Ontario Finances: 2011-12 First Quarter

Ontario Finances

2011–12 FIRST QUARTER

QUARTERLY UPDATE – JUNE 30, 2011

Ministry of Finance


Fiscal Summary     2011–12  
($ Millions) Interim
2010–11
Budget
Plan
Current
Outlook
In-Year
Change
Revenue 106,185 108,453 108,789 336
Expense        
Programs 113,344 113,778 113,792 14
Interest on Debt1 9,527 10,290 10,290
Total Expense 122,871 124,068 124,082 14
Reserve 700 700
Surplus / (Deficit) (16,686) (16,316) (15,994) 322
1 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $195 million in 2010–11 and $268 million in 2011–12.
Note: Numbers may not add due to rounding.


2011–12 FISCAL OUTLOOK

In the 2011 Ontario Budget, the government projected a $16.3 billion deficit for 2011–12. The first-quarter results indicate the Province is now on track for a deficit of $16.0 billion, an improvement of $0.3 billion.

The Province’s revenue outlook projects a slight increase from the outlook presented in the 2011 Budget, largely reflecting a loan repayment from the Chrysler Corporation. Other revenue changes include the impact of 2011 federal budget tax measures, a restatement of Ontario’s Equalization entitlement by the federal government, lower Ontario Power Generation Inc. revenue as a result of an Ontario Energy Board rate decision, and fiscally neutral revenue impacts associated with expense approvals. 

Economic forecasts for Ontario have not materially changed since the 2011 Ontario Budget, with private-sector economists continuing to expect sustained growth. Significant risks to the global economic outlook remain.

The government remains committed to prudently managing Ontario’s finances. To this end, the 2011–12 outlook maintains the full reserve and the remaining contingency funds to protect against any adverse changes to the fiscal outlook.

Final results for 2010–11 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 $108.8 BILLION

The 2011–12 revenue outlook, at $108,789 million, is $335.9 million above that presented in the 2011 Budget forecast. Risks around the revenue outlook are largely related to factors such as the continuing European sovereign debt crisis, which could hamper the global economic recovery. The government will continue to monitor economic and revenue performance and will provide further details in future fiscal updates. Changes to the revenue outlook in the first quarter include:

  • An increase of about $471 million in Other Non-Tax Revenue reflecting a $468 million gain on Chrysler Corporation’s payment of its Ontario loan – six years ahead of schedule; and a $2.7 million increase representing funding from the Victims’ Justice Fund to offset spending for the new Financial Assistance for Families of Homicide Victims program.
  • A net increase of $43 million in Taxation Revenue reflecting increases in Personal Income Tax revenue of $27 million, and Corporations Tax revenue of $30 million due to 2011 federal budget measures largely related to closing tax loopholes and reducing tax avoidance; and a projected decrease of $14 million in Electricity Payments-In-Lieu of Taxes reflecting the estimated impact of the Ontario Energy Board’s (OEB) March 10, 2011, decision with respect to Ontario Power Generation Inc.’s (OPG) rate application for 2011 and 2012. The effect of the OEB decision is adjusted for the portions of the decision for which OPG has initiated a review or appeal process.
  • A net decrease of about $139 million in Government of Canada transfers due to a $150 million downward revision to Ontario’s Equalization entitlement for 2011–12 as a result of a federal government calculation error, and $11.2 million in additional federal funding for approved projects under the Ontario Small Town and Rural Development Infrastructure Initiative (OSTAR).
  • A projected decrease of $39 million in Net Income from Government Business Enterprises reflecting the estimated impact of the OEB decision discussed above on OPG’s net income.

TOTAL EXPENSE AT $124.1 BILLION

The 2011–12 total expense outlook, at $124,082 million, is $13.9 million higher than forecast in the 2011 Budget. Ministry program expense changes for this quarter include:

