Ontario Finances: 2010-11 First Quarter

Ontario Finances

2010-11 First Quarter

Quarterly Update - June 30, 2010

Ministry of Finance

 

Fiscal Summary     2010–11  
($ Millions) Interim
2009–10
Budget Current In-Year
Plan Outlook Change
Revenue 96,409 106,867 106,881 14
Expense        
Programs 108,809 115,896 115,896
Interest on Debt1 8,930 9,961 9,961
Total Expense 117,739 125,857 125,857
Reserve 700 700
Surplus / (Deficit) (21,330) (19,690) (19,677) 14
1 Interest on debt is net of interest capitalized during construction of tangible capital assets of $109 million in 2009–10 and $212 million in 2010–11.
Note: Numbers may not add due to rounding.



2010–11 Fiscal Outlook

The 2010 Ontario Budget outlined a plan to eliminate the deficit by 2017–18. The government remains committed to managing spending, eliminating the deficit and securing the Province’s long-term financial sustainability.

First-quarter results indicate the Province is on track to meet the projected $19.7 billion deficit in 2010–11 as outlined in the 2010 Budget. 

The Province’s revenue outlook projects a slight increase from the outlook presented in the 2010 Budget. This is a net result of two revenue items: the first reflecting the Province’s share of tobacco settlement claims; and the second related to the ongoing costs of continuing the retail sales tax exemption for Ontario Status Indians under the Harmonized Sales Tax. The total expense outlook remains unchanged from the 2010 Budget Plan — a reflection of the Province’s commitment to hold the line on program expense growth.

Economic forecasts for Ontario have improved since the 2010 Budget, although concerns remain about the robustness of the global economic recovery and hence the strength of the recovery in Ontario. In order to maintain its prudent approach to fiscal management, the government has maintained the full reserve and remaining contingency funds to help protect against adverse changes to the 2010–11 fiscal outlook.

Final results for 2009–10 will be updated in the Public Accounts later this summer. Further details on the Province’s fiscal plan will be provided in future fiscal updates.


Details of In-Year Changes

FISCAL PERFORMANCE

REVENUE AT $106.9 BILLION

The 2010–11 revenue outlook, at $106,881 million, is $14 million above the 2010 Budget forecast. Changes to the revenue outlook in the first quarter include:

  • An increase of $76 million in Government of Canada transfers representing Ontario's share of civil settlement agreements entered into, on April 13, 2010, by federal, provincial and territorial governments with tobacco manufacturers JTI Macdonald Corp. and R.J. Reynolds Tobacco Company to resolve potential civil claims related to the movement of contraband tobacco in the early 1990s.
  • A decrease of $62 million in Taxation Revenue related to the ongoing costs of continuing the retail sales tax exemption for Ontario Status Indians under the Harmonized Sales Tax.

There are considerable risks around the revenue outlook. The principal risk is the strength of the economic recovery. Recent data and private-sector forecasts suggest upside risks to the 2010 economic growth outlook presented in the 2010 Budget. There are, however, concerns about the robustness of the global economic recovery. The Ministry of Finance will continue to monitor economic and revenue performance and will provide further details in future fiscal updates.

TOTAL EXPENSE AT $125.9 BILLION

The 2010–11 total expense outlook, at $125,857 million, is unchanged from the 2010 Budget forecast. Ministry program expense changes this quarter include:

  • Ministry of Children and Youth Services: A decrease of $0.9 million to support the transfer of child care policy and program responsibilities to the Ministry of Education.
  • Ministry of Education: An increase of $0.9 million to support the transfer of child care policy and program responsibilities from the Ministry of Children and Youth Services.
  • Ministry of Municipal Affairs and Housing: An increase of $1.0 million to provide special assistance to Leamington-area communities for cleanup and reconstruction costs due to June tornado damage.
  • Operating Contingency Fund: A decrease of $1.0 million to offset the increase in operating expense within the Ministry of Municipal Affairs and Housing.

Projected interest on debt expense for the year is unchanged from the 2010 Budget.

RESERVE AT $0.7 BILLION

The current fiscal outlook maintains the $0.7 billion reserve included in the 2010 Budget to protect the fiscal plan against further adverse changes in the Province's revenue and expense, and to help achieve the government's fiscal targets.



