2011 Pre-Election Report on Ontario's Finances

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TABLE OF CONTENTS

Minister's Foreword

Introduction
  The Planning Process
  Prudence and Flexibility
  Additional Information

Overview of the Fiscal Plan

Statement of Ministry of Finance Responsibility

Details of Estimated Revenue, Expense and Reserve

Details of Estimated Revenue
  Macroeconomic Forecast and Assumptions
  Estimated Revenue

Details of Estimated Expenses
  Health Sector
  Education Sector
  Postsecondary and Training Sector
  Children's and Social Services Sector
  Justice Sector
  Other Programs
  Interest on Debt

Details of the Reserve

The Ratio of Provincial Debt to Ontario GDP

Subsequent Information
  2011 Federal Budget
  Equalization Restatement
  Ontario Power Generation Rates
  Estimated Impact

Sensitivity Analysis

Summary of Significant Accounting Policies and Contingent Liabilities
  Basis of Accounting and Presentation
  Contingent Liabilities

Minister's Foreword

This 2011 Pre-Election Report on Ontario's Finances, one of only a few such documents in the world, reflects the commitment of this government to transparency and accountability.

The McGuinty government introduced the Fiscal Transparency and Accountability Act, which the legislature passed in 2004. The act requires the Ministry of Finance to prepare a Pre-Election Report to be reviewed by the Auditor General. The first Pre-Election Report was reviewed by the Auditor General in 2007, who found the plan reasonable.

This 2011 Pre-Election Report presents the fiscal plan for the 2011–12 to 2013–14 fiscal years, consistent with the 2011 Ontario Budget presented on March 29, 2011.

The 2011 Ontario Budget renewed the McGuinty government's focus on eliminating the deficit while protecting health care and education, and encouraging a competitive economy.

Throughout the global recession, the McGuinty government continued its support of the public services people rely on, particularly education and health care. Now, Ontario is turning the corner and the economy is improving.

As steady economic growth returns, the government aims to continue reforming the way public services are delivered, ensuring they are more efficient and more effective for people.

Moving forward, the government has established the Commission on the Reform of Ontario's Public Services, chaired by respected economist Don Drummond. The commission would help accelerate the plan to eliminate the deficit while still protecting the gains made in health care and education. The commission will not make recommendations that would increase taxes or lead to the privatization of health care or education.

With this report, the government is continuing to provide more information about the financial well-being of the Province and to make the budget process accountable and transparent to the people of Ontario.

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Introduction

The purpose of the Fiscal Transparency and Accountability Act, 2004 is to provide greater transparency and accountability in the government's fiscal planning and financial reporting. Under the act, the Ministry of Finance must release a pre-election report on Ontario's finances in advance of a provincial election. The report must be reviewed by the Auditor General of Ontario.

This 2011 Pre-Election Report provides Ontarians with a clear understanding of the Province's estimated future revenue and expense, and other details of its fiscal planning processes, before the provincial election scheduled for October 6, 2011. The report covers the fiscal year of the Budget and the next two years. It is expected that the Auditor General will release the results of his review of this report in June 2011.

This Pre-Election Report provides information on:

  • the macroeconomic forecasts and assumptions that were used to prepare the fiscal plan set out in the 2011 Ontario Budget;
  • an estimate of Ontario’s revenues and expenses, including estimates of the major components of revenues and expenses as set out in the plan;
  • details of the reserve included in the plan; and
  • the ratio of provincial debt to Ontario’s gross domestic product (GDP).

This report also provides an update on significant events that happened after the budget was finalized on March 8, 2011.

The Planning Process

To understand the role of this report, it is important to understand first what Ontario’s fiscal plan is and how it is developed.

The 2011 Ontario Budget, which was released on March 29, 2011, covers the 2011–12 fiscal year and the subsequent two years. This three-year outlook makes up the medium-term fiscal plan and provides a clear view of the Province’s fiscal direction.

In developing their input to the fiscal plan, ministries use a results-based planning process to determine how best to use available resources to achieve planned results. Ministry plans, once reviewed and approved by the government’s Treasury Board and Management Board of Cabinet, form the basis for the expense estimates in the fiscal plan.

The process also addresses planned outlays for infrastructure. Details on the Province’s estimated $12.1 billion in infrastructure expenditures in 2011–12 are provided in Table 27 on page 229 of the 2011 Ontario Budget.

The government also estimates the revenue available to support expense over the three years of the plan. Revenue, particularly related to taxation, depends largely on the outlook for the provincial economy. As well, transfers from the federal government are an important component of provincial revenue. The largest federal transfers are the Canada Health Transfer and Canada Social Transfer, which the Province allocates based on its priorities. Estimates for other non-tax revenue and income from government business enterprises are based on economic and demographic factors, as well as government policy. Together, these elements form the basis of the revenue estimates in the fiscal plan.

Once completed, the fiscal plan is included in the Ontario budget, which reflects the government’s decisions about how expected resources will be allocated to achieve its major objectives.

The release of the fiscal plan in the budget is followed by the tabling of a detailed breakdown of ministry expense for the coming year, known as the Expenditure Estimates. The Estimates, once concurred by the legislature, support the passage of the Supply Act, which gives the government legal spending authority.

Prudence and Flexibility

The Fiscal Transparency and Accountability Act sets out governing principles requiring Ontario’s fiscal policy to be based on cautious assumptions and to recognize the need for flexibility.

These principles underline that the fiscal plan outlined in the budget is not static. It is based on government policy decisions and direction, as well as estimates built on reasonable assumptions, at the time the plan is developed. The act acknowledges that a plan must be responsive to changing circumstances. After the budget is released, new priorities may emerge and economic performance may differ from what was forecast.

Information and events that were not foreseen during planning may have either a positive or negative impact on actual results. Positive changes are easier to manage: when results are better than expected, the government has more fiscal flexibility to manage existing or new priorities. That has been the case in five of the last seven fiscal years.

Events can also cause results to fall short of what was expected. The global recession that began in 2008 was one such event affecting Ontario and other economies in the developed world. A fiscal plan that is constructed prudently — that is, with a margin for caution — helps to provide a cushion that would not otherwise be there. Prudence is thus an element of good fiscal planning that allows government some latitude in managing the inherent uncertainty of future events.

A wide range of assumptions and planning tools help to build prudence into Ontario’s fiscal plan. Here are some examples:

  • Estimated revenue is based on an economic forecast using growth rates for real GDP that are set lower than the average of private-sector forecasts in each year. Starting with the assumption that economic performance will be slightly lower than expected helps to provide a margin of caution in the revenue forecast.
  • The plan includes contingency funds in each year to help mitigate risks that may otherwise have a negative impact on results.
  • Separate from the contingency funds, the fiscal plan also includes a reserve in each year 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.

