarios economic performance. As well, the government remains prudent and disciplined in its approach to managing the Provinces finances.

The consensus forecast now predicts slower economic growth for Ontario than was predicted in the 2008 Budget. However, it is still too early in the fiscal year to determine how this will affect the Provinces revenue and expense outlook. Therefore, the government will continue to closely monitor risks to the economic and fiscal outlook, working to ensure that fiscal targets are met. The Province will also continue to make investments that support the five-point economic plan for growth and job creation in Ontario.

Final results for 200708 will be presented later in the summer in the Ontario Public Accounts. The 200708 Ontario Public Accounts will confirm whether the $600 million surplus projected in the 2008 Budget has been achieved, and whether the new Investing in Ontario Act, 2008, will be applied.

Updated information on the Provinces medium-term fiscal outlook, including the management of the fiscal plan in the face of slower-than-anticipated economic growth, will be provided in the 2008 Economic Outlook and Fiscal Review later this fall.

Ontario Economic Outlook

Bar chart: Ontario Economic Outlook for 2008

Ontarios growth is expected to be modest in 2008, following an increase of 2.2 per cent in 2007. Ontarios economy continues to be challenged by external factors including weak U.S. demand and the related turbulence in financial markets, rapidly rising oil prices, the ongoing high value of the Canadian dollar, increased competition from newly industrialized economies and restructuring in the auto sector. The outlook for 2008 has deteriorated since the March Budget, largely reflecting the unexpected rise in oil prices and weaker-than-expected U.S. demand for Ontarios exports. As of June 27, private-sector forecasters, on average, project Ontario real GDP growth of 0.6 per cent in 2008, down from 1.2 per cent at the time of the 2008 Budget. The Ministry of Finances assumption for real GDP growth in the 2008 Budget (1.1 per cent) was below the average private-sector forecast at that time.

Private-sector forecasters, on average, expect nominal GDP (measured in current dollars) to increase by 2.7 per cent in 2008, down from 3.0 per cent at the time of the 2008 Ontario Budget.

More information on Ontarios economic performance in 2008 can be found in the First Quarter Ontario Economic Accounts.

Details of In-Year Changes

FISCAL PERFORMANCE

Revenue at $96.9 Billion

The revenue outlook, at $96,920 million, is unchanged from the fiscal outlook presented in the 2008 Budget. Risks to the 200809 revenue outlook include a decline in the private-sector average outlook for real economic growth in calendar-year 2008 and risks to Corporations Tax revenues related to write-offs in the financial sector. The revenue outlook, however, remains prudent with respect to other economic indicators including growth in 2008 wages and salaries, as well as retail sales. As new information becomes available, any changes to the revenue outlook will be provided in future fiscal updates.

Total Expense at $96.2 Billion

Total expense, at $96,170 million, is unchanged from the 2008 Budget forecast. Ministry program expense changes this quarter, and the corresponding offsets, include:

  • Board of Internal Economy: An increase of $22.4 million for the Board of Internal Economy, which manages the operations of the legislature and related offices.
  • Ministry of Children and Youth Services: An increase of $11.6 million in funding to improve child protection by establishing an individual savings account program and a pooled fund for enhanced programming for children and youth in child protection, fully offset from the Operating Contingency Fund.
  • Executive Offices: An increase of $1.1 million for international disaster relief in response to the earthquake in Sichuan, China and the cyclone in Burma, to be distributed by the Canadian Red Cross, and fully offset from the Operating Contingency Fund.
  • Ministry of Government and Consumer Services: An increase of $3.1 million for the transfer of responsibility and funding from the Ministry of Health and Long-Term Care for call-centre services to ServiceOntario in support of the Ministry of Government and Consumer Services mandate as Ontario's customer gateway for government services.
  • Ministry of Health and Long-Term Care: A decrease of $3.1 million for the transfer of responsibility and funding to the Ministry of Government and Consumer Services for call-centre services at ServiceOntario in support of the Ministry of Government and Consumer Services mandate as Ontario's customer gateway for government services.
  • Operating Contingency Fund: A decrease of $35.0 million in the Operating Contingency Fund, allocated to fund ministries operating expense changes.

Interest on debt expense for the year remains unchanged from the 2008 Budget, at $8,891.0 million.

Reserve at $0.8 Billion

The 200809 fiscal outlook includes a $750 million reserve to help protect the fiscal plan against adverse changes in the Provinces revenue and expense, including those resulting from changes in Ontarios economic performance.

