Paper B: Ontario’s Fiscal Plan . . . 23

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Paper A: Economic Growth Rebounds: Ontario’s Economic Outlook . . . . 1

Appendix . . . 19

Paper B: Ontario’s Fiscal Plan . . . 23

Appendices: Financial Tables and Graphs . . . 55

Paper C: Ontario’s Record on Tax Cuts . . . 73

Paper D: Ontario’s Financing Plan . . . 97

Appendix: Financial Tables . . . 105

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Economic Growth Strengthens: Ontario’s Economic Outlook

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Overview

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Ontario Economic Assumptions

(Annual Average)

2000 2001 2002 2003

Real GDP Growth (per cent) 5.3 1.0 3.1 4.2

Nominal GDP Growth (per cent) 5.9 2.4 3.5 6.0

Employment (thousands) 5,872 5,963 Up to 6,079 Up to 6,264

Unemployment Rate (per cent) 5.7 6.3 6.5 - 6.8 6.0 - 6.5

CPI Inflation (per cent) 2.9 3.1 1.8 2.0

Sources: Statistics Canada and Ontario Ministry of Finance.

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Real GDP Growth:

Ontario vs. Rest of Canada

4.7

1.0 3.4

1.3

0 1 2 3 4 5 6

Ontario Rest of Canada

Sources: Statistics Canada and Ontario Ministry of Finance.

Per Cent

1996-2000 2001

Ontario Hard Hit by Global Slowdown in 2001

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Ontario’s Economic Performance 2001 vs. 1991

1.5

-2.8

1.6

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Employment Real Exports Real Take-Home Pay

2001 1991

Per Cent Change

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Economic Growth Strengthens in 2002

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Economic Growth Assumptions

(Per Cent)

2002 2003

Ontario Real GDP Growth

Private-sector survey average 3.2 4.3

Ontario’s Planning Projection 3.1 4.2

Note: The private-sector average is based on eight recent forecasts.

Sources: Ontario Ministry of Finance and Ontario Finance Survey of Forecasts (June 2002).

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Ontario Employment*: 1997-2003

5,200 5,400 5,600 5,800 6,000 6,200 6,400

97 98 99 00 01 02p 03p

*Average annual employment level.

p = projection. Black area shows projection range.

Thousands

Job Creation Resumes

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-64 37

129 371 319

-92 -200

-100 0 100 200 300 400 500

Small business Medium-sized business Large business

Cumulative change in net new private-sector jobs in Ontario (Thousands)

Note: Small business defined as having up to 49 employees (including self-employed individuals);

medium-sized business, 50-499 employees; large business, 500 or more employees.

Businesses of All Sizes Contribute to Job Growth

1991-1995 1996-2001

Positive Business Climate Supports Broad-Based Job Creation

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Fair and Efficient Financial Regulation

Ontario will continue with actions to maintain a modern financial regulation framework that promotes fairness and efficiency. Sound financial regulation must ensure investor protection, while promoting a healthy and competitive financial services sector and contributing to a positive business climate.

To ensure confidence in its financial markets, Ontario strengthened the Ontario Securities Commission’s (OSC) enforcement capabilities. Continuous disclosure standards have been improved and sound corporate governance has been promoted. Continuing this progress, the Five-year Review Committee of Ontario Securities Laws has just released for consultation its draft report, which contains far-reaching recommendations on a wide variety of securities regulatory matters.

To improve stock and bond market efficiency, the OSC has introduced rules that govern, and allow, broader use of new technology for trading. New technologies can lower trading costs for investors and companies and can make trading more transparent to all. Five new Alternative Trading Systems have started doing business in Ontario.

The government will respond to plans by the credit union system to become more efficient and provide better service to their members on a national basis. It will also undertake a review of Ontario’s liquidity requirements for credit unions in order to determine if any changes are required.

The government is completing consultations on the merger of the Financial Services Commission of Ontario (FSCO), which regulates insurance, pension plans, loan and trust companies, credit unions, mortgage brokers and co- operative corporations, with the Ontario Securities Commission. This would better serve and protect consumers, investors, pension plan members and industry participants.

The government intends to introduce pension surplus reforms that would further improve the regulatory climate in Ontario and provide employers and plan members with more flexibility to negotiate pension surplus sharing agreements. The proposed amendments to the Pension Benefits Act (PBA), based on a Consultation Paper released in 2001, will be discussed with stakeholders.

In response to concerns raised by pension plan administrators, plan members and employers, the government will discuss with stakeholders ways to facilitate the transfer of accrued pensions between pension plans where groups of employees transfer between employers. The government will propose amendments to the PBA to implement this initiative.

The government has been consulting on changes to the current automobile insurance system to enhance fairness and balance and improve its effectiveness. The government intends to introduce reforms that would improve the system for consumers and other participants.

Ontario is committed to making it easier for small business to raise capital:

Small business taxes have been cut to help companies grow, while capital gains taxes have been cut to encourage investment.

The OSC has simplified private placement exemptions to facilitate more investment in small businesses without compromising investor protection.

The TSX Venture Exchange is introducing its Capital Pool Company Program to Ontario. This lets smaller Ontario companies raise money in public markets earlier than would be possible with a conventional initial public offering (IPO) of shares.