The government has taken measures to ensure an appropriate level of prudence is built into the fiscal plan. It introduced the Fiscal Transparency and Accountability Act, which requires the inclusion of a reserve in fiscal plans and bases the governing principles of fiscal policy on prudence and flexibility. Another requirement under the act is an Ontario Economic Forecast Council set up by the Minister of Finance to provide the input and advice of experts from outside government in establishing reasonable forecasting assumptions. Prudent planning increases fiscal flexibility and improves the ability of government to meet its objectives in the fiscal plan.

Additional Information

The fiscal plan in the 2011 Ontario Budget is the source for the estimated revenue and expense in this report. Because understanding the goals of the plan is as important as understanding how it was developed, this report should be read in conjunction with the budget. For ease of reference, this report points to specific sections, discussions and information in the budget that relate to sections of this report.

The fiscal plan presented in the 2011 Ontario Budget was based on the best information available on March 8, 2011, the date on which the fiscal plan was finalized. Governments adjust their plans from time to time to reflect new information, events, needs and priorities. Through the Ontario Finances, the Province provides quarterly updates to the fiscal outlook for the current year and the Ontario Economic Outlook and Fiscal Review provides a look at the state of the Province’s finances and economy as of the second quarter. The budget at the start of the next fiscal year includes a new medium-term fiscal plan. As well, the Fiscal Transparency and Accountability Act requires a regular long-range assessment of Ontario’s fiscal environment and economy. Ontario’s Long-Term Report on the Economy, released in early 2010, highlighted the long-term challenges and opportunities that will affect the province over the next 20 years. Readers can view these documents on the website of the Ministry of Finance at www.fin.gov.on.ca.

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Overview of the Fiscal Plan

The fiscal plan set out in this report covers the 2011–12 fiscal year, which ends March 31, 2012, and the two subsequent years, 2012–13 and 2013–14. The estimates of revenue and expense for these three years are the same as those in the 2011 Ontario Budget. They were developed from the Province's economic and revenue forecasts and results-based planning process. They are based on economic assumptions and government planning decisions made up to March 8, 2011.

The fiscal plan includes the estimated revenue, expense and resulting deficit forecast for each of the next three years. It also includes a reserve for each year.

TABLE 1. Medium-Term Fiscal Plan and Outlook
($ Billions)
  Plan
2011–12
Outlook
2012–13 2013–14
Total Revenue 108.5 111.8 117.0
Expense      
Programs 113.8 114.6 116.7
Interest on Debt 10.3 11.4 12.6
Total Expense 124.1 126.0 129.3
Reserve 0.7 1.0 1.0
Surplus/(Deficit) (16.3) (15.2) (13.3)
Note: Numbers may not add due to rounding.
This table is based on Table 17 on page 195 of the 2011 Ontario Budget.

Total revenue is estimated to reach $108.5 billion in 2011–12 and rise to $117.0 billion in 2013–14, as government revenue continues to recover from the impact of the global recession.

Total expense is estimated to rise from $124.1 billion in 2011–12 to $129.3 billion in 2013–14. Growth in expense over the planning period is largely in the health, education, postsecondary and training, children's and social services sectors, as well as interest on debt expense.

As required by the Fiscal Transparency and Accountability Act, a reserve is included in each year of the fiscal plan to protect against unexpected and adverse changes in the economic and fiscal outlook. The fiscal plan includes a reserve of $0.7 billion in 2011–12, $1.0 billion in 2012–13 and $1.0 billion in 2013–14. The increase in the last two years of the plan reflects the greater uncertainty of projecting further into the future.

Economic growth is a major driver of revenue growth. The fiscal plan is based on real GDP increasing 2.4 per cent in 2011, and 2.7 per cent in 2012 and 2013.

Provincial debt, measured as accumulated deficit for the purpose of the Fiscal Transparency and Accountability Act, is expected to be $164.0 billion at the end of the 2011–12 fiscal year and $192.4 billion at the end of 2013–14.

Remaining sections of this report provide additional details on each of these areas, as well as key assumptions underlying the revenue and expense outlook, risks associated with those assumptions and sensitivity to risks.

The section of this report entitled "Subsequent Information" describes the impact of information that became available after the 2011 Ontario Budget was finalized on March 8. The fiscal plan has not been affected materially by this subsequent information and accordingly has not been adjusted.

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Statement of Ministry of Finance Responsibility

This 2011 Pre-Election Report on Ontario's Finances has been prepared by the Ministry of Finance in compliance with the Fiscal Transparency and Accountability Act, 2004. The fiscal plan presented in this report is the same as that in the 2011 Ontario Budget.

The Ministry of Finance is responsible for preparing the information contained in this report on behalf of the Government of Ontario. The ministry's estimates of revenues and expenses have been developed consistent with the policy decisions of the government and assumptions on the projected performance of the Ontario economy, demands for government services and other key fiscal planning assumptions. Certain assumptions are based on anticipated actions, strategies and programs of the government that are consistent with the fiscal plan. The Ministry of Finance will assist the Auditor General in his review of the report and the underlying assumptions.

In compliance with the requirements of the Fiscal Transparency and Accountability Act, 2004, this report includes the following information from the most recent fiscal plan:

  • the macroeconomic forecasts and assumptions that were used to prepare the fiscal plan;
  • an estimate of Ontario's revenues and expenses, including estimates of the major components of revenues and expenses as set out in the plan;
  • details of the reserve described in subsection 5(4) of the act; and
  • information about the ratio of provincial debt to Ontario's gross domestic product.

The estimates are based on the best information available as at March 8, 2011, the date the 2011 Ontario Budget was finalized. Information related to events that occurred after March 8, 2011, is also provided in this report. This information does not materially impact the financial estimates in the fiscal plan presented in the 2011 Ontario Budget. Accordingly, the fiscal plan has not been updated in this report.

The Ministry of Finance does not provide assurance on the achievability of the prospective results because events and circumstances frequently do not occur as expected, and the achievement of prospective results is dependent on the actions, future plans and assumptions of government.

The financial estimates in this report have been prepared in accordance with generally accepted accounting principles recommended by the Canadian Institute of Chartered Accountants. The accounting policies are consistent with those used by the Ministry of Finance in preparing the Public Accounts of Ontario.