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Fiscal Performance

Statement of Financial Transactions 2004–05 2005–06 2006–07 Interim
2007–08
Current*
Outlook
2008–09
($ Millions)
Revenue 77,841 84,225 90,397 96,563 96,920
Expense          
Programs 70,028 74,908 79,297 86,997 87,279
Interest on Debt 9,368 9,019 8,831 8,966 8,891
Total Expense 79,396 83,927 88,128 95,963 96,170
Reserve 750
Surplus / (Deficit) (1,555) 298 2,269 600 0
Net Debt, 140,921 141,928 141,100 142,839 146,232
Accumulated Deficit 125,743 109,155 106,776 106,176 106,176
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.
* First-quarter fiscal forecast as at June 30, 2008.
† 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 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
  2004–05 2005–06 2006–07 Interim
2007–08
Current*
Outlook
2008–09
Gross Domestic Product (GDP) at Market Prices ($ Millions) 517,068 536,431 559,840 584,053 600,406
Ontario Population (000s) – July 1 12,420 12,565 12,705 12,804 12,920
Personal Income ($ Millions) 401,066 419,253 441,371 463,520 477,889
Personal Income per Capita (dollars) 32,291 33,366 34,739 36,202 36,989
Ontario Revenue as a per cent of GDP 15.1 15.7 16.1 16.5 16.1
Ontario Total Expense as a per cent of GDP 15.4 15.6 15.7 16.4 16.0
Ontario Total Program Expense as a per cent of GDP 13.5 14.0 14.2 14.9 14.5
Ontario Interest on Debt as a per cent of Total Expense 11.8 10.7 10.0 9.3 9.2
Ontario Interest on Debt as a per cent of GDP 1.8 1.7 1.6 1.5 1.5
Ontario Surplus / (Deficit) as a per cent of GDP (0.3) 0.1 0.4 0.1 0.0
Net Debt as a per cent of GDP 27.3 26.5 25.2 24.5 24.4
Accumulated Deficit as a per cent of GDP 24.3 20.3 19.1 18.2 17.7
* First-quarter fiscal forecast as at June 30, 2008.
Sources: Ontario Ministry of Finance and Statistics Canada.
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Economic Performance

Ontario Real GDP Down in January-March Quarter

  • Ontario's real GDP edged down 0.3 per cent (1.4 per cent annualized) in the first quarter of 2008.
  • The decline in real GDP was due mainly to a significant run-down in business inventories, lower business investment and continuing weakness in exports.

Job Creation Steady in 2008

  • Ontario employment increased by 11,200 net new jobs in May, following a gain of 12,200 in April. The unemployment rate was 6.4 per cent.
  • Since December, employment has increased by 81,000 net new jobs. In 2007, Ontario employment increased by 101,100 net new jobs for a 1.6 per cent gain.

Retail Sales Up in 2008

  • Over the first four months of 2008, Ontario retail sales are 6.5 per cent higher than during the same period in 2007.

Inflation Increase in May

  • The Ontario annual CPI inflation rate was 1.8 per cent in May (year to year), up from 1.3 per cent in April. Excluding energy prices, which increased 8.9 per cent in May from a year earlier, CPI inflation was 1.1 per cent in May, up from 0.8 per cent in April.

Activity in Housing Market

  • In April, Ontario home resales were down 4.8 per cent from the same month a year ago to 20,174 units, marking the fifth consecutive monthly decline. Over the first four months of 2008, Ontario home resales are down 9.3 per cent from the same period last year to 60,566 units. Average resale prices are up 5.0 per cent so far this year.
  • Ontario housing starts decreased 7.0 per cent in May to 71,200 units, declining for the third consecutive month. On a year-to-date basis, urban-area housing starts are 21.4 per cent higher over the first five months of this year compared to the same period in 2007.

Manufacturing Sales and International Exports in 2008

  • The value of Ontario manufacturing sales increased 1.4 per cent in April to $22.9 billion. Over the first four months of 2008, Ontario manufacturing sales are down 9.0 per cent from the same period last year.
  • In April, the value of Ontario international exports increased 2.0 per cent (Ministry of Finance estimate) while imports rose 7.0 per cent. So far this year, Ontario international exports are down 14.3 per cent from the same period last year while imports are down 7.5 per cent.
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Economic Trends and Performance