Fiscal Performance

Review of Selected Financial and Economic Statistics1
($ Millions)
  2006–07 2007–08 2008–09 Interim
2009–102
Current
Outlook
2010–11
Revenue 96,640 103,579 96,933 96,409 106,881
Expense          
Programs 85,540 94,065 94,776 108,809 115,896
Interest on Debt3 8,831 8,914 8,566 8,930 9,961
Total Expense 94,371 102,979 103,342 117,739 125,857
Reserve 700
Surplus / (Deficit) 2,269 600 (6,409) (21,330) (19,677)
Net Debt4,5 150,618 153,188 165,864 193,226 219,978
Accumulated Deficit6 106,776 105,617 113,238 134,568 154,245
Gross Domestic Product (GDP) at Market Prices 560,825 584,384 585,838 566,531 591,458
Personal Income 442,945 466,229 478,834 476,481 492,205
Ontario Population (000s) – July 1 12,665 12,795 12,936 13,069 13,220
Net Debt per Capita (dollars) 11,892 11,973 12,822 14,785 16,639
Personal Income per Capita (dollars) 34,973 36,439 37,015 36,458 37,231
Total Expense as a per cent of GDP 16.8 17.6 17.6 20.8 21.3
Interest on Debt as a per cent of Revenue 9.1 8.6 8.8 9.3 9.3
Net Debt as a per cent of GDP 26.9 26.2 28.3 34.1 37.2
Accumulated Deficit as a per cent of GDP 19.0 18.1 19.3 23.8 26.1
1 Revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes, as described in the 2010 Ontario Budget.
2 Starting in 2009–10, investments in minor tangible capital assets owned by the Province were capitalized and amortized to expense. All capital assets owned by consolidated organizations are being accounted for in a similar manner.
3 Interest on debt is net of interest capitalized during construction of tangible capital assets of $109 million in 2009–10 and $212 million in 2010–11.
4 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 non-financial assets and, effective April 1, 2007, the change in the fair value of the Ontario Nuclear Funds.
5 Starting in 2009–10, Net Debt includes the net debt of hospitals, school boards and colleges consistent with Public Sector Accounting Board standards. For comparative purposes, Net Debt has been restated from 2006–07 to 2008–09 to conform with this revised presentation.
6 Accumulated Deficit is calculated as the difference between liabilities and total assets. The annual change in the Accumulated Deficit is equal to the surplus/deficit plus the change in the fair value of the Ontario Nuclear Funds. For further information please visit www.fin.gov.on.ca/en/budget/paccts/2009.
Sources: Ontario Ministry of Finance and Statistics Canada.



Ontario Economic Outlook

bar graph: Ontario Real GDP Growth

The economic recovery is well under way in Ontario. The outlook for 2010 has improved since the March Budget reflecting stronger-than-expected growth in consumer spending and exports. As of August 6, 2010, private-sector forecasters, on average, project Ontario real GDP to increase by 3.9 per cent in 2010, up from a 3.0 per cent increase at the time of the 2010 Budget. The Ministry of Finance’s assumption for real GDP growth in the 2010 Budget (a 2.7 per cent increase) was below the average private-sector forecast at that time. However, there are significant risks concerning global growth and, in particular, the sustainability and strength of the U.S. recovery. As a result, private-sector forecasts for Ontario real GDP growth in 2011 have declined from 3.2 per cent at the time of the Budget to 2.8 per cent currently. The Ministry of Finance assumption for real GDP growth for 2011 was the same as the private-sector average at that time.


Economic Performance

ONTARIO REAL GDP

  • In the first calendar quarter of 2010, Ontario GDP grew at an annualized rate of 6.2 per cent, the third consecutive quarterly gain. Real GDP in the first quarter was just 0.9 per cent below its pre-recession level. The first-quarter growth was broadly based with exports and spending by households, businesses, and government all providing support for the increase in real GDP. Ontario businesses increased inventories by $1.1 billion ($2002) in the quarter, contributing more than 40 per cent of the first quarter GDP gain.

LABOUR MARKET

  • In July 2010, employment decreased by 15,000 net jobs, following six consecutive monthly gains. Ontario employment has increased by 205,500 net jobs since May 2009, regaining the majority of the jobs lost during the recession.

  • The unemployment rate rose to 8.5 per cent from 8.3 per cent in June, after averaging 9.0 per cent in 2009.

RETAIL SALES

  • Ontario retail sales edged up 0.1 per cent in May, following a 1.4 per cent drop in April, and have essentially recovered to their pre-recession level. On a year-to-date basis, sales are up 5.7 per cent compared with the first five months in 2009.

INFLATION

  • The Ontario Consumer Price Index (CPI) inflation rate was 1.6 per cent (year-to-year) in June. Gasoline prices were lower for the first time since October 2009, decreasing 3.2 per cent year-to-year.