  • Ministry of Aboriginal Affairs: An increase of $3.0 million for the Métis Voyageur Development Fund to support Métis economic development in Ontario, offset from the Operating Contingency Fund.
  • Ministry of Agriculture, Food and Rural Affairs: An increase of $11.2 million, fully offset by federal revenue, for approved projects under the Ontario Small Town and Rural Development Infrastructure Initiative (OSTAR).
  • Ministry of the Attorney General: An increase of $2.7 million for the new Financial Assistance for Families of Homicide Victims program, to compensate eligible parents and spouses of victims of homicides that occurred in Ontario in 2006 and after, fully offset by revenue from the Victims’ Justice Fund.
  • Ministry of Children and Youth Services: An increase of $8.2 million as a result of a transfer of funding from the Ministry of Education for mental health workers as part of Open Minds, Healthy Minds – Ontario's Comprehensive Mental Health and Addictions Strategy.
  • Ministry of Education: A decrease of $8.2 million as a result of a transfer of funding to the Ministry of Children and Youth Services for mental health workers as part of Open Minds, Healthy Minds – Ontario's Comprehensive Mental Health and Addictions Strategy.
  • Ministry of Northern Development, Mines and Forestry: An increase of $13.9 million to support infrastructure improvements in four northern Ontario municipalities, offset from the Operating and Capital Contingency Funds.
  • Operating Contingency Fund: A decrease of $8.9 million to offset the increase in operating expense within the Ministry of Aboriginal Affairs and the Ministry of Northern Development, Mines and Forestry.
  • Capital Contingency Fund: A decrease of $8.0 million to offset the increase in capital expense within the Ministry of Northern Development, Mines and Forestry.

Projected interest on debt expense for 2011–12 is unchanged from the 2011 Budget.

Reserve at $0.7 Billion

The current fiscal outlook maintains the $0.7 billion reserve included in the 2011 Budget to protect the fiscal plan against 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)
 
  2007–08 2008–09 2009–102 Interim
2010–11
Current
Outlook
2011–12
Revenue 103,579 96,933 95,793 106,185 108,789
Expense          
Programs 94,065 94,776 106,336 113,344 113,792
Interest on Debt3 8,914 8,566 8,719 9,527 10,290
Total Expense 102,979 103,342 115,055 122,871 124,082
Reserve 700
Surplus / (Deficit) 600 (6,409) (19,262) (16,686) (15,994)
Net Debt4 156,616 169,585 193,589 217,347 241,150
Accumulated Deficit 105,617 113,238 130,957 147,643 163,637
Gross Domestic Product (GDP) at Market Prices 583,946 587,065 580,313 613,767 642,000
Personal Income 466,051 479,902 480,361 501,597 522,664
Ontario Population (000s) – July 1 12,793 12,932 13,065 13,211 13,371
Net Debt per Capita (dollars) 12,242 13,113 14,817 16,452 18,036
Personal Income per Capita (dollars) 36,430 37,109 36,767 37,969 39,091
Interest on Debt as a per cent of Revenue 8.6 8.8 9.1 9.0 9.5
Net Debt as a per cent of GDP 26.8 28.9 33.4 35.4 37.6
Accumulated Deficit as a per cent of GDP 18.1 19.3 22.6 24.1 25.5
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.
3Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $148 million in 2009–10, $195 million in 2010–11 and $268 million in 2011–12.
4 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 2007–08 to 2008–09 to conform with this revised presentation.
Sources: Ontario Ministry of Finance and Statistics Canada.


Ontario Economic Outlook

bar graph: Ontario Real Growth

The Ontario economy has turned the corner following the global recession and is well-positioned for a period of sustained growth. Private-sector economists are continuing to forecast modest Ontario economic growth. As of August 4, 2011, private-sector forecasters, on average, project Ontario real GDP will increase by 2.7 per cent in 2011, up slightly from a 2.6 per cent increase expected at the time of the 2011 Budget. Private-sector forecasts for Ontario real GDP growth in 2012 have eased slightly, now averaging 2.5 per cent, down from 2.8 per cent at the time of the Budget. There are significant risks to the economic growth outlook, including the uncertain U.S. economic recovery and the sovereign debt crisis in Europe.



Economic Performance

ONTARIO REAL GDP

  • In the first calendar quarter of 2011, Ontario real GDP grew at an annualized rate of 3.2 per cent, the seventh consecutive quarterly gain. Real GDP in the first quarter surpassed the pre-recession level set in the second quarter of 2008 by 0.3 per cent. First-quarter growth was led by higher business investment spending and inventory accumulation.

LABOUR MARKET

  • In July 2011, employment declined by 22,400 net jobs, following a 40,300 increase in June. As of July, Ontario employment was 38,800 (+0.6 per cent) jobs above the pre-recession peak reached in September 2008.

  • The unemployment rate was 7.5 per cent in July, its lowest level since December 2008.

RETAIL SALES

  • Ontario retail sales increased 0.5 per cent in May, following a 0.5 per cent increase in April. On a year-to-date basis, Ontario retail sales were up 3.5 per cent compared with the first five months of 2010.

