Fall statement projects $5.6 billion deficit and potential additional liabilities of up to $2.2 billion for 2003-04

Archived Release

Fall statement projects $5.6 billion deficit and potential additional liabilities of up to $2.2 billion for 2003-04

Ministry of Finance

McGuinty Government outlines four-part work plan to transform government, strengthen financial position and deliver on positive agenda for change QUEEN'S PARK, Dec. 17 - The McGuinty government today released its first economic statement, which projects a $5.6 billion deficit for 2003-04 and identifies other potential liabilities that could add up to $2.2 billion to the final year-end deficit. The statement notes that the Province faces a structural deficit of at least $4.5 billion from next year onward in the absence of action. The government also announced a four-part work plan to consult Ontarians on the measures to balance the budget while restoring public services in Ontario. "When we were sworn in on October 23, we found that the financial circumstances of this province were far worse than the people of Ontario had been led to believe. Without further action, without changing the way we do business and deliver programs, the Province faces an ongoing structural deficit from next year onward," said Finance Minister Greg Sorbara. "We face tough choices and we will make wise decisions with the help of the people of Ontario. We've laid out the problem. Now we will get to work fixing it," said Minister Sorbara. "We have the expertise and the drive to succeed. With the help of the public service, our businesses and our communities across this province, we will find the solutions." The McGuinty government's four-part work plan to transform government and eliminate the structural deficit includes: - Comprehensive consultations with Ontarians leading up to the 2004 Budget. - Acting with restraint. - Building on greater co-operation among all levels of government. - Redesigning government to deliver better public services. "The deficit we have inherited threatens all that we want for Ontarians. Without a strong fiscal foundation, we cannot build a stronger Ontario," Sorbara said. The economic statement also reports that Ontario gross domestic product is on track to grow 1.7 per cent in real terms for the current year, despite a series of one-time shocks, including SARS, restricted border crossings, mad cow disease and the August blackout. Furthermore, economic forecasters agree that the Ontario economy will rebound strongly, with economic growth accelerating to 3.1 per cent next year, and 3.6 per cent the year after. The October 2003 report by former provincial auditor Erik Peters confirmed that Ontario faced a potential deficit of $5.6 billion for 2003-04. Mr. Peters also listed risks to the fiscal outlook of up to $1 billion. Many of the factors that produced this $5.6 billion deficit are structural, or permanent in nature, and, unless action is taken, will affect the Province for years to come. "We will repair the balance sheet. We will strengthen our financial position so we can deliver the finest schools, the best health care, the cleanest environment and the strongest communities," concluded Minister Sorbara. Backgrounder ------------------------------------------------------------------------- Ministry of Finance December 17, 2003 HOW ONTARIO WENT FROM A BALANCED BUDGET TO A STRUCTURAL DEFICIT Province's Financial Position Has Declined Since 2000-01 The Province has gone from a $1.9 billion surplus in 2000-01 to a potential $5.6 billion deficit in 2003-04. This deficit is not a one-time occurrence - it has been years in the making. The Province's financial position has been weakening since 2000-01. Last year the surplus was only $117 million. Moreover, without asset sales and federal transfer increases, only 2000-01 would have shown a budget surplus. We Can't Grow Our Way Out of It Since 2000-01, spending on provincial programs went up by more than $10 billion, while tax revenues, which best support spending, increased by $500 million. Total spending has increased from $64.1 billion in 2000-01 to a projected $75.2 billion in 2003-04, while total revenues have increased from $66.0 billion to $69.5 billion over the same period. Since 2000-01, tax revenues were not there to support spending growth, but until 2003-04 other factors such as asset sales and increases in federal transfers disguised the problem. Excluding federal transfers, own source revenues in 2003-04 would have fallen below their 2000-01 levels. Tax measures introduced by the government will help, as will a growing economy. But economic growth alone will not close the gap between spending and revenues. Based on reasonable revenue projections and the recent experience in Provincial spending growth, without further action Ontario faces an ongoing structural deficit of at least $4.5 billion from next year onward. Spending Growth Rates Required to Balance the Budget Given the current economic outlook over the medium term, spending would have to be cut in order to balance the budget by 2004-05. And balancing the budget by 2005-06 or 2006-07 would require much slower spending growth than in recent years. While these fiscal scenarios serve to illustrate the many difficult choices facing the government as it plans for a balanced budget, it should be noted that these scenarios use planning assumptions only. These underlying assumptions could be materially altered by government decisions and advice, including advice received through the forthcoming public consultation process. It is expected that as a result of public consultations, the eventual outcome could differ substantially from these scenarios. To balance the budget in 2004-05, total spending would actually have to decline by 2.6 per cent from the projected 2003-04 level, excluding the impact of $720 million in SARS-related expenses in 2003-04. Balancing the budget by 2005-06 or 2006-07 would require more moderate spending growth than in recent years. To balance by 2005-06, spending growth would have to be held to a maximum of 1.3 per cent on average for the next two years. Balancing by 2006-07 requires spending growth to be held to an average of 2.3 per cent a year for three years. Disponible en fran├žais For more information visit www.gov.on.ca/finFor further information: Diane Flanagan, Minister's Office, (416) 212-0634; Boni Fox Gray, Ministry of Finance, (416) 212-2155