HOUSING MARKET

  • Ontario home resales decreased 10.3 per cent to 14,485 units in June, down for the third month in a row. Over the first six months of 2010, home resales are up 19.1 per cent from recessionary lows in 2009. The average price of an Ontario resale home was $342,427 in June, up 5.2 per cent from a year earlier.
  • Ontario housing starts dropped 15.7 per cent to 56,200 units in June (seasonally adjusted annual rate), following two consecutive monthly increases. Over the first six months of 2010, urban-area housing starts are up 34.2 per cent, compared to the same period in 2009.

MANUFACTURING SALES AND INTERNATIONAL EXPORTS

  • Ontario manufacturing sales increased 1.5 per cent in May to $20.9 billion, the fifth monthly gain in six months. On a year-to-date basis, manufacturing sales are up 15.0 per cent over the first five months of 2010 compared to the same period in 2009.
  • In May, the value of Ontario international exports (on a customs basis) advanced 9.9 per cent to $12.6 billion while imports increased 5.7 per cent to $19.8 billion1. Over the first five months of 2010, Ontario international exports are up 12.8 per cent while imports are up 11.1 per cent compared to the same period in 2009.

1 Seasonally adjusted by the Ontario Ministry of Finance.


Economic Trends and Performance

Key Economic Indicators
(Per cent change from previous period, unless indicated otherwise)
    Annual Annual Quarterly
    2008 2009 09:1 09:2 09:3 09:4 10:1
Output (Seasonally Adjusted)              
Real GDP Ontario (0.6) (3.0) (1.9) (0.9) 0.4 1.7 1.5
Nominal GDP Ontario 0.2 (3.3) (2.0) (0.4) 0.8 2.5 2.3
    Annual Annual Monthly 2010
    2008 2009 Feb Mar Apr May Jun
Other Indicators (Seasonally Adjusted)              
Labour Markets                
Labour Force (Change in 000s)   111.0 20.6 (1.4) (7.7) 40.7 28.1 20.7
Employment (Change in 000s)   93.5 (161.2) 7.1 10.3 40.5 17.7 60.3
Unemployment Rate (%)   6.5 9.0 9.1 8.8 8.8 8.9 8.3
Household Sector                
Retail Sales   3.9 (2.5) 0.1 3.4 (1.4) 0.1 N/A
Housing Starts (000s)1   75.1 50.4 72.3 62.4 65.4 66.7 56.2
MLS Home Resales2   (15.2) 8.2 4.2 2.3 (6.3) (13.0) (10.3)
Manufacturing Sales                
Transportation Equipment   (21.4) (23.6) 0.1 2.5 0.6 3.5 N/A
Consumer Price Index2   2.3 0.4 1.8 1.4 2.2 1.9 1.6
1 Monthly housing starts are expressed at a seasonally adjusted annual rate.
2 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.



ONTARIO FINANCES

Financial Tables

Revenue

($ Millions)   2010–11
  Interim
2009–10
Budget
Plan
Current
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 24,049 25,942 25,942
Sales Tax1 17,410 19,137 19,075 (62)
Corporations Tax 5,381 7,390 7,390
Education Property Tax2 5,673 5,316 5,316
Employer Health Tax 4,551 4,701 4,701
Ontario Health Premium 2,726 2,871 2,871
Gasoline Tax 2,365 2,366 2,366
Land Transfer Tax 1,022 1,023 1,023
Tobacco Tax 1,080 966 966
Fuel Tax 646 652 652
Beer and Wine Tax (replacing Fees)3 414 414
Electricity Payments-In-Lieu of Taxes 525 481 481
Other Taxes 353 342 342
  65,781 71,601 71,539 (62)
Government of Canada        
Canada Health Transfer 9,737 10,217 10,217
Canada Social Transfer 4,204 4,327 4,327
Equalization 347 972 972
Infrastructure Programs 969 2,146 2,146
Labour Market Programs 1,261 1,207 1,207
Social Housing 492 487 487
Wait Times Reduction Fund 97 97 97
Other Federal Payments 1,458 4,230 4,306 76
  18,565 23,683 23,759 76
Income from Investment in Government Business Enterprises  
Ontario Lottery and Gaming Corporation 1,883 1,859 1,859
Liquor Control Board of Ontario 1,419 1,465 1,465
Ontario Power Generation Inc. and Hydro One Inc. 797 844 844
Other Government Enterprises (1) (4) (4)
  4,098 4,164 4,164
Other Non-Tax Revenue        
Reimbursements 1,375 1,095 1,095
Vehicle and Driver Registration Fees 1,045 1,067 1,067
Electricity Debt Retirement Charge 912 916 916
Power Sales 1,436 1,385 1,385
Sales and Rentals 645 673 673
Other Fees and Licences 710 749 749
Beer and Wine Fees (replaced by Tax)3 458 115 115
Net Reduction of Power Purchase Contract Liability 348 339 339
Royalties 184 195 195
Miscellaneous Other Non-Tax Revenue 852 885 885
  7,965 7,419 7,419
Total Revenue 96,409 106,867 106,881 14
1 Sales Tax in 2010–11 includes Retail Sales Tax and Harmonized Sales Tax. Effective July 1, 2010, the Retail Sales Tax was replaced with a value-added tax and combined with the federal Goods and Services Tax to create a federally administered Harmonized Sales Tax.
2 As described in the 2010 Budget, Education Property Tax revenue, rather than netting against Education expense, is now reported as revenue. These presentation changes are fiscally neutral.
3 Beer and Wine Tax replaces reduced Beer and Wine Fees (–$343 million) and the reduced sales tax on alcohol (–$71 million). There is no net new revenue for the Province.