Key Economic Indicators
(Per cent change from previous period, unless indicated otherwise)
  Annual
2006
Annual
2007
Quarterly
07:1 07:2 07:3 07:4 08:1
Output (Seasonally Adjusted)              
Real GDP Ontario 2.5 2.2 0.8 0.8 0.2 0.1 (0.3)
Nominal GDP Ontario 4.4 4.3 1.2 1.4 0.2 0.8 0.3
     Annual
2006
Annual
2007
Monthly 2008
Jan Feb Mar Apr May
Other Indicators (Seasonally Adjusted)              
Labour Markets                
Labour Force (Change in 000s)   78.2 116.2 (2.3) 31.5 21.9 6.9 14.3
Employment (Change in 000s)   95.0 101.1 12.9 46.2 (1.8) 12.2 11.2
Unemployment Rate (%)   6.3 6.4 6.3 6.1 6.4 6.3 6.4
Household Sector                
Retail Sales   4.1 3.9 1.8 (1.7) 1.0 0.7 N/A
Housing Starts (000s)*   73.4 68.1 74.2 81.8 80.0 76.6 71.2
MLS Home Resales**   (1.1) 9.5 (5.7) (7.2) (18.1) (4.8) N/A
Manufacturing Shipments   (3.2) (1.1) 1.7 2.1 (3.2) 1.4 N/A
Transportation Equipment   (7.1) (3.0) 3.4 8.8 (7.9) (0.5) N/A
Consumer Price Index**   1.8 1.8 2.1 1.5 0.8 1.3 1.8
* 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)   2008–09
  Interim
2007–08
Budget Plan Current*
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 24,666 25,171 25,171
Retail Sales Tax 16,880 17,206 17,206
Corporations Tax 12,746 12,339 12,339
Employer Health Tax 4,672 4,821 4,821
Ontario Health Premium 2,708 2,809 2,809
Gasoline Tax 2,357 2,380 2,380
Land Transfer Tax 1,422 1,343 1,343
Tobacco Tax 1,121 1,092 1,092
Fuel Tax 726 742 742
Electricity Payments-In-Lieu of Taxes 558 600 600
Other Taxes 466 472 472
  68,322 68,975 68,975
Government of Canada        
Canada Health Transfer (CHT) 8,445 8,826 8,826
Canada Social Transfer (CST) 3,872 4,089 4,089
Social Housing 517 514 514
Wait Times Reduction Fund 468 235 235
Infrastructure Programs 219 234 234
Other Government of Canada 3,343 2,559 2,559
  16,864 16,457 16,457
Income from Investment in Government Business Enterprises  
Ontario Lottery and Gaming Corporation 1,805 1,772 1,772
Liquor Control Board of Ontario 1,366 1,420 1,420
Ontario Power Generation Inc. and Hydro One Inc. 930 930 930
Other Government Enterprises 2
  4,103 4,122 4,122
Other Non-Tax Revenue        
Reimbursements 1,524 1,412 1,412
Vehicle and Driver Registration Fees 1,027 1,044 1,044
Electricity Debt Retirement Charge 995 1,004 1,004
Power Sales 831 856 856
Sales and Rentals 523 701 701
Other Fees and Licences 624 615 615
Liquor Licence Revenue 454 454 454
Net Reduction of Power Purchase Contract Liability 398 373 373
Royalties 211 242 242
Miscellaneous Other Non-Tax Revenue 687 665 665
  7,274 7,366 7,366
Total Revenue 96,563 96,920 96,920
* First-quarter fiscal forecast as at June 30, 2008.
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Total Expense

($ Millions)   2008–09
  Interim
2007–08
Budget Plan Current*
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs** 235.7 55.6 55.6
Agriculture, Food and Rural Affairs** 946.7 1,112.1 1,112.1
Attorney General 1,686.8 1,592.4 1,592.4
Board of Internal Economy 244.9 173.9 196.3 22.4
Children and Youth Services 3,703.3 4,074.3 4,085.9 11.6
Citizenship and Immigration 91.3 88.6 88.6
Community and Social Services 7,617.8 7,727.2 7,727.2
Community Safety and Correctional Services 2,004.7 2,110.4 2,110.4
Culture** 405.4 379.8 379.8
Economic Development and Trade** 457.2 445.3 445.3
Education 462.9 472.5 472.5
School Boards' Net Expense 11,921.5 12,669.7 12,669.7
Energy 301.5 304.4 304.4
Environment 349.3 398.0 398.0
Executive Offices 36.5 35.2 36.3 1.1
Finance 465.7 559.1 559.1
Francophone Affairs, Office of 5.0 5.2 5.2
Government and Consumer Services 958.4 1,102.0 1,105.1 3.1
Health and Long-Term Care 20,353.1 21,621.9 21,618.8 (3.1)
Hospitals' Net Expense 17,382.7 18,436.3 18,436.3
Health Promotion 367.3 389.7 389.7
Labour 159.8 170.2 170.2
Municipal Affairs and Housing** 847.1 795.9 795.9
Natural Resources 803.3 780.5 780.5
Northern Development and Mines 343.6 357.5 357.5
Public Infrastructure Renewal** 619.3 (33.0) (33.0)
Research and Innovation** 396.0 382.8 382.8
Revenue 577.5 610.6 610.6
Small Business and Entrepreneurship 31.7 27.8 27.8
Tourism 242.5 176.1 176.1
Training, Colleges and Universities** 5,105.0 4,825.8 4,825.8
Colleges' Net Expense 1,508.7 1,414.5 1,414.5
Transportation** 3,419.5 1,961.7 1,961.7
Other Expense        
Capital Contingency Fund 175.0 175.0
Interest on Debt 8,966.0 8,891.0 8,891.0
Ontario Municipal Partnership Fund 916.7 934.8 934.8
One-Time and Extraordinary Assistance to Agriculture Sector 283.7
Operating Contingency Fund 50.0 420.0 385.0 (35.0)
Pension and Other Employee Future Benefits 522.0 715.0 715.0
Power Purchases 831.0 856.0 856.0
Teachers' Pension Plan 342.0 54.0 54.0
Year-End Savings (1,100.0) (1,100.0)
Total Expense 95,963.2 96,169.7 96,169.7
* First-quarter fiscal forecast as at June 30, 2008.
** The 2007–08 interim outlook includes one-time funding, as outlined in the Other Expense Table (Table 23) in the 2008 Ontario Budget.
Notes: Numbers may not add due to rounding. Table does not reflect recently announced creation of the Ministry of Energy and Infrastructure.
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200809 INFRASTRUCTURE EXPENDITURES