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Deputy Minister

 

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Associate Deputy Minister

  MurrayLindo.jpg

Acting Assistant Deputy Minister
and Provincial Controller

April 19, 2011

 

 

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Details of Estimated Revenue, Expense and Reserve

TABLE 2. Consolidated Statement of Estimated Revenue, Expense and Reserve
($ Billions)
  Plan Outlook
  2011-12 2012-13 2013-14
Revenue      
Taxation Revenue:      
Personal Income Tax 25.5 26.9 28.5
Sales Tax 20.1 21.1 22.2
Corporations Tax 8.9 9.1 9.4
Ontario Health Premium 3.1 3.2 3.4
Education Property Tax 5.7 5.7 5.6
All Other Taxes 12.0 12.2 12.6
Total Taxation Revenue 75.3 78.3 81.7
Government of Canada 21.7 21.8 23.1
Income from Government Business Enterprises 4.5 4.8 5.2
Other Non-Tax Revenue 6.9 6.9 7.0
Total Revenue 108.5 111.8 117.0
       
Expense      
Program Expense:      
Health Sector 47.6 49.2 50.6
Education Sector1 23.2 24.0 24.3
Postsecondary and Training Sector 7.1 7.1 7.4
Children's and Social Services Sector 13.7 14.0 14.4
Justice Sector 4.7 4.6 4.2
Other Programs2 17.4 15.7 15.9
Total Program Expense 113.8 114.6 116.7
Interest on Debt 10.3 11.4 12.6
Total Expense 124.1 126.0 129.3
Reserve 0.7 1.0 1.0
Surplus / (Deficit) (16.3) (15.2) (13.3)
1 Excludes Teachers’ Pension Plan.
2 Includes Contingency Funds and Teachers’ Pension Plan.
See pages 39–42 for a summary of significant accounting policies and contingent liabilities.
Note: Numbers may not add due to rounding.
This table is based on Table 11 on page 183, Table 17 on page 195 and Table 19 on page 199 of the 2011 Ontario Budget.

The estimates of revenue and expense in this report are based on the projected outlook for the economy, the outcomes of the government's results-based planning process and other key fiscal planning assumptions. The Province's estimates of revenue and expense are sensitive to changes in underlying assumptions. Generally accepted accounting principles require disclosure regarding the uncertainty inherent in future-oriented financial information. The estimates in this report are based on the best information currently available, but given the inherent uncertainties in economic and fiscal forecasting, actual revenue and expense may differ from these estimates, and these variations may be material.

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Details of Estimated Revenue

The estimate of revenue is largely based on an economic outlook that calls for a modest but solid pace of economic growth from 2011 to 2013, reflecting a fundamentally sound domestic economy and continued increases in global demand for Ontario's exports.

The following section provides background on the key macroeconomic forecasts and assumptions on which the revenue estimates are based.

Macroeconomic Forecast and Assumptions

The Ministry of Finance consults extensively with private-sector economists to ensure reasonable and accountable economic projections. Additionally, the Ontario Economic Forecast Council reviewed the assumptions in light of information available to March 4, 2011, and all members found the assumptions to be reasonable.

Private-sector economic forecasts reflect Ontario's reforms to its business tax structure that were intended to make the province's tax system much more attractive to new investment. In general, private-sector economists have indicated that these tax reforms, including the elimination of the capital tax, lower corporate income tax rates, and the introduction of the Harmonized Sales Tax (HST), should produce stronger economic growth than otherwise would have occurred had those changes not been made.

The Ministry of Finance planning assumptions are slightly below the average among private-sector forecasters for Ontario real GDP growth available on March 4, 2011. Changes in private-sector forecasts since March 4, 2011, have not materially altered the forecast average, and therefore do not affect Ministry of Finance assumptions upon which the fiscal plan is based.

TABLE 3. Ontario Economic Outlook
(Per Cent)
For calendar years: 2011 2012 2013
Real GDP Growth 2.4 2.7 2.7
Nominal GDP Growth 4.6 5.1 4.8
Employment Growth 1.7 1.8 1.8
CPI Inflation 2.3 2.1 2.0
This table is based on Table 5 on page 156 of the 2011 Ontario Budget.      

The Ministry of Finance outlook for the major external factors shaping Ontario's economic prospects is also closely tied to private-sector forecasts. These factors include the U.S. economic outlook, interest rates, the Canadian dollar exchange rate and oil prices. Developing revenue estimates requires highly detailed economic forecasts that often go well beyond what is readily available from most private-sector forecasters. As such, the more detailed components of the outlook are based on a combination of private-sector forecasts and macro-econometric models. Professional judgment also plays a role, especially in interpreting model results, judging the reasonableness of private-sector forecasts and incorporating the latest information.

The key assumptions underlying the Ontario economic outlook are outlined below.

TABLE 4. Key External Factors Affecting Ontario's Economy
For calendar years: 2011 2012 2013
Canadian Dollar (Cents US) 100.0 99.7 99.3
Crude Oil ($US per Barrel) 99.7 102.2 100.6
U.S. Real GDP Growth (Per Cent) 3.1 3.3 3.2
Three-Month Government of Canada Treasury Bill Rate (Per Cent) 1.4 2.6 3.7
10-Year Government of Canada Bond Rate (Per Cent) 3.5 4.1 4.7
This table is based on Table 6 on page 164 of the 2011 Ontario Budget.

The table below shows the typical range for the first- and second-year estimated impacts of changes in key external factors on Ontario real GDP growth, based on historical relationships. Impacts are shown in isolation from changes to other external factors. The combination of changing circumstances can also have a substantial bearing on the actual outcome.

TABLE 5. Impacts of Sustained Changes in Key External Factors on Ontario Real GDP Growth
(Percentage Point Change)
  First Year Second Year
Canadian Dollar Appreciates by Five Cents US -0.1 to -0.8 -0.5 to -1.2
World Crude Oil Prices Increase by $10 US per Barrel -0.1 to -0.3 -0.1 to -0.3
U.S. Real GDP Growth Increases by One Percentage Point +0.3 to +0.7 +0.4 to +0.8
Canadian Interest Rates Increase by One Percentage Point -0.1 to -0.5 -0.2 to -0.6
This table is based on Table 7 on page 171 of the 2011 Ontario Budget.

The Sensitivity Analysis section of this report outlines the estimated impact of a one percentage point change in real GDP on revenue. More detailed information on the Ontario economic outlook, including additional assumptions applied in the revenue estimates, is provided in the 2011 Ontario Budget, Chapter II, Section C: Ontario's Economic Outlook.

Estimated Revenue

Revenue is estimated to increase from $108.5 billion to $117.0 billion over the fiscal planning period. This forecast is based on the use of information available at the time the fiscal plan was developed, the Ministry of Finance's economic outlook and the government's policy decisions. No new taxes or tax rate increases are included in this revenue projection. Variances from the revenue estimates may arise due to inherent uncertainties involved in predicting the future, and lags in information flows. In recent years, actual revenue has varied from estimates for reasons outlined in the Province of Ontario Annual Report for the relevant year.

Key assumptions and risks related to noted assumptions are discussed for each revenue category. Additional details on the impact of changes in key planning assumptions are provided in the Sensitivity Analysis section of this report.

Taxation Revenue

Taxation revenue estimates are based on the economic outlook and are largely developed using models. Model-based forecasting that captures the relationship between a revenue source and its main economic drivers, given the structure of the tax system, is generally accepted as a best practice.

Personal Income Tax (PIT) revenue is estimated to be $25.5 billion in 2011–12, increasing to $28.5 billion in 2013–14. PIT revenue is estimated based on the latest available tax return processing information from the Canada Revenue Agency for 2009 tax returns processed during 2010. Future increases in tax revenue over that base are projected using models, with the outlook for wages and salaries as a key economic driver. The projection also incorporates the expected impact of all relevant tax measures announced to date by the Ontario government.