Total Expense

($ Millions)   2010–11
  Interim
2009–10
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs 69.0 75.5 75.5
Agriculture, Food and Rural Affairs1 1,141.4 1,288.1 1,288.1
Attorney General 1,605.6 1,709.8 1,709.8
Board of Internal Economy 195.0 195.0 195.0
Children and Youth Services 4,455.7 4,667.3 4,666.5 (0.9)
Citizenship and Immigration 104.3 112.4 112.4
Community and Social Services 8,673.3 9,263.2 9,263.2
Community Safety and Correctional Services 2,257.7 2,690.6 2,690.6
Consumer Services 54.4 60.0 60.0
Economic Development and Trade 262.3 349.8 349.8
Education1 20,636.4 21,363.7 21,364.6 0.9
Energy and Infrastructure1 369.5 683.3 683.3
Environment1 362.4 383.0 383.0
Executive Offices 35.6 33.1 33.1
Finance1 555.7 652.0 652.0
Francophone Affairs, Office of 5.1 5.1 5.1
Government Services1 1,230.8 1,102.4 1,102.4
Health and Long-Term Care 43,083.1 45,352.4 45,352.4
Health Promotion1 380.9 408.7 408.7
Labour 183.6 192.2 192.2
Municipal Affairs and Housing1 693.0 686.4 686.4
Natural Resources 624.2 600.1 600.1
Northern Development, Mines and Forestry 637.6 857.3 857.3
Research and Innovation1 343.8 411.5 411.5
Revenue1 1,161.8 1,003.8 1,003.8
Tourism and Culture 684.0 715.1 715.1
Training, Colleges and Universities1 6,663.4 7,147.2 7,147.2
Transportation1 2,110.0 2,294.6 2,294.6
Interest on Debt2 8,930.0 9,961.2 9,961.2
Other Expense1 10,229.3 12,767.0 12,767.0
Year-End Savings3 (1,174.5) (1,174.5)
Total Expense 117,738.8 125,857.3 125,857.3
1 Details on other ministry expense can be found in the Other Expense table.
2 Interest on Debt is net of interest capitalized during construction of tangible capital assets of $109 million in 2009–10 and $212 million in 2010–11.
3 As in past years, the Year-End Savings provision reflects anticipated underspending that has historically arisen at year-end due to factors such as program efficiencies, and changes in project start-ups and implementation plans.
Note: Numbers may not add due to rounding.



Other Expense

($ Millions)     2010–11  
  Interim
2009–10
Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Agriculture, Food and Rural Affairs        
Time-Limited Investments in Infrastructure 842.1 1,898.0 1,898.0
Time-Limited Assistance 28.5 9.0 9.0
Education        
Teachers' Pension Plan1 255.0 525.0 525.0
Energy and Infrastructure        
Capital Contingency Fund 200.0 200.0
Environment        
One-Time Investments 36.5
Finance        
One-Time Automotive Sector Support2 4,000.0
Ontario Municipal Partnership Fund 782.9 645.5 645.5
Operating Contingency Fund 50.0 1,840.4 1,839.4 (1.0)
Pension Benefit Guarantee Fund 500.0
Power Purchases 1,436.0 1,385.0 1,385.0
Government Services        
Pension and Other Employee Future Benefits 917.0 1,102.0 1,102.0
Health Promotion        
Time-Limited Investments in Infrastructure 47.8 345.1 345.1
Municipal Affairs and Housing        
Time-Limited Investments in Municipal Social and Affordable Housing Stock 585.3 659.3 659.3
One-Time Assistance 1.0 1.0
Research and Innovation        
One-Time Investments 5.0
Revenue        
Harmonized Sales Tax Transitional Support 3,200.0 3,200.0
Training, Colleges and Universities        
Time-Limited Investments 553.5 957.7 957.7
Transportation        
One-Time Transit and Infrastructure Investments 189.7
Total Other Expense 10,229.3 12,767.0 12,767.0
1 Numbers reflect PSAB pension expense. Ontario's matching contributions to the plan grow to $1,245 million in 2009–10 and $1,307 million in 2010–11.
2 Reflects the estimated fiscal impact of Ontario's $4.8 billion in support to the automotive industry.
Note: Numbers may not add due to rounding.



