Mid-Year Update of Financial Results and Economic Performance For 2010-11
While the economy is emerging from the global recession, Ontario's families and businesses are still feeling pinched financially. In addition to the lingering impacts of the global recession, Ontarians are feeling the effects of the costs associated with rebuilding and modernizing the province.
During the recession, the McGuinty government chose to lessen the impact on Ontarians through short-term stimulus investments to help create and preserve jobs. The government also made a decision to protect education, health care and other crucial public services. As a result, Ontario, like many other jurisdictions in Canada and around the world, has a fiscal deficit.
The 2010 Economic Outlook and Fiscal Review updates the Open Ontario plan to create new jobs, boost long-term economic growth and protect the progress Ontarians have made in their schools and hospitals. It also updates Ontario's economic outlook and the government's prudent and responsible plan to reduce borrowing, cut spending and eliminate the deficit caused by the global recession.
By continuing its prudent approach to fiscal management, the government is on track for a deficit of $18.7 billion in 2010-11, which is almost 25 per cent lower than the $24.7 billion deficit projected a year ago for 2009-10. The government has laid out a realistic and responsible plan to cut the deficit in half within five years of its highest point and to eliminate it in eight years.
The projected deficit of $18.7 billion is a $1 billion improvement on the 2010 Budget projection. The improvement to the fiscal forecast for 2010-11 is due mainly to an increase in revenue, resulting from stronger economic growth, and the government's prudent fiscal management.
Total revenue has increased by 0.7 per cent while total expense has decreased by 0.2 per cent. The revenue outlook has improved due to stronger economic growth. Total expense is lower due to the fact that the province's interest on debt expense projection is $246 million below the 2010 Budget forecast.
|Budget||Current Outlook||In-Year Change|
|Interest on Debt||9,961||9,715||(246)|
- Note: Numbers may not add due to rounding.
The government is on track to meet the medium-term fiscal targets outlined in the 2010 Budget. These include steadily declining deficits of $17.3 billion in 2011-12 and $15.9 billion in 2012-13, and incorporate the initiatives announced as part of the 2010 Ontario Economic Outlook and Fiscal Review, including the proposed Ontario Clean Energy Benefit.
A key element of the 2010 Budget plan to eliminate the deficit was a commitment to manage down expense while following through on policies that support jobs and growth to ensure future opportunity and prosperity. The government is committed to maintaining a prudent and responsible approach to managing growth in expense, while preserving public services. The 2010 Budget included key expenditure management measures including drug program reforms, compensation restraint, and delaying and re-scoping some major capital projects.
The medium-term expense outlook is consistent with the 2010 Budget plan and includes the impact of providing direct relief to eligible consumers through the proposed Ontario Clean Energy Benefit and the measures the government is taking to manage spending and reduce costs.
The government remains committed to ongoing expenditure management and has an extensive track record of effectively realizing savings and efficiencies. As outlined in the 2010 Budget, the government has continued its comprehensive review of all government programs and services. To date, this review has identified more than $260 million in potential savings through both programming and administrative expenditure reductions. The government will continue to identify program efficiencies to ensure the rate of expense growth remains well below the rate of growth in revenue over the medium term.
The Ontario government has negotiated the principal terms of a proposed agreement to renew its long-standing business partnership with Teranet, by extending its exclusive licences to provide electronic land registration and writs services in Ontario for an additional 50 years. Under the proposed transaction, Teranet's owner, Borealis Infrastructure, would provide the province with an upfront payment of $1 billion, which would be used to reduce the province's debt. This debt reduction would decrease Ontario's ongoing borrowing requirements and save up to $50 million in annual interest costs, or $250 million over five years. When added to the $1 billion reduction in the deficit, this payment means the government is borrowing $2 billion less than forecasted. Beginning in 2017, the province would also receive annual royalty payments from Teranet, which are expected to be approximately $50 million in 2017-18 and to grow in future years.
The 2010-11 revenue outlook, at $107.7 billion, is almost $0.8 billion above the 2010 Budget forecast, largely reflecting stronger economic growth in 2010.
The outlook for 2011-12 and 2012-13 remains close to the 2010 Budget projection.
|Summary of Medium-Term Revenue Outlook|
|Government of Canada||18.6||23.8||21.1||21.1|
|Income from Government Business Enterprises||4.2||4.2||4.4||4.6|
|Other Non-Tax Revenue||8.0||7.2||6.9||6.9|
|Change from 2010 Budget||0.8||(0.2)||(0.1)|
|Note: Numbers may not add due to rounding.|
Summary of Economic Performance
There are clear signs that the Ontario economy is recovering. Key indicators have improved from lows posted during the recession. After declining for four consecutive quarters -- falling 4.9 per cent from the second quarter of 2008 to the second quarter of 2009 -- Ontario real GDP has increased for the last four consecutive quarters, rising 3.7 per cent. Despite the improvement, the level of real GDP in the second quarter of 2010 was 1.4 per cent below the pre-recession level.
Since May 2009, employment has increased by 2.9 per cent or 186,100 net new jobs. As of October, Ontario has regained 75 per cent of the jobs lost during the global recession.
Since May 2009, job growth in Ontario has been stronger than in most provinces, and significantly above that of the United States as a whole and most U.S. states.
Sustained moderate growth is expected for the Ontario economy. This outlook is based on continued growth in Ontario export markets and increasing demand for consumer goods and services as well as housing. Lower taxes, as a result of Ontario's Tax Plan for Jobs and Growth, will encourage business investment and create jobs.
The Ministry of Finance is assuming real GDP growth of 3.2 per cent in 2010, 2.2 per cent in 2011, 2.5 per cent in 2012 and 2.7 per cent in 2013. For prudent planning purposes, these projections are below the average of private-sector forecasts for Ontario economic growth.
|Real GDP Growth||2.0||(0.9)||(3.6)||3.2||2.2||2.5||2.7|
|Nominal GDP Growth||4.2||0.1||(1.1)||5.6||4.1||4.5||4.6|
- p = Ministry of Finance planning projection.
- Sources: Statistics Canada and Ontario Ministry of Finance.
Employment is projected to increase by 1.7 per cent in 2010, up from the 1.1 per cent projected in the 2010 Budget. The unemployment rate is projected to average 8.8 per cent in 2010, down from 9.0 per cent in 2009 as job creation outpaces the increase in the number of people looking for work. Job gains are expected to average 1.8 per cent annually over 2011 to 2013, resulting in 480,000 more jobs in 2013 than in 2009.
Ontario's Consumer Price Index (CPI) inflation rate is expected to average 2.3 per cent in 2010, following a 0.4 per cent increase in 2009. Private-sector economists expect Ontario's CPI inflation rate to be 2.1 per cent in 2011. In 2012 and 2013, it is projected to average 2.0 per cent annually, the mid-point of the Bank of Canada's target range of one to three per cent.