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Six-Year Change in Manufacturing Employment Leading U.S. States and Canadian Provinces*

110 87

35 25

8

-48 -53 -54

-75 -99 209

-150 -100 -50 0 50 100 150 200 250

Ontario California

Quebec Alberta

Texas British Co

lumbia Pennsylvania

Michigan Illinois

Ohio New York

* The graph includes the seven U.S. states and the four Canadian provinces with the highest manufacturing employment. These jurisdictions are ranked in order of manufacturing employment creation during 1996 to 2001.

Employment is measured by the annual average level.

Sources: Statistics Canada, U.S. Bureau of Labor Statistics and Ontario Ministry of Finance.

Thousands of Jobs

Cumulative Change 1996-2001

Ontario—Manufacturing Job Growth Leader in North America

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10-Year Government of Canada Bond Rate

9.4 8.1

7.2 8.4 8.1

7.2 6.1

5.3 5.6 5.9 5.5 5.8 6.1 10.8

0 2 4 6 8 10 12

90 91 92 93 94 95 96 97 98 99 00 01 02p 03p

p = private-sector average projection.

Sources: Bank of Canada and Ontario Finance Financial Market Survey (May 2002).

Per Cent

Low Interest Rates Support Growth

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Interest Rate Assumptions

(Average Per Cent)

2001

2002 Jan-May

2002

Jun-Dec 2003

3-month Government of Canada treasury bills

Private-sector survey average 3.8 2.3 3.0 4.1

Ontario’s assumption 3.5 4.6

10-year Government of Canada bonds

Private-sector survey average 5.5 5.5 5.9 6.1

Ontario’s assumption 6.3 6.5

Sources: Bank of Canada, Ontario Ministry of Finance and Ontario Finance Financial Market Survey (May 2002).

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4.9 4.7

1.8

0.0 1.5

1.9 0.9

1.9 2.9 3.1

1.8 2.0 1.0

2.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0

90 91 92 93 94 95 96 97 98 99 00 01 02p 03p

Ontario Consumer Price Inflation

Per Cent

p = projection.

Sources: Bank of Canada, Statistics Canada and Ontario Ministry of Finance.

Bank of Canada Target Range

Inflation Falling

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Spending and Incomes Rising Faster in Ontario

18.5

15.3 22.0

19.1

0 4 8 12 16 20 24 28 32

Real After-Tax Income Real Consumer Spending

Per Cent Change During 1996:Q3–2001:Q4

Ontario Rest of Canada

Tax Cuts Boost Real Take-Home Pay

200 210 220 230 240 250 260 270 280

92 93 94 95 96:1h 96:2h 97 98 99 00 01 02p 03p

p = projection, h = half.

Real Personal Disposable Income ($1997 Billions)

Before Tax Cuts

After Tax Cuts

Strong Consumer Spending to Continue

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(18)

Ontario Housing Starts

35.8 43.1

54.1 53.8 67.2

71.5 73.3 80.0

76.0

30 40 50 60 70 80

95 96 97 98 99 00 01 02p 03p

p = projection.

Sources: CMHC and Ontario Ministry of Finance.

Thousands of Units

Housing Outlook Bright

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(19)

Machinery and Equipment Investment

20.0 22.0 24.0 26.0 28.0 30.0 32.0 34.0 36.0 38.0 40.0

95-01 02p 03p

($1997 Billions)

p = projection.

($1997 Billions)

7.5 8.0 8.5 9.0 9.5 10.0 10.5 11.0

95-01 02p 03p

Average Average

Commercial and Industrial Construction

Investment Expected to Strengthen by 2003

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(21)

Ontario Real Trade

7.5

11.2

6.0

-2.8

2.2 4.4 5.2

8.6

6.6

-5.2

2.0

5.3

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98 99 00 01 02p 03p

Exports Imports Per Cent Change

p = projection.

Ontario’s Export Markets Improve

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(22)

3.2 3.2 2.7

1.4 1.8

1.2 1.0 -0.5

1.1 2.6 2.5

2.9 2.8 3.8 3.6

4.3

-1 0 1 2 3 4 5

Ontario Canada U.S. France U.K. Italy Germany Japan 2003 2002

Ontario Leads Growth

Real GDP Growth (Per Cent)

Sources: Consensus Forecasts and Ontario Ministry of Finance Survey of Forecasts (June 2002).

Conclusion

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(23)

PAPER A

Appendix

(24)

Ontario Economic Assumptions

7KHIROORZLQJWDEOHVSURYLGHIXUWKHUGHWDLOVDERXWWKH2QWDULR0LQLVWU\RI)LQDQFHHFRQRPLFSURMHFWLRQ The Ontario Economy, 2000 to 2003

(Per Cent Change)

Actual Projected

2000 2001 2002 2003

Real Gross Domestic Product 5.3 1.0 3.1 4.2

Personal consumption 4.1 2.2 2.7 3.5

Residential construction 5.0 2.5 6.5 2.8

Non-residential construction -5.2 -0.2 0.8 3.3

Machinery and equipment 12.1 -4.5 -0.6 5.3

Exports 6.0 -2.8 2.2 5.2

Imports 6.6 -5.2 2.0 5.3

Nominal Gross Domestic Product 5.9 2.4 3.5 6.0

Other Economic Indicators

Retail sales 7.3 2.6 5.2 5.3

Housing starts (000s) 71