2010–11 Infrastructure Expenditures

($ Millions)   2010–11 Current Outlook
Sector Total
Infrastructure
Expenditures
2009–10 Interim
Investment
in Capital
Assets
Transfers
and Other
Infrastructure
Expenditures1
Total
Infrastructure
Expenditures
Transportation        
Transit 1,941 1,381 355 1,735
Highway Expansion / High Occupancy Vehicle Lanes 873 1,018 1,018
Highway and Bridge Rehabilitation 922 1,017 1,017
Other Transportation2 773 1,022 117 1,139
Health        
Hospitals 2,306 2,065 10 2,075
Other Health 299 311 143 454
Education – School Boards 1,731 1,657 1,657
Postsecondary        
Colleges 146 146 146
Universities 83 98 98
Water / Environment 505 41 306 348
Municipal and Local Infrastructure 464 34 493 527
Justice 271 641 29 670
Other 760 697 384 1,082
Short-Term Stimulus Investments 1,627 697 3,679 4,376
Subtotal 12,702 10,728 5,614 16,342
Less: Other Partner Funding3 514 464 464
Total Excluding Partner Funding 12,188 10,264 5,614 15,878
Less: Flow-Throughs4 1,120 487 2,179 2,666
Total Provincial Expenditure5 11,068 9,776 3,435 13,212
1 Mainly consists of transfers for capital purposes to municipalities and universities, and expenditures for capital repairs. These expenditures are included in the Province's total expense.
2 Other Transportation includes planning activities, property acquisition, highway service centres and other infrastructure programs (e.g., municipal/local roads, remote airports).
3 Third-party contributions to capital investment in the consolidated sectors (schools, colleges and hospitals).
4 Mostly federal government transfers for capital investments.
5 Total Provincial Infrastructure Expenditure includes Investment in Capital Assets of $8.5 billion for 2009–10.
Note: Numbers may not add due to rounding.



Ontario’s 2010–11 Financing Program

Province and Ontario Electricity Financial Corporation
($ Millions)
  Interim
2009–10
2010–11
Budget
Plan
Current
Outlook
In-Year
Change
Deficit / (Surplus) 21,330 19,690 19,677 (14)
Investment in Capital Assets 8,515 9,776 9,776
Non-Cash Adjustments (600) (1,700) (1,700)
Net Loans / Investments 1,253 1,900 1,900
Debt Maturities 14,593 15,573 15,579 6
Debt Redemptions 364 367 367
Total Funding Requirement 45,455 45,608 45,600 (8)
Canada Pension Plan Borrowing (1,087) (800) (800)
Decrease / (Increase) in Short-Term Borrowing (6,038) (1,600) (1,600)
Increase / (Decrease) in Cash and Cash Equivalents 5,478 (3,478) (3,470) 8
Total Long-Term Public Borrowing Requirement 43,809 39,730 39,730
Note: Numbers may not add due to rounding.

 

Borrowing Program Status (as at June 30, 2010)
($ Billions)
  Completed Remaining Total
Province 13.9 25.1 39.0
Ontario Electricity Financial Corporation 0.1 0.6 0.7
Total 14.0 25.7 39.7
  • Long-Term Public Borrowing completed as at June 30, 2010, totalled $14.0 billion as follows:
 ($ Billions)
Ontario Savings Bonds 1.1
Domestic Issues 5.2
Global/US Dollar/Other Issues 7.7
  14.0
  • The current long-term borrowing for 2010–11 is estimated at $39.7 billion, which is unchanged from the 2010 Budget forecast.
  • The $6 million increase in Debt Maturities reflects the impact of foreign exchange rate movements on the Province’s debt.
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