Queen’s Park Update: 2011 Ontario Budget

This update is kindly provided by CG Group (http://www NULL.cggroup NULL.com/).

THE FISCAL CONTEXT 

In developing this Budget the McGuinty government faced an unprecedented conundrum. On one hand, this is an election year with an election scheduled in slightly more than six months, so any government would like to offer up as many “goodies” as possible. On the other hand, the government faces a fiscal crunch that has been characterized by some as “scary”. The total accumulated debt of Her Majesty in right of Ontario is $236 billion (which includes the stranded debt of Ontario Hydro, but does not include other “contingent liabilities” such as the WSIB’s unfunded liability of (approx) $13 billion). The net debt after accounting for assets comes to about $217 billion. Interest paid on the debt for the current (2010-11) fiscal year is calculated at about $10 billion, which is 8% of the government’s total operating budget and more than the Province spent on education in the same year. That debt situation means that the Ontario Financing Authority has to roll about $40 billion annually in debt instruments to maintain the Province’s cash flow. In FY2011-2012 41.6% of that financing is supposed to be raised internationally so maintaining the confidence of foreign markets is vital. The most common test of the financing ability of sovereign [ie. government] debt is the debt to GDP ratio. Ontario’s ratio was 35.4% in 2010-11. This is the worst ratio of any province in Canada [the Canadian average is 32.2%]. The ratio is projected to peak in 2015-16 at 40.65%. This compares to 28% when the McGuinty government came to power in 2003 which at the time was the best in Canada. Last week the credit rating agency Standard & Poor’s put the Province on notice that it might downgrade its credit rating, pending an analysis of today’s Budget. The net effect is that Minister Duncan had very little fiscal room to manoeuver in this Budget if he is to maintain the markets’ confidence and forestall a credit crunch for Ontario. Nothing much was expected, therefore, in terms of new spending initiatives – and nothing much was delivered. In many ways this Budget was more a retrospective [some might say a valedictory] on what the McGuinty folks have accomplished since 2003, rather than revealing plans and a vision for the future.  

FISCAL HIGHLIGHTS   

Total expenditures: $124.16 billion 

Total revenues: $108.56 billion (Includes $23 billion in federal transfers) 

Contingency reserve: $0.76 billion 

Total debt: $16.36 billion ($1.16 billion less than projected last year due to higher than expected HST revenues and expenditure reductions)  

• GDP Growth   2010: 2.8% 

2011: 2.4% 

2012: 2.7%  

• Reduce the size of the Ontario Public Service (OPS) by 4,900 employees by March 31, 2014, mostly through attrition. Don Drummond, former Chief Economist at TD appointed to head a committee to identify additional savings. The privatization of revenue-producing Crown corporations and government-owned assets appears to be off the table, for now. 

• Promise to extract additional $1.5 billion in operating expenditure reductions over three years 

• Balance budget projected for fiscal year 2016-17 

• Personal income tax revenues fell $2.1 billion in 2010-2011 as a function of a tough economy 

• Unemployment:           May 2009: 9.4% 

February 2011 8.0%  

SELECTED SECTORS 

[All figures, etc., subject to verification in Main Estimates to be tabled in a few days and by future announcements] 

Health Care 

• Total expenditures (including Health Promotion and Sport) 2010-11: $45.30 billion 

2011-12: $47.50 billion 

• Community services e.g. long-term care homes, CCACs increased by 3 per cent 

• Hospital based funding increased 1.5% plus $600 – $800 million over 3 years to address some hospitals’ working capital crunch 

• Mental health and addictions strategy $93 million by 2013–14 

• $15 million over 3 years for breast cancer screenings 

• $100 million for enhanced pharmacy services and Ontario Drug Benefit program expenditures 

An underlying assumption is that federal transfers will continue at current levels after the existing Health Accord expires in 2014. 

Energy 

• Ministry of Energy expenditures reduced from $584.5 million in 2010-11 to 331.7 million in 2011-12 

• More than 30 clean energy manufacturers have announced that they will set up or expand operations in Ontario since the start of the Green Energy Act in September 2009 

• Manufacturers of parts for solar and wind industries – located in cities such as Toronto, Windsor, Burlington, and Peterborough 

• Ontario’s long-term (20 year) energy plan includes: 

o Shutting down all coal-fired generation plants by 2014. Two are set to be closed in 2011 

o Building the largest expansion in hydroelectric power in nearly 40 years 

o Generating 13 per cent of Ontario’s energy from renewal sources by 2030 (currently accounts for about 3 per cent) 

o Securing clean and reliable nuclear energy to provide half of Ontario’s energy 

o 7,100 MW of conservation by 2030 

o Continuing to work on transmission projects to enable new generation and ensure reliability  

• 2010 Ontario Economic Outlook and Fiscal Review spurred the introduction of the Ontario Clean Energy Benefit (OCEB) – came into effect on January 1, 2011 

• OECB expenditures will be increasing from $300 million to $1.1 billion in 2011-2012 

• The OCEB provides relief for residential, farm, and small business consumers on rising costs of electricity 

• OCEB provides a benefit of equal to 10 per cent including tax of the total cost of electricity 

• This is meant to help Ontarians better deal with the modernization of the Ontario power grid to cleaner more efficient system. (i.e. eliminating coal) 

• Over the next 5 years it is expected that electricity prices will increase by an average of 3.5 per cent a year 

• In the past 20 years, prices have increased by an average of 3.6 per cent 

• Aboriginal participation has been encouraged through the $250 million Aboriginal Loan Guarantee Program introduced in the 2009 Budget 

• 6 applications have been received to date totaling close to $150 million 

• Including a four-megawatt M’Chigeeng First-Nations owned wind farm on their land on Manitoulin Island 

Research & Development 

• Operating budget for Ministry of Research and Innovation –increases from $365.5 to $369.5 million. 

Water Strategy

• Water Opportunities and Conservation Act, 2010 in order to encourage the creation and export of clean water technologies, promote water conservation and attract economic opportunities to Ontario 

• The act created the Water Technology Acceleration Project (WaterTAP) (http://www NULL.watertapontario NULL.com/) – a hub bringing together academia, industry, and government in order to develop and promote the sector 

• Act allows the government to set water efficiency standards, encourage water efficiency across public agencies, and require water conservation plans from institutions under the public sector umbrella 

• Ontario Small Waterworks Assistance Program, will provide up to $50 million to help small municipalities improve water conservation and water and wastewater system efficiencies 

• $30 million for funding to municipalities over three years to support education, planning and public awareness of water conservation 

• The Water Strategy encourages innovation through: 

o The Innovation Demonstration Fund Water Round which assists water technology companies with the potential to be globally competitive. 

o The Ontario Research Fund – Research Excellence Program, which focuses on development of water-related solutions.   

Municipalities 

• In addition to their share of provincial gas tax revenue, municipalities will receive $3.07 billion in transfers from the Province in 2011-12 rising to $4.0 billion by the end of fiscal year 2017-18 (if achieved this would represent a 270 per cent increase since 2003) 

• Through the Ontario Municipality Partnership Fund, rural municipalities will receive $453 million in fiscal year 2011-12 and northern municipalities will receive $243 million 

 

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