Mid-Year Update on the Economic and Fiscal Performance for 2013-14
The Ontario government is introducing a new three-part plan to grow the economy and create jobs. This plan invests in people, builds modern infrastructure and supports a dynamic and innovative business climate.
Forces outside Ontario continue to affect the economy, leading many Ontarians to worry about their job security and their future. The recovery from the global recession remains uncertain. What is certain is the government's determination to help Ontario families and businesses succeed.
Investing in our people will prepare them for the economy of today and tomorrow. Building more modern infrastructure will create jobs immediately and increase Ontario's competitiveness for the long term. And encouraging a dynamic business climate will help small and medium-sized businesses grow and attract larger companies to invest and create good Ontario jobs.
The plan calls for a fair and responsible approach. That will mean new strategic investments to spur growth, create jobs, strengthen services and help families. The government remains on track to balance the budget by 2017-18.
However, should global economic conditions falter, causing revenue growth to fall further, the priority is clear -- the government will continue to protect investments in jobs, growth and families ahead of short-term targets.
Stronger growth and new jobs are the surest and fairest path to a balanced budget. That is why the three-part plan will be critical to fostering the jobs and growth necessary to support Ontario's families and eliminate the deficit.
2013-14 In-Year Fiscal Performance and Outlook
For four years in a row, the government has overachieved on the deficit targets it established after the 2009 global recession, based on disciplined actions to reduce spending. In September, the 2012-2013 Public Accounts of Ontario reported that the deficit for 2012-13 was $9.2 billion -- $0.6 billion lower than projected at the time of the 2013 Budget. Total spending and program spending in 2012-13 fell from the previous year for the first time in more than a decade.
Change since Budget
Interest on Debt
Note: Numbers may not add due to rounding.
The deficit for 2013-14 is currently projected to be $11.7 billion, on track with the 2013 Budget forecast and more than $1.0 billion ahead of the deficit projection for 2013-14 outlined in the 2012 Budget. Despite slower economic growth in 2013 and 2014, revenues are on track with the 2013 Budget projection.
Similarly, expense is on track with the 2013 Budget projection, reflecting the government's commitment to manage spending. The 2013-14 program expense outlook is essentially unchanged from the 2013 Budget projection and is also consistent with the 2012 Budget projection, which forecasted program expense of $117.0 billion in 2013-14.
Ontario currently has the lowest program spending per capita among Canadian provinces and ranks the lowest among provinces in terms of public-sector employees per capita. In 2012, the latest year for which data are available, Ontario had 6.5 public-sector employees per 1,000 people, compared to a national average of 9.7 employees per 1,000 people.
With the economy in a period of sustained moderate growth, the government remains on track to balance the budget by 2017-18 in a fair and responsible way. The 2013-14 outlook maintains a $1.0 billion reserve to protect the fiscal plan against any adverse changes in the Province's revenue and expense. If the reserve is not needed by year-end, it will be applied to reduce the deficit.
Real gross domestic product (GDP) has increased 8.9 per cent since the end of the recession and is more than three per cent higher than its pre-recession level. But given a fragile global recovery, many businesses, communities and people continue to feel vulnerable to economic change, and are uncertain about the future.
As part of building Ontario's fiscal plan, the Ministry of Finance is assuming real GDP growth of 1.3 per cent in 2013, 2.1 per cent in 2014 and 2.5 per cent in both 2015 and 2016 (based on information available to October 24, 2013). This is lower than the forecast for real GDP growth at the time of the 2013 Budget of 1.5 per cent in 2013, 2.3 per cent in 2014 and 2.4 per cent in both 2015 and 2016.
Ontario's economy continues to grow, albeit modestly. Global economic uncertainty has contributed to restrained export growth and business investment, holding back the overall pace of growth in the Ontario economy. As global growth improves, Ontario's exports will strengthen, spurring business investment. Household spending, which accounts for close to 60 per cent of the economy, is also expected to grow modestly.
Ontario Economic Outlook
Real GDP Growth
Nominal GDP Growth
p = Ontario Ministry of Finance planning projection.
Sources: Statistics Canada and Ontario Ministry of Finance.