($ Millions)   2008–09 Current Outlook*
Sector Total Infrastructure Expenditures
2007–08 Interim
Investment in Capital Assets Transfers and Other
Expenditures in
Infrastructure**
Total
Infrastructure
Expenditures
Transportation        
Transit 1,925.3 901.0 349.9 1,250.9
Highways 1,345.7 1,484.3 1,484.3
Other Transportation 832.8 520.5 70.7 591.3
Health        
Hospitals 674.1 1,045.7 2.5 1,048.2
Other Health 241.8 60.8 187.4 248.1
Education        
School Boards 1,000.4 1,018.6 1,018.6
Colleges 181.3 202.0 202.0
Universities 677.0 54.8 54.8
Water/Environment 259.5 16.3 286.9 303.2
Municipal and Local Infrastructure†† 816.8 33.1 273.1 306.2
Justice 215.5 426.2 49.7 475.9
Other 700.8 244.9 295.9 540.8
Total 8,871.1 4,934.7 2,589.5 7,524.2
* First-quarter fiscal forecast as at June 30, 2008.
** 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.
† Other Transportation includes planning activities, property acquisition, and other infrastructure programs (e.g., Municipal/Local Roads, Remote Airports).
†† Municipal and local water and wastewater infrastructure investments are included in the Water/Environment sector.
‡ Total expenditures include $48 million in flow-throughs in Investment in Capital Assets (for provincial highways) and $225 million in flow-throughs in Transfers and Other Expenditures in Infrastructure ($15 million in Transportation, $15 million in Health, $67 million in Water/Environment and $128 million in Municipal and Local Infrastructure).
Note: Numbers may not add due to rounding.
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Ontario’s 2008–09 Financing Program

Province and Ontario Electricity Financial Corporation
($ Millions)
    2008–09
Interim
2007–08
Budget
Plan
Current*
Outlook
In-Year
Change
Deficit / (Surplus) (600) 0 0
Non-Cash Adjustments (338) (888) (888)
Investment in Capital Assets 3,603 4,935 4,935
Net Loans / Investments 2,257 1,320 1,090 (230)
Debt Maturities 13,547 20,492 20,495 3
Debt Redemptions 1,314 1,049 1,049
Total Funding Requirement 19,782 26,907 26,681 (227)
Canada Pension Plan Borrowing (260) (589) (521) 68
Decrease / (Increase) in Short-Term Borrowing (1,363) (2,000) (2,000)
Increase / (Decrease) in Cash and Cash Equivalents (185) 0 159 159
Total Long-Term Public Borrowing Requirement 17,973 24,318 24,318
* First-quarter fiscal forecast as at June 30, 2008.
Note: Numbers may not add due to rounding.

 

Borrowing Program Status (as at June 30, 2008)
($ Billions)
  Completed Remaining Total
Province 6.7 14.0 20.7
Ontario Electricity Financial Corporation 1.2 2.4 3.6
Total 7.9 16.4 24.3
  • Long-Term Public Borrowing completed as at June 30, 2008, totalled $7.9 billion as follows:
 ($ Billions)
Ontario Savings Bonds 0.4
Domestic Issues 4.7
Global/US Dollar/Other Issues 2.8
 7.9
  • The $230 million decrease in Net Loans/Investments is mainly due to a decrease in loans to Ontario Power Generation (OPG) and Ontario Student Loan Trust (OSLT), partially offset by an increase in loans to colleges.
  • $68 million in Canada Pension Plan (CPP) borrowing was used by the Province to repurchase outstanding debt and was, therefore, unavailable for long-term public borrowing.
  • The $3 million increase in Debt Maturities reflects the impact of foreign exchange movements on maturing debt.
  • The increase in Cash and Cash Equivalents is mainly due to a decrease in Net Loans/Investments.

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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