INFLATION

  • The Ontario Consumer Price Index (CPI) was up 3.6 per cent in June from a year earlier. Much of the year-over-year increase in the CPI was due to higher gasoline prices (+34.4 per cent).

HOUSING MARKET

  • Ontario home resales were fairly steady over the first half of 2011. As of June 2011, resales totalled 106,102 units for the year. This is comparable to the long-term average of 99,838 resales for the January-to-June period. The average price of an Ontario resale home increased to $376,712 in June, up 10.0 per cent from a year earlier.
  • Ontario housing starts rose by 11.9 per cent in the second calendar quarter to a seasonally adjusted annualized rate of 71,300.

MANUFACTURING SALES AND INTERNATIONAL EXPORTS

  • The value of Ontario manufacturing sales increased 0.4 per cent in May, after a 1.8 per cent decline in April. Solid gains in primary metal products (+4.9 per cent) and computer and electronics (+4.3 per cent) were drivers behind May sales growth. Sales by vehicle (-1.8 per cent) and auto parts (-1.5 per cent) manufacturers declined in May.
  • In May, the value of Ontario international goods exports (on a customs basis) increased 5.6 per cent to $12.8 billion while imports rose 1.9 per cent to $21.2 billion.1 On a year-to-date basis, Ontario’s international merchandise exports increased by 7.1 per cent compared with the first five months of 2010, while imports rose by 9.3 per cent for the same period.

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
2009
Annual
2010
Quarterly
  10:1 10:2 10:3 10:4 11:1
Output (Seasonally Adjusted)              
Real GDP Ontario (3.8) 3.0 1.2 0.6 0.5 0.9 0.8
Nominal GDP Ontario (1.2) 5.8 1.9 0.6 0.8 2.0 1.3
    Annual
2009
Annual
2010
Monthly 2011
    Mar Apr May June July
Other Indicators (Seasonally Adjusted)              
Labour Markets                
Labour Force (Change in 000s)   14.7 89.3 12.6 45.9 (22.8) 30.2 (36.2)
Employment (Change in 000s)   (164.3) 108.0 5.6 54.8 (16.1) 40.3 (22.4)
Unemployment Rate (%)   9.0 8.7 8.1 7.9 7.9 7.7 7.5
Household Sector                
Retail Sales   (2.5) 5.4 (1.0) 0.5 0.5 N/A N/A
Housing Starts (000s)1   50.4 60.4 74.7 79.2 58.9 75.8 N/A
MLS Home Resales   8.2 (0.1) 0.5 (3.2) 1.6 2.4 N/A
Manufacturing Sales                
Transportation Equipment   (24.0) 22.5 2.3 (6.8) (0.5) N/A N/A
Consumer Price Index2   0.4 2.5 3.6 3.6 4.0 3.6 N/A
1 Monthly housing starts are expressed at a seasonally adjusted annual rate.
2 Per cent change from a year earlier, data not seasonally adjusted.
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)   2011–12
  Interim
2010–11
Budget
Plan
Current
Outlook
In-Year
Change
Taxation Revenue        
Personal Income Tax 23,761 25,500 25,527 27
Sales Tax 19,047 20,134 20,134
Corporations Tax 8,250 8,874 8,904 30
Education Property Tax1 5,757 5,727 5,727
Employer Health Tax 4,784 4,991 4,991
Ontario Health Premium 2,967 3,074 3,074
Gasoline Tax 2,387 2,392 2,392
Land Transfer Tax 1,249 1,249 1,249
Tobacco Tax 1,158 1,142 1,142
Fuel Tax 711 721 721
Beer and Wine Tax (replacing Fees)2 398 538 538
Electricity Payments-In-Lieu of Taxes 295 532 518 (14)
Other Taxes 500 396 396
  71,264 75,270 75,312 43
Government of Canada        
Canada Health Transfer 10,186 10,713 10,713
Canada Social Transfer 4,330 4,460 4,460
Equalization 972 2,350 2,200 (150)
Infrastructure Programs 1,708 538 550 11
Labour Market Programs 1,214 891 891
Social Housing 487 482 482
Wait Times Reduction Fund 97 97 97
Other Federal Payments 4,004 2,200 2,200
  22,998 21,731 21,593 (139)
Government Business Enterprises        
Ontario Lottery and Gaming Corporation 1,925 1,738 1,738
Liquor Control Board of Ontario 1,544 1,641 1,641
Ontario Power Generation Inc. and Hydro One Inc. 926 1,131 1,092 (39)
Other Government Enterprises 2 3 3
  4,397 4,513 4,474 (39)
Other Non-Tax Revenue        
Reimbursements 1,045 791 791
Vehicle and Driver Registration Fees 1,069 1,084 1,084
Electricity Debt Retirement Charge 934 931 931
Power Supply Contract Recoveries 1,281 1,351 1,351
Sales and Rentals 780 823 823
Other Fees and Licences 749 768 768
Beer and Wine Fees (replaced by Tax)2 172
Net Reduction of Power Purchase Contract Liability 339 317 317
Royalties 190 218 218
Miscellaneous Other Non-Tax Revenue 967 656 1,127 471
  7,526 6,939 7,409 471
Total Revenue 106,185 108,453 108,789 336
1 Education Property Tax revenue includes the property tax credit component of the Ontario Energy and Property Tax Credit.
2 Beer and Wine Tax replaces reduced Beer and Wine Fees and the reduced sales tax on alcohol. There is no net new revenue for the Province.
Note: Numbers may not add due to rounding.