The Ministry of Finance consults with private-sector economists and tracks their forecasts to inform the government's planning assumptions. Additionally, in the process of preparing the 2013 Ontario Economic Outlook and Fiscal Review, the Minister of Finance met with private-sector economists to discuss their views on the economy. All private-sector economists are projecting continued growth for Ontario over the forecast horizon. On average, private-sector economists are projecting growth of 1.4 per cent in 2013, 2.2 per cent in 2014 and 2.6 per cent in both 2015 and 2016. For prudent fiscal planning, the Ministry of Finance's real GDP growth projections are slightly below the average private-sector forecast. Private-sector economists' forecasts have also been revised down somewhat compared to forecasts at the time of the 2013 Budget.
Jobs for the People of Ontario
With hard work and discipline, Ontario families are helping the province emerge from the global recession. But there continue to be uncertainties for people and businesses. The government recognizes that more can be done. It must work to expand opportunities for Ontario families and in order to do so must make new choices and take new decisions.
Ontario's economic fundamentals remain strong. The economy continues to grow and create new jobs in the face of a challenging global environment. Ontario has recovered all of the jobs lost during the recession and employment is now above the pre-recession peak. More than 475,000 jobs have been created since the recessionary low in June 2009 and there are currently over 200,000 more jobs since the pre-recession peak. Job creation in Ontario has outpaced that of the rest of Canada, the U.S. and all of the Great Lake States.
Over the first nine months of 2013, employment is up 105,600 (+1.6 per cent) compared to the same period last year. The majority of jobs gained so far this year were in full-time positions and in the private sector.
Borrowing and Debt Management
The long-term public borrowing requirement for 2013-14 remains at $33.4 billion, as forecast in the 2013 Budget. As at October 23, 2013, $21.9 billion, or 65 per cent, of this year's long-term public borrowing requirement was completed. This figure includes Ontario Savings Bond sales of $0.4 billion.
The weighted-average term to maturity of long-term provincial debt issued so far in 2013-14 is 13.8 years, compared to 12.4 years for 2012-13 and 13.0 years for 2011-12. The term of debt may be extended or shortened depending on the future direction of interest rates and the term preference of investors. The interest on debt expense for 2013-14, forecast at $10.6 billion, remains the same as in the 2013 Budget.
Ontario has issued $17.5 billion in long-term debt in the Canadian dollar market so far this year, representing 80 per cent of total borrowing to date. The Province expects to end the year with at least 70 per cent of its borrowing in the Canadian market, as set out in the 2013 Budget.
Total debt, which represents all borrowing without offsetting financial assets, is projected to be $291.9 billion as at March 31, 2014, compared to $281.1 billion as at March 31, 2013.
Ontario's net debt is the difference between total liabilities and total financial assets. It is projected to be $272.1 billion as at March 31, 2014, $0.7 billion lower than forecast in the 2013 Budget. Net debt was $252.1 billion as at March 31, 2013.
Accumulated deficit is projected to be $178.9 billion as at March 31, 2014, compared to $179.9 billion forecast in the 2013 Budget. The projected difference of $93.2 billion between net debt and accumulated deficit is due to net investments in capital assets.
Residual Stranded Debt Update
The 2013 annual financial statements of the Ontario Electricity Financial Corporation (OEFC) showed revenue over expense of about $1.0 billion, reducing the OEFC's unfunded liability (or "stranded debt of the electricity sector") from $12.3 billion as at March 31, 2012, to $11.3 billion as at March 31, 2013.
In accordance with Ontario Regulation 89/12, the Minister of Finance has determined the residual stranded debt to be $3.9 billion as at March 31, 2013. This is a decrease of $0.6 billion compared to residual stranded debt of $4.5 billion as at March 31, 2012, and a decrease of $8.0 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, 2013, is based on a stranded debt amount of $11.3 billion, reduced by the estimated present value of future dedicated revenues to OEFC of $7.4 billion. This results in the calculated $3.9 billion of residual stranded debt as at March 31, 2013.
The Electricity Act, 1998, provides for the Debt Retirement Charge to be paid by consumers until the residual stranded debt is retired.