Key assumptions. Expected PIT revenue depends largely on the outlook for growth in wages and salaries. Other key assumptions underlying the estimate of PIT revenue include the expected growth in unincorporated business income, capital gains income and Registered Retirement Savings Plan (RRSP) contribution deductions.

Risks related to key assumptions. Variances in tax return processing revenue during 2011, both for the 2010 tax year and for amounts in respect of prior years, would affect the base upon which growth is applied. In addition, there are uncertainties associated with the assumptions about growth in wages and salaries, unincorporated business income, capital gains income and RRSP contribution deductions.

Ontario Health Premium revenue is estimated to be $3.1 billion in 2011–12, increasing to $3.4 billion in 2013–14. This is estimated based on essentially the same process, assumptions and risks as those discussed under PIT revenue above.

Sales Tax revenue is estimated to be $20.1 billion in 2011–12, increasing to $22.2 billion in 2013–14. Harmonized Sales Tax revenue is forecast based on the latest available estimates from the federal Department of Finance of Ontario's share of the 2010 and 2011 gross HST revenue pools for participating provinces. The department also estimates the impact of such HST measures as point-of-sale rebates, housing rebates and public-sector body rebates. These federal estimates serve as the base upon which the Ontario Ministry of Finance's economic projection has been applied.

Key assumptions. The HST forecast depends on the latest federal estimates of the 2010 and 2011 gross HST revenue pools and of Ontario's share. For the years beyond 2011, the HST revenue forecast largely depends on the Ministry of Finance's outlook for consumption expenditures. The projection also incorporates the expected impact of all relevant tax measures announced to date by the Ontario government.

Risks related to key assumptions. Finalization of each year's HST entitlement takes place over a period of five years after the end of the year, owing to revisions to both the size of the pool and Ontario's share of it. Based on the historical data for other HST-participating provinces, the final estimate can differ from the federal Department of Finance's first estimate, and the difference can be significant. In addition, while total consumption expenditure is a relatively stable component of the economy, its large size means that each percentage point change has a significant impact on HST revenue.

Corporations Tax (CT) revenue is estimated to be $8.9 billion in 2011–12, $9.1 billion in 2012–13 and $9.4 billion in 2013–14. The outlook for CT revenue is based on the latest federal forecast of the national tax base and Ontario's share of that base over the period of the plan. The estimate also incorporates the expected impact of all relevant tax measures announced to date by the Ontario government, including the full elimination of the Capital Tax on July 1, 2010.

Key assumptions. The estimate of 2010 CT revenue upon which growth is applied is subject to change pending 2010 tax return filing and processing activity later in 2011.

Risks related to key assumptions. The CT revenue outlook is subject to a high degree of uncertainty. Assessments arising from the filing and processing of 2010 corporate tax returns can have a significant impact on the revenue outlook. As well, profits are quite sensitive to changes in business conditions. The CT revenue outcome can also be affected by the composition of profits in the economy, as corporations have varying ability to apply discretionary tax deductions and allowances.

Education Property Tax (EPT) revenue is estimated to be $5.7 billion in 2011–12 and to decline slightly to $5.6 billion in 2013–14. Collected by municipalities on behalf of the Province, EPT is the education component of property tax. The forecast is based on the assessed value of property and the respective tax rates for each property class, such as residential, commercial and industrial.

Key assumptions. The forecast includes the expected growth of the tax base through additions and changes to the assessment roll each year. It reflects recent growth trends for each property class, as well as the Ministry of Finance's outlook for new housing and condominium completions. As assessment growth each year is only a small fraction of the total assessment base, the overall tax base tends to be rather stable. The projection also incorporates the expected impact of all relevant tax measures announced to date by the Ontario government, in particular the ongoing impacts of the Business Education Tax cuts announced in the 2007 Budget and enhancements to the property tax credit announced in the 2009 Budget.

Risks related to key assumptions. This revenue component has been relatively stable, with the average annual increase over the last 10 years just 1.3 per cent. Risks to the forecast are expected to be minimal.

All Other Tax revenue combined is estimated to be $12.0 billion in 2011–12, increasing to $12.6 billion in 2013–14. The detailed breakdown for All Other Tax revenue in 2011–12 can be found on page 226 of the 2011 Ontario Budget. This estimate is developed on an item-by-item basis, using as the starting point estimated 2010–11 revenue. In most cases, expected growth depends on related economic projections. For some of the smaller components, the estimate is developed based on revenue trends in recent years.

Key assumptions. The estimated growth in Employer Health Tax revenue is based on the outlook for wages and salaries growth. Gasoline Tax revenue estimates are largely based on disposable income growth and gasoline pump price projections. The outlook for Fuel Tax revenue depends on overall economic activity, measured by real GDP growth projections, and diesel fuel pump prices. Land Transfer Tax revenue is estimated largely based on the forecast for housing prices and home resales. The outlook for Beer and Wine Tax is based on projected growth in disposable income and in the volume of alcohol sales. The outlook for Electricity Payments in Lieu of Tax is based on the estimated financial performance of Ontario Power Generation Inc., Hydro One Inc. and municipal electrical utilities. The Tobacco Tax estimate is based on a continuing trend towards reduced smoking. The remaining items included in other taxation revenue, of which Preferred Share Dividend Tax, Mining Profits Tax and Estate Administration Tax are the most significant sources, are estimated largely based on recent past experience.

Risks related to key assumptions. Variances in estimated revenue from these tax sources generally arise from variances in the key assumptions outlined above, most notably growth in wages and salaries, real GDP growth, gasoline pump prices and housing resale volumes and prices.

Federal Transfer Payments

Federal transfer payment revenue is estimated to be $21.7 billion in 2011–12, $21.8 billion in 2012–13 and $23.1 billion in 2013–14. This outlook is based on existing federal–provincial arrangements.

Key assumptions. The estimate of federal transfer payments is based on funding commitments made by the federal government. The estimate is also shaped by federal legislation, funding formulas and the data applied in determining provincial entitlements.

Risks related to key assumptions. Ontario's share of the Canada Health Transfer (CHT) depends on Ontario's share of Canada-wide population and the Canada-wide basic federal personal and corporate income bases. Ontario's share of the Canada Social Transfer (CST) depends only on Ontario's share of Canada-wide population. Since federal revenue is the outcome of federal government decisions and interjurisdictional negotiations, there is always the possibility of changes in federal legislation, agreements and funding formulas that would have an impact on Ontario revenue.

Income from Government Business Enterprises

The combined net income of all Ontario government business enterprises is estimated to be $4.5 billion in 2011–12, increasing to $5.2 billion in 2013–14. The estimate reflects information available from the business enterprises themselves. The Ministry of Finance reviews this input and may, if necessary, adjust estimates for consistency with other assumptions or based on updated information. The estimate also includes additional income of $200 million in 2013–14, reflecting efficiencies that the government will instruct its major agencies, including government business enterprises, to deliver.