Total Expense

($ Millions)  Interim
2010–11
2011–12
  Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Aboriginal Affairs 81.1 78.4 81.4 3.0
Agriculture, Food and Rural Affairs1 919.1 1,235.5 1,246.7 11.2
Attorney General 1,756.0 1,905.2 1,907.9 2.7
Board of Internal Economy 193.9 293.9 293.9
Children and Youth Services 3,866.9 3,931.5 3,939.7 8.2
Citizenship and Immigration 107.6 102.0 102.0
Community and Social Services 9,234.5 9,769.5 9,769.5
Community Safety and Correctional Services 2,654.0 2,756.1 2,756.1
Consumer Services 19.4 20.4 20.4
Economic Development and Trade 269.1 353.1 353.1
Education1 22,208.6 23,220.3 23,212.1 (8.2)
Energy1 584.5 331.7 331.7
Environment 396.5 382.6 382.6
Executive Offices 32.5 31.4 31.4
Finance1 534.9 552.0 552.0
Francophone Affairs, Office of 5.5 5.5 5.5
Government Services1 1,083.2 1,083.8 1,083.8
Health and Long-Term Care 44,949.5 47,139.6 47,139.6
Health Promotion and Sport1 394.1 398.4 398.4
Infrastructure1,2 (155.4) (96.7) (96.7)
Labour 190.3 190.8 190.8
Municipal Affairs and Housing1 669.8 602.8 602.8
Natural Resources 646.6 603.2 603.2
Northern Development, Mines and Forestry 811.8 832.4 846.3 13.9
Research and Innovation 365.5 369.5 369.5
Revenue1 953.1 894.4 894.4
Tourism and Culture1 732.8 808.8 808.8
Training, Colleges and Universities1 6,826.6 6,989.4 6,989.4
Transportation 2,240.4 2,340.3 2,340.3
Interest on Debt3 9,527.0 10,289.8 10,289.8
Other Expense1 10,771.6 7,727.8 7,710.9 (16.9)
Year-End Savings4 (1,075.0) (1,075.0)
Total Expense 122,871.2 124,068.2 124,082.1 13.9
1 Details on other ministry expense can be found in the Other Expense table.
2 Credit expense amounts are a result of adjustments between the Ministry of Infrastructure and other ministries to reflect consolidated net spending on realty assets for the year.
3 Interest on debt expense is net of interest capitalized during construction of tangible capital assets of $195 million in 2010–11 and $268 million in 2011–12.
4 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)  Interim
2010–11
2011–12 
  Budget
Plan
Current
Outlook
In-Year
Change
Ministry Expense        
Agriculture, Food and Rural Affairs        
Time-Limited Investments in Infrastructure 1,501.2 293.4 293.4
Time-Limited Assistance 9.0
Education        
Teachers' Pension Plan1 521.8 526.0 526.0
Energy        
Ontario Clean Energy Benefit 300.0 1,135.0 1,135.0
Finance        
Ontario Municipal Partnership Fund 683.5 623.7 623.7
Operating Contingency Fund 250.0 600.0 591.1 (8.9)
Power Supply Contract Costs 1,281.0 1,351.0 1,351.0
Government Services        
Pension and Other Employee Future Benefits 1,199.0 1,341.0 1,341.0
Health Promotion and Sport        
Time-Limited Investments in Infrastructure 288.4 44.2 44.2
Time-Limited Investments to Support Pan / Parapan Am Games 15.6 28.3 28.3
Infrastructure        
Capital Contingency Fund 100.0 92.0 (8.0)
Municipal Affairs and Housing        
Time-Limited Investments in Municipal Social and Affordable Housing Stock 660.7 95.1 95.1
One-Time Assistance 22.6
Revenue        
Harmonized Sales Tax Transitional Support 3,200.0 1,440.6 1,440.6
Tourism and Culture        
One-Time Investments 23.1 3.1 3.1
Training, Colleges and Universities        
Time-Limited Investments 815.7 146.3 146.3
Total Other Expense 10,771.6 7,727.8 7,710.9 (16.9)
1 Numbers reflect PSAB pension expense. Ontario's matching contributions to the plan grow to $1,316 million in 2010–11 and $1,381 million in 2011–12.
Note: Numbers may not add due to rounding.


