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Mid-Year Update on Economic and Fiscal Performance for 2012-13

Archived Backgrounder

Mid-Year Update on Economic and Fiscal Performance for 2012-13

Ministry of Finance

Ontario is directly affected by the changing global economy and the uncertainty that comes with that change. Many Ontario families are still feeling the effects of the recent worldwide recession. 

By working together, Ontarians rebuilt their public services after years of neglect. When the recession hit, Ontarians invested in short-term economic stimulus to protect and create jobs and to protect public services: education, health care and modern infrastructure.

The government's economic plan has confronted the challenges facing Ontario leading up to and through the global recession. The plan is also making smart investments that create jobs and protect the gains Ontario has made in public services.

2012-13 In-Year Fiscal Performance

The deficit for 2012-13 is projected to be $14.4 billion, an improvement of more than $400 million from the 2012 Budget forecast. The strong action taken to eliminate the deficit is working.

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The 2012-13 revenue projection of $113,019 million is $445 million above the 2012 Budget projections, largely reflecting a higher estimated 2011-12 tax base.

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Total expense has decreased by $3.7 million compared to the 2012 Budget plan.

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Medium-Term Economic and Fiscal Outlook

The Ontario economy continues to grow in a challenging global environment, although the pace of growth remains modest. At the same time, economic growth is becoming more balanced. Business investment and net exports will provide the primary foundation for growth over the next several years.

Since the 2012 Budget, expectations for global economic growth have weakened. There are considerable risks to the outlook. Economic conditions in Europe have worsened, the growth of emerging market economies has slowed and the U.S. economy remains tentative. However, recent actions by the European Central Bank and the U.S. Federal Reserve have reduced financial stress.

For planning purposes, the Ministry of Finance is assuming real gross domestic product (GDP) growth of 2.0 per cent in 2012, 1.9 per cent in 2013, 2.3 per cent in 2014 and 2.4 per cent in 2015 [1]. Robust business capital investment, a rebound in net trade and increased consumer spending will be key contributors to growth.

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Even in the face of continued global economic uncertainty, the government is more focused than ever on reaching the goals it set out on the path to eliminating the deficit. Toward that end, the deficit outlook for 2012-13 has improved from the 2012 Budget forecast and the deficit projections for 2013-14 and 2014-15 remain on track with the targets outlined in the 2012 Budget.

The medium-term revenue outlook reflects current revenue information and projections for the province's economic growth as outlined in Chapter II: Economic Outlook of the 2012 Ontario Economic Outlook and Fiscal Review. The current revenue outlook is prudent given economic uncertainties.

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Total expense is projected to grow to $130.3 billion by 2014-15 -- unchanged from the forecast included in the 2012 Budget.

Program expense over the medium term is also consistent with the 2012 Budget plan. These projections reflect the government's commitment to control growth in program expense while protecting gains made in health and education.

The interest on debt forecast over the medium-term is on track with the projections outlined in the 2012 Budget plan.

Jobs for Ontarians

From the recessionary low in June 2009, 356,000 net new jobs have been created. Full-time employment rose by 364,700 over this period, while part-time employment declined by 8,700. The majority of the net new jobs were in industries paying above-average wages.

As of September 2012, Ontario employment was 90,200 net jobs above its pre-recession peak in September 2008 and 356,000 net jobs above its recessionary low in June 2009. Ontario's unemployment rate has also declined from a recessionary high of 9.4 per cent in June 2009 to 7.9 per cent in September 2012.

The pace of job creation in Ontario since June 2009 is ahead of that in the United Kingdom, the United States and all the individual Great Lakes States. All the jobs lost in Ontario during the recession have been recovered, while the United States has recovered just 48.5 per cent of jobs lost.

Employment is forecast to increase by 0.8 per cent in 2012, or 51,000 net new jobs.

Job creation in Ontario is expected to strengthen over the medium term, increasing by 1.2 per cent in 2013 and by 1.5 per cent in both 2014 and 2015, resulting in almost 350,000 more jobs in 2015 compared to 2011. The unemployment rate is projected to fall to 7.6 per cent in 2013 and steadily decline to 6.8 per cent by 2015 as employment outpaces labour force growth.

Long-Term Public Borrowing and Debt

The forecast long-term public borrowing requirement for 2012-13 is $34.5 billion, down by the $0.4 billion reduction in the 2012-13 deficit forecast. As at September 30, 2012, $17.9 billion, or 52 per cent, of the long-term borrowing requirement was completed. This figure includes Ontario Savings Bond sales of $0.8 billion.

The lower deficit in 2011-12 resulted in the province beginning 2012-13 with higher cash reserves than forecast at the time of the 2012 Budget. These higher cash reserves will be used in 2012-13 to reduce the 2013-14 borrowing program by $1.7 billion by buying back debt maturing in that year.

The total long-term borrowing requirement over the forecast period has been reduced by $2.1 billion compared to the 2012 Budget.

Total debt, which represents all borrowing without offsetting financial assets, is projected to be $278.0 billion as at March 31, 2013, compared to $257.3 billion as at March 31, 2012.

Ontario's net debt is the difference between total liabilities and total financial assets. It is projected to be $257.6 billion as at March 31, 2013, compared to $259.8 billion forecast in the 2012 Budget. Net debt was $235.6 billion as at March 31, 2012.

The accumulated deficit is projected to be $172.8 billion as at March 31, 2013. The difference of $84.8 billion between net debt and accumulated deficit is due to net investments in capital assets.

Residual Stranded Debt Update

The 2012 annual financial statements of the Ontario Electricity Financial Corporation (OEFC) showed revenue over expense of $1.1 billion, reducing the OEFC's unfunded liability (or "stranded debt of the electricity sector") from $13.4 billion as at March 31, 2011, to $12.3 billion as at March 31, 2012.

In accordance with Ontario Regulation 89/12, the Minister of Finance has determined the residual stranded debt to be $4.5 billion as at March 31, 2012. This is a decrease of about $1.3 billion compared to residual stranded debt of $5.8 billion as at March 31, 2011, and a decrease of about $7.4 billion from an estimated peak of residual stranded debt of $11.9 billion as at March 31, 2004.

The residual stranded debt determination as at March 31, 2012, is based on a stranded debt amount of $12.3 billion, reduced by the estimated present value of future dedicated revenues to OEFC of $7.8 billion. This results in the calculated $4.5 billion of residual stranded debt as at March 31, 2012.

The Electricity Act, 1998, provides for the Debt Retirement Charge to be paid by consumers until the residual stranded debt is retired.

[1] Based on information available to October 5, 2012.

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