Key assumptions. The enterprises apply a broad range of assumptions in developing their estimates. For example, estimated net income from the Ontario Lottery and Gaming Corporation is affected by Canada–U.S. border issues, exchange rates and competition. Net income estimated for the Liquor Control Board of Ontario depends on consumer purchasing patterns and the current policy environment insofar as it affects product prices or operating costs. Ontario Power Generation Inc. and Hydro One Inc. net income estimates are based on information provided by the companies, including assumptions about regulatory requirements and decisions, electricity demand, weather patterns, natural gas prices, and electricity generating station performance.

Risks related to key assumptions. As indicated above, the financial performance of government enterprises can be affected by a wide range of complex and potentially inter-related economic, market, cost, regulatory and policy factors.

Other Non-Tax Revenue

Other non-tax revenue includes reimbursements for services provided by the Province, fees, sales and rental proceeds, and miscellaneous other revenue. On a combined basis, all other non-tax revenue is estimated to be relatively stable, increasing slightly from $6.9 billion in 2011–12 to $7.0 billion in 2013–14. The estimate is developed based on the input from all government ministries and service organizations, as they have the best understanding of the factors affecting their businesses and future revenue streams to the Ontario government. The Ministry of Finance reviews this input and may, if necessary, adjust estimates for consistency with other assumptions or based on updated information.

Key assumptions. Most of this estimated revenue is largely determined by government revenue policy, with economic and demographic factors also playing a role. Revenue from Vehicle and Driver Registration fees, for example, is largely determined by the fee structure put in place by the Province. Year-over-year increases in the number of vehicles and drivers, which are largely determined by demographic factors, also affect revenue. Non-tax revenue may be affected by one-time or limited-time events.

Risks related to key assumptions. The risks associated with the estimation of recurring non-tax revenue are generally minor, as these tend to be fairly stable from year to year.

For more detailed information on the Ontario revenue outlook, see the 2011 Ontario Budget, Chapter II, Section D: Ontario's Revenue Outlook.

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Details of Estimated Expense

Total expense is estimated to rise from $124.1 billion in 2011–12 to $129.3 billion in 2013–14.

Most expense estimates are based on the current government's results-based planning process, which endeavours to ensure that government-funded activities contribute to meeting government priorities. In some cases, these estimates are predicated on ministries continuing to move forward with the implementation of planned policy changes. Such changes might require administrative, regulatory or legislative instruments.

Expense estimates include investments in infrastructure. In line with the accounting standards for provincial governments, the costs of highways, bridges, hospitals, college facilities, government buildings and other assets of the Province and the organizations consolidated in its financial statements are amortized and recognized as expense over the assets' expected useful lives. Transfer payments for infrastructure provided to municipalities, universities and other broader public-sector entities not consolidated in the Province's statements are recorded as an expense.

Details on risks associated with sector-specific planning assumptions are provided below. The plan reflects policy decisions and directions as of March 8, 2011. Certain assumptions are based on anticipated actions, strategies and programs of the government that are consistent with the fiscal plan. With regard to compensation, the terms of existing collective agreements and other arrangements were used to derive expense until expiry, and estimates applied thereafter. Consistent with the government's broader public-sector compensation policy statement, the fiscal plan provides no funding for incremental compensation increases for the first two years of any future collective agreements. Additional details on the impact of changes in key planning assumptions are provided in the Sensitivity Analysis section of this report.

The estimated expense for many provincial programs depends on such factors as future utilization rates, enrolment and caseload growth rates, and labour costs. Actual expense may differ from the amounts estimated in the fiscal plan, due to changes in any of these factors, and variances could have either a positive or negative impact on program expense. Given this inherent uncertainty, the fiscal plan includes contingency funds to help mitigate risks that might otherwise have a negative impact on results. Contingency funds are $0.7 billion in 2011–12 and are set at a similar level in the subsequent two years of the plan.

Future changes to government policy could have an impact on expense. The Province has established a Commission on the Reform of Ontario's Public Services that will examine long-term, fundamental changes to the way the government works. The commission will provide advice on reforms that would have an impact on the fiscal plan. These have not been reflected in estimated expense, pending government policy decisions on the commission's recommendations. The commission will report to the Minister of Finance in time to inform the development of the 2012 Budget. More detailed information on the plan to reform public service delivery is provided in Chapter I, Section B of the 2011 Ontario Budget.

Health Sector

Total expense for this sector, Ontario's largest, is estimated to be $47.6 billion in 2011–12 and is projected to grow to $50.6 billion by 2013–14.

Growth in expense for the sector reflects a balance of factors and assumptions in the major program areas. Increased funding supports growth in major program areas such as hospitals, Ontario Health Insurance Plan (OHIP) and drug programs. Funding also supports new investments in community services, including long-term care homes, to improve services and help divert pressures from acute care and emergency rooms.

Health sector expense is concentrated in several major health program areas. Combined, these program areas account for $44.0 billion and represent 92.4 per cent of health sector expense in 2011–12.

Hospitals: Hospitals' sector expense for the Province's public hospitals is $21.2 billion in 2011–12, accounting for 44.5 per cent of health sector expense.

Ontario Health Insurance Plan: Payments made for services and for care provided by physicians and practitioners is $12.5 billion in 2011–12, representing 26.3 per cent of total health sector expense.

Community Services Sector: Payments to support community care services, including long-term care home beds and home care, totals $6.7 billion in 2011–12, accounting for 14.0 per cent of total health sector expense.

Ontario Public Drug Programs: Funding for the Ontario Public Drug Programs provided through the Ministry of Health and Long-Term Care is $3.6 billion in 2011–12, accounting for 7.5 per cent of health sector expense.

Chart 1:  Health Sector -Major Program Expense

Key assumptions. Estimates are based on assumptions about growth in hospitals' sector expense; utilization of drug programs; physician-related payments under OHIP; costs to operate long-term care beds and provide home care services.

Risks related to key assumptions. Changes in expense in this sector can arise from unexpected changes in utilization growth rates.

Education Sector

Total expense for this sector is estimated to be $23.2 billion in 2011–12 and to grow to $24.3 billion in 2013–14.

Annual regulations made under the authority of the Education Act govern education funding in Ontario and set out the funding formula that allocates Grants for Student Needs (GSN) to school boards for the school year. This funding formula largely reflects student enrolment. The GSN is funded by a combination of Education Property Tax revenue and direct transfers from the Province.

The education sector's plan outlined in the 2011 Ontario Budget includes additional provincial grants to support student achievement and funding for the ongoing implementation of the government's full-day kindergarten program. It also includes funding for child care programs, which were transferred from the Ministry of Children and Youth Services to the Ministry of Education to ensure children make a smooth transition from the child care system to the education system.

Key assumptions. Estimates are based on assumptions about elementary, secondary and full-day kindergarten enrolment rates.