2011–12 Infrastructure Expenditures

($ Millions)  Total
Infrastructure
Expenditures
2010–11 Interim
2011–12 Current Outlook
Sector Investment
in Capital
Assets1
Transfers
and Other
Infrastructure
Expenditures2
Total
Infrastructure
Expenditures
Transportation        
Transit 1,747 2,093 391 2,483
Provincial Highways 1,985 2,118 2,118
Other Transportation3 800 708 84 792
Health        
Hospitals 2,726 2,573 10 2,583
Other Health 183 118 171 289
Education – School Boards 1,822 2,092 30 2,121
Postsecondary        
Colleges 105 168 168
Universities 105 107 107
Water / Environment 235 39 249 288
Municipal and Local Infrastructure 431 134 202 336
Justice 625 851 52 903
Other 493 705 60 765
Short-Term Stimulus Investments 3,613 42 451 493
Subtotal 14,869 11,639 1,808 13,447
Less: Other Partner Funding4 723 674 674
Total Excluding Partner Funding 14,146 10,965 1,808 12,773
Less: Flow-Throughs5 2,088 96 614 710
Total Provincial Expenditure6 12,058 10,870 1,193 12,063
1 Investment in Capital Assets includes interest capitalized during construction of tangible capital assets of $268 million.
2 Mainly consists of transfers for capital purposes to municipalities and universities, and expenditures for capital repairs.
3 Other Transportation includes planning activities, property acquisition, highway service centres and other infrastructure programs (e.g., municipal / local roads, remote airports).
4 Third-party contributions to capital investment in the consolidated sectors (schools, colleges and hospitals).
5 Mostly federal government transfers for capital investments.
6 Total Provincial Infrastructure Expenditure includes Investment in Capital Assets of $9.5 billion for 2010–11.
Note: Numbers may not add due to rounding.


Ontario’s 2011–12 Financing Program

Province and Ontario Electricity Financial Corporation
($ Millions)
  Interim
2010–11
2011–12
Budget
Plan
Current
Outlook
In-Year
Change
Deficit / (Surplus) 16,686 16,316 15,994 (322)
Investment in Capital Assets 9,528 10,870 10,870
Non-Cash Adjustments (5,640) (3,603) (3,603)
Net Loans / Investments 1,888 2,678 2,541 (137)
Debt Maturities 15,579 13,909 13,909
Debt Redemptions 562 500 500
Total Funding Requirement 38,603 40,669 40,210 (459)
Canada Pension Plan Borrowing (800) (1,079) (1,079)
Decrease / (Increase) in Short-Term Borrowing 0 0 459 459
Increase / (Decrease) in Cash and Cash Equivalents 2,124 (4,624) (4,624)
Total Long-Term Public Borrowing Requirement 39,928 34,966 34,966
Note: Numbers may not add due to rounding.

Borrowing Program Status (as at June 30, 2011)
($ Billions)
  Completed Remaining Total
Province 12.0 22.7 34.7
Ontario Electricity Financial Corporation 0.0 0.2 0.3
Total 12.0 22.9 35.0
Note: Numbers may not add due to rounding.      
  • Long-Term Public Borrowing completed as at June 30, 2011, totalled $12.0 billion as follows:

 ($ Billions)
Ontario Savings Bonds 0.6
Domestic Issues 8.2
Global/US Dollar/Other Issues 3.2
  12.0
  • As domestic investors have continued to show a preference for longer-term maturities, Ontario has been able to extend the term to maturity of its debt and take advantage of the sustained low interest rate environment.
  • The decrease in Net Loans/Investments is primarily attributable to auto sector loan repayments.
  • Due to historically low long-term interest rates, the Province has decided to use the $459 million decrease in Total Funding Requirement to decrease Short-Term Borrowing while leaving Long-Term Public Borrowing unchanged from the 2011 Budget forecast.
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