Risks related to key assumptions. Changes in expense in this sector can arise from unexpected changes in elementary, secondary and full-day kindergarten student enrolment.

Postsecondary and Training Sector

Total postsecondary and training sector expense is estimated to be $7.1 billion in 2011–12 and to rise to $7.4 billion in 2013–14. Expense is projected to increase to support growth in postsecondary enrolment.

The majority of expense in this sector is associated with providing operating grants to support enrolment at each of Ontario's 20 public universities and 24 public colleges. The sector also provides student financial aid support including scholarships and bursaries to ensure affordability. Labour market employment and training services are provided to individuals, such as laid-off workers, and to employers through the government's Employment Ontario system.

Key assumptions. Estimates are based on assumptions about enrolment rates of college and university students, and labour market and economic conditions.

Risks related to key assumptions. Changes in expense in this sector can arise from unexpected changes in student enrolment as well as changes in economic conditions.

Children's and Social Services Sector

Total expense for this sector is estimated to be $13.7 billion in 2011–12 and to grow to $14.4 billion in 2013–14.

The majority of spending is focused on social assistance, delivered through municipal service managers, First Nations and the Ministry of Community and Social Services; child protection services, delivered through 53 children's aid societies; and developmental services, delivered by more than 360 community-based agencies. The Ministry of Children and Youth Services also delivers the Ontario Child Benefit, available to low- to moderate-income families with children under 18 years of age.

Key assumptions. Estimates of social assistance expense are based on Ontario economic and labour force growth forecasts as well as the demographic outlook for the Province.

Risks related to key assumptions. Changes in expense in this sector can arise from unexpected changes in the economic outlook or utilization rates.

Justice Sector

Total expense for this sector is estimated to be $4.7 billion in 2011–12, $4.6 billion in 2012–13 and $4.2 billion in 2013–14.

Expense in this sector is primarily related to criminal prosecution, court services, legal aid, policing and correctional facilities, and also includes resources for victims' services and public safety. The decrease in expense over the period of the plan reflects the expected completion of previously approved capital projects, including courthouses and correctional facilities.

Key assumptions. Estimates are based on relatively stable funding for courts, prosecuting crime, and the Ontario Provincial Police, and on the continuation of ongoing federal funding (such as cost-sharing agreements for legal aid).

Risks related to key assumptions. Changes in expense in this sector can arise from unexpected changes in the size of the inmate population or caseloads.

Other Programs

Total other programs expense is estimated to decrease from $17.4 billion in 2011–12 to $15.9 billion in 2013–14. The decrease over the period of the plan is due mainly to the phase-out of time-limited investments intended to help the Province emerge from the global recession and temporary relief for the transition to the new sales tax system.

The other programs expense category includes programs and funding for the agricultural, municipal, financial services, manufacturing, energy, forestry, tourism, culture and transportation sectors, and for environmental protection and the day-to-day operation of government. It also includes government pension plans and benefits for retired employees, the Teachers' Pension Plan and contingency funds.

Key assumptions. The estimated expense for each of the above-noted sectors and activities is based on the best information regarding the government's planned course of action as determined through the results-based planning process.

Risks related to key assumptions. Changes in other programs expense may result from government decisions related to specific sectors.

Interest on Debt

Interest on debt expense is estimated to increase by $2.3 billion between 2011–12 and 2013–14. The increase is due mainly to additional borrowing required to fund projected deficits and investments in infrastructure. In 2011–12, interest on debt will amount to about 9.5 per cent of total provincial revenue and is estimated to rise to 10.8 per cent in 2013–14.

Key assumptions. For existing debt, interest expense is derived using the known terms of each debt issue. Interest expense on future debt is estimated using the Ministry of Finance forecast of interest rates provided in the 2011 Ontario Budget for the 2011 and 2012 calendar years, and subsequently the historical 10-year average, together with assumptions about the premium ("spread") normally required by investors in Province of Ontario, rather than Government of Canada, debt instruments.

Risks related to key assumptions. Forecasts of interest rates and spreads are subject to risks arising from unforeseen economic conditions or other events.

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Details of the Reserve

The Fiscal Transparency and Accountability Act requires the fiscal plan to include a 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. The government can choose to offset the impact of such changes on the Province's annual surplus or deficit by reducing the size of the reserve by an equivalent amount. If any portion of the reserve is not required by fiscal year-end, it is reflected as an improvement to the Province's surplus or deficit position.

Ontario's fiscal plan includes reserves of $0.7 billion in 2011–12, $1.0 billion in 2012–13 and $1.0 billion in 2013–14. The 2012–13 and 2013–14 reserves are higher than that in 2011–12 to reflect the greater uncertainty of projecting estimated revenue and expense further into the future.

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The Ratio of Provincial Debt to Ontario GDP

The Fiscal Transparency and Accountability Act requires the fiscal plan to include information about the ratio of provincial debt to Ontario's gross domestic product (GDP). Ratios of debt-to-GDP measure the relationship between a government's obligations and its capacity to raise funds to meet them. Provincial debt is measured as the accumulated deficit for the purpose of the Fiscal Transparency and Accountability Act. Budgetary surpluses reduce the accumulated deficit, while deficits increase it.

Chart 2:  Ontario Accumulated Deficit-to-GDP

Changes in the ratio of provincial debt to GDP reflect changes in the relationship between the Province's fiscal performance and its economic performance. Over the fiscal planning period, the expectation is that the Province will continue to experience deficits, which will increase the accumulated deficit. The size of the deficit is expected to decline each year, however, reflecting an improving overall fiscal position. Ontario's GDP is expected to grow, owing to ongoing recovery from the global recession. The impact of these changes is that the ratio of provincial debt to Ontario GDP will increase, but at a slower rate than the average during the 2009–10 and 2010–11 fiscal years.

Ontario's net debt is the difference between total liabilities and total financial assets. Ontario's net debt is forecast to be $241.5 billion as at March 31, 2012. This figure includes the broader public sector's net debt forecast of $14.2 billion.

Subsequent Information

The fiscal plan presented in the 2011 Ontario Budget was based on the best information available when the plan was finalized on March 8, 2011. Since then, a number of events that are largely outside the government's direct control have occurred. The section summarizes information related to these events.

2011 Federal Budget

The 2011 federal budget was released on March 22, 2011. While it did not announce any material changes in federal transfers to Ontario, it did propose various personal and corporate income tax measures. Federal legislation to enact these budget measures was not adopted, however, before the dissolution of Parliament on March 26, 2011. As a result, these tax changes have not affected Ontario's fiscal plan and are not included in the estimated impact below.

Equalization Restatement

On March 21, 2011, the federal government informed Ontario of an error in the calculation of the Province's Equalization entitlement for 2011–12. In December 2010, the federal government indicated that Ontario would receive an Equalization entitlement of $2.350 billion in 2011–12. The impact of the error reduces Ontario's Equalization entitlement by $0.2 billion in 2011–12, and reduces the Province's forecast for Equalization by $0.2 billion in 2012–13 and by $0.3 billion in 2013–14.

Ontario Power Generation Rates

On March 10, 2011, the Ontario Energy Board (OEB) delivered its Decision with Reasons on Ontario Power Generation's rate application with respect to rates in 2011 and 2012 that is expected to affect provincial revenue. The effect of the OEB decision is included in the estimated impact below, adjusted for the portions of the OEB decision for which Ontario Power Generation has initiated a review or appeal process.

Estimated Impact

The subsequent information relating to the federal restatement of Ontario's Equalization entitlement and the OEB rate decision would decrease revenue by $0.2 billion in 2011–12, and $0.3 billion in 2012–13 and 2013–14. As these estimated incremental impacts do not materially affect the fiscal plan presented in the 2011 Ontario Budget, the plan has not been updated for this report.

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Sensitivity Analysis

The following tables set out the estimated sensitivities of various assumptions in the fiscal plan to unforeseen changes. The sensitivities are guidelines only and, for program expense, are based on averages for program areas. It should be cautioned that these estimates, while useful, are only guidelines and impacts can vary depending on the composition and interaction of the potential risks. Unforeseen delays or lack of action on the implementation of planned policy changes could also present risks to the fiscal plan.

TABLE 6. Selected Economic and Revenue Risks and Sensitivities
Item/Key Components 2011–12 Assumption 2011–12 Sensitivity
Total Revenue
– Real GDP 2.4 per cent growth in 2011 $790 million revenue change for each percentage point change in real GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
GDP Deflator 2.1 per cent growth in 2011
Total Taxation Revenue
– Revenue Base1 5.4 per cent growth in
2011–12
$545 million revenue change for each percentage point change in nominal GDP growth. Can vary significantly, depending on composition and source of changes in GDP growth.
– Nominal GDP 4.6 per cent growth in 2011
Personal Income Tax (PIT) Revenue
– Revenue Base 5.2 per cent growth in
2011–12
 
Key Economic Assumptions
– Wages and Salaries 4.3 per cent growth in 2011 $333 million revenue change for each percentage point change in wages and salaries growth.
– Employment 1.7 per cent growth in 2011  
– Unincorporated Business Income 5.9 per cent growth in 2011 $34 million revenue change for each percentage point change in unincorporated business income growth.
Key Revenue Assumptions
– Net Capital Gains Income 4.7 per cent growth in 2011 $6 million revenue change for each percentage point change in net capital gains income growth.
– RRSP Deductions 4.2 per cent growth in 2011 $17 million revenue change in the opposite direction for each percentage point change in RRSP deductions growth.
– 2010 Tax-Year Assessments2 $22.9 billion $229 million revenue change for each percentage point change in 2010 PIT assessments.2
– 2009 Tax-Year and Prior Assessments2 $1.2 billion $12 million revenue change for each percentage point change in 2009 and prior PIT assessments.2
Sales Tax Revenue
– Revenue Base 4.9 per cent growth in
2011–12
 
– Nominal Consumption Expenditure 4.9 per cent growth in 2011 $210 million revenue change for each percentage point change in nominal consumption expenditure growth.
– 2010 Gross Revenue Pool3 $10.9 billion $109 million revenue change for each percentage point change in 2010 gross revenue pool.
– 2011 Gross Revenue Pool4 $22.5 billion $225 million revenue change for each percentage point change in 2011 gross revenue pool.
– Provincial HST Rate 8 per cent About $3 billion of revenue for every one percentage point of the Province's HST rate.
Corporations Tax Revenue
– 2010 Tax Assessments $7.0 billion $70 million change in revenue for each percentage point change in 2010 Tax Assessments.
– 2011 Canada Corporate Taxable Income $229.1 billion $94 million change in revenue for each percentage point change in the federal estimate of 2011 Canada Corporate Taxable Income.
– 2012 Canada Corporate Taxable Income $249.7 billion $97 million change in revenue for each percentage point change in 2012 Canada Corporate Taxable Income or each one per cent change in Ontario Share of 2012 Corporate Taxable Income.5
– Ontario Share of 2012 Corporate Taxable Income 34.24 per cent
– 2011 Ontario Corporate Profit Growth 12.2 per cent $63 million change in revenue for each percentage point change in 2011 Ontario Corporate Profit Growth.6
Employer Health Tax Revenue 
– Revenue Base 4.0 per cent growth in
2011–12
 
– Wages and Salaries 4.3 per cent growth in 2011 $50 million revenue change for each percentage point change in wages and salaries growth.
Ontario Health Premium (OHP) Revenue  
– Revenue Base 5.0 per cent growth in
2011–12
 
– Personal Income 4.2 per cent growth in 2011 $27 million revenue change for each percentage point change in personal income growth.
– 2010 Tax-Year Assessments $2.7 billion $27 million revenue change for each percentage point change in 2010 OHP assessments.
Gasoline Tax Revenue  
– Revenue Base 0.2 per cent growth in
2011–12
 
– Gasoline Pump Prices 118.0 cents per litre in 2011 $3 million revenue change in the opposite direction for each cent per litre change in gasoline pump prices.
Fuel Tax Revenue  
– Revenue Base 1.4 per cent growth in
2011–12
 
– Real GDP 2.4 per cent growth in 2011 $11 million revenue change for each percentage point change in real GDP growth.
Land Transfer Tax Revenue  
– Revenue Base No change in 2011–12  
– Housing Resales 4.5 per cent decline in 2011 $13 million revenue change for each percentage point change in both the number and prices of housing resales.
– Resale Prices 0.5 per cent growth in 2011  
Canada Health Transfer  
– Ontario Population Share 38.7 per cent in
2011–12
$31 million revenue change for each tenth of a percentage point change in population share.
– Ontario Basic Federal Tax (BFT) Share 41.1 per cent in
2011–12
$3 million revenue change in the opposite direction for each tenth of a percentage point change in Ontario's BFT share.
Canada Social Transfer  
– Ontario Population Share 38.7 per cent in
2011–12
$12 million revenue change for each tenth of a percentage point change in population share.
1 Revenue base is revenue excluding the impact of measures, adjustments for past Public Accounts estimate variances and other one-time factors.
2 Ontario 2010 Personal Income Tax (PIT) is a forecast estimate because 2010 tax returns are yet to be assessed by the Canada Revenue Agency. Some tax amounts for 2009 and prior years are also yet to be assessed in 2011, and estimates of these amounts are included in the revenue outlook.
3 The 2010 gross revenue pool excludes impact of Ontario measures and reflects the HST being implemented on July 1, 2010. The revenue pool is an estimate because assessments are not complete.
4 The 2011 gross revenue pool, projected by the Federal Department of Finance, excludes impact of Ontario measures.
5 The provincial allocation of 2012 Canada Corporate Taxable Income will be based on shares from the 2010 tax returns to be assessed during 2011.
6 Revenue impacts related to changes in Ontario Corporate Profit Growth would be realized in the current year if reflected in federal instalment payments; otherwise the impact would be recognized in future years.
This table is based on Table 16 on pages 192 to 194 of the 2011 Ontario Budget.


TABLE 7. Selected Expense Assumptions and Sensitivities
Program/Sector 2011-12 Assumption 2011-12 Sensitivity  
Health Sector Annual growth of 4.3 per cent. One per cent change in health spending: $476 million.  
Hospitals Sector Expense Annual growth of 4.7 per cent. One per cent change in hospitals sector expense: $212 million.  
Ontario Health Insurance Plan (OHIP) Annual growth of 5.2 per cent. One per cent change in payments made for services and for care provided by physicians and practitioners: $125 million.  
Drug Programs Utilization Annual growth of less than 4.8 per cent. One per cent change in program expenditure of all drug programs: $43 million (seniors and social assistance recipients).  
Long-Term Care Homes 77,800 long-term care home beds. Average Provincial annual operating cost per bed in a long-term care home is $48,300. One per cent change in number of beds: approximately $38 million.  
Home Care Approximately 20 million hours of homemaking and support services. One per cent change in hours of homemaking and support services: approximately $6 million.  
Approximately 8 million nursing and professional visits. One per cent change in nursing and professional visits: approximately $6 million.  
Elementary and Secondary Schools 1,877,000 average daily pupil enrolment. One per cent enrolment increase: $140 million.  
University Students 366,000 full-time undergraduate and graduate students. One per cent enrolment change: $35 million.  
College Students 182,600 full-time students. One per cent enrolment change: $13 million.  
Ontario Works 260,423 average annual caseload. One per cent caseload change: $23 million.  
Ontario Disability Support Program 290,172 average annual caseload. One per cent caseload change: $38 million.  
Ontario Child Benefit 1,035,000 eligible children. One per cent change in number of eligible children: $10 million.  
Child Protection Services 45,100 children and open protection cases. One per cent increase in the number of children and open protection cases: $18 million.  
Correctional System 3.2 million adult inmate days per year. Average cost $180 per inmate per day. One per cent change in inmate days: $5.8 million.  
Interest on Debt Average cost of 2011-12 borrowing is forecast to be approximately 4.5 per cent. The 2011-12 impact of a 100 basis-point change in borrowing rates is forecast to be approximately $500 million.  
This table is based on Table 20 on page 202 of the 2011 Ontario Budget.  


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Summary of Significant Accounting Policies and Contingent Liabilities

This section sets out the significant accounting policies used in preparing the plan discussed in this report. Information on contingent liabilities is also provided. Please refer to the Public Accounts of Ontario 2009–10 for further details.

Basis of Accounting and Presentation

The Pre-Election Report is prepared on the same accounting basis as the 2011 Ontario Budget and the 2009–10 Consolidated Financial Statements. Those documents are prepared in accordance with the accounting principles for governments recommended by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants (CICA) and, where applicable, the recommendations of the Accounting Standards Board of the CICA.

This report has been prepared in accordance with the CICA's standards for measurement, presentation and disclosure of future-oriented financial information.

Reporting Entity

The estimated revenues and expenses reflect the expected activities of the Consolidated Revenue Fund combined with those organizations which PSAB standards define as controlled by the government, including public hospitals, school boards and colleges.

Other government organizations are individually consolidated by the Province if they meet one of the following criteria: i) their revenues, expenses, assets or liabilities are greater than $50 million, or ii) their outside sources of revenue, deficit or surplus are greater than $10 million.

Principles of Consolidation

Government business enterprises are recognized on a modified equity basis. Under this method, their combined net assets are included in the Province's Consolidated Statement of Financial Position as Investment in Government Business Enterprises, and their net income is shown as Income from Investment in Government Business Enterprises in the Province's Consolidated Statement of Operations.

Effective April 1, 2009, the assets and liabilities of hospitals, school boards and colleges are consolidated with those of the Province on a line-by-line basis. Consequently, their net debt is included in the consolidated net debt of the Province. The total annual expenses of these organizations, net of revenues they receive directly from the public, such as tuition fees, patient fees, donations and other recoveries, are included with the consolidated expenses of the Province.

Government organizations are included on a line-by-line basis with the consolidated assets, liabilities, revenues and expenses of the Province.

Where necessary, adjustments are made to present the accounts of these consolidated organizations on a basis consistent with the accounting policies of the Province, and to eliminate significant inter-organizational accounts and transactions.

Future Changes in Accounting Standards

IFRS adoption: In December 2009, PSAB confirmed that government business enterprises will be required to adopt International Financial Reporting Standards (IFRS) in fiscal years beginning on or after January 1, 2011.

Rate-regulated accounting: In September 2010, the CICA approved an optional deferral of the mandatory date for adoption of IFRS by qualifying entities with rate-regulated activities to January 1, 2012. Also in September 2010, the International Accounting Standards Board decided to defer its work on its rate-regulated activities accounting project and seek public input as to its future agenda regarding its work on this project.

The Ministry of Finance continues to monitor and assess the potential future impact of rate-regulated accounting on the Province's Consolidated Financial Statements. The potential future impact is not reasonably determinable at this time and therefore is not reflected in the fiscal plan.

Revenue

Revenues are recognized in the fiscal year that the events giving rise to the revenues occur and they are earned. Amounts received prior to the end of the year, which relate to revenues that will be earned in a subsequent fiscal year, are deferred and reported as liabilities.

Deferred capital contributions are amortized into revenue over the estimated useful life of the related tangible capital assets.

Expense

Expenses are recognized in the fiscal year that the events giving rise to the expenses occur and resources are consumed.

Transfer payments are recognized in the year during which the events giving rise to them occur, provided that the transfer is authorized, all eligibility criteria are met and a reasonable estimate of the amount can be made.

Interest on debt includes: i) interest on outstanding debt net of interest income on investments and loans; ii) amortization of foreign exchange gains or losses; iii) amortization of debt discounts, premiums and commissions; iv) amortization of deferred hedging gains and losses; and v) servicing and other costs.

The costs of buildings, transportation infrastructure, vehicles, aircraft, leased assets, machinery, equipment and information technology infrastructure and systems owned by the Province and its consolidated organizations are amortized and recognized as expenses over their estimated useful lives on a straight-line basis.

Contingent Liabilities

In addition to the key demand sensitivities and economic risks to the fiscal plan, there are additional risks stemming from the government's contingent liabilities. Whether these contingencies result in actual liabilities for the Province is beyond the direct control of the government. Losses could result from legal settlements, defaults on projects, and loan and funding guarantees. Provisions for losses that are likely to occur and can be reasonably estimated are expensed and reported as liabilities in the Province's financial statements. Significant contingent liabilities are described on pages 57–59 of the 2009–10 Annual Report and Consolidated Financial Statements of the Public Accounts.

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Rapport préélectoral sur les finances de l'Ontario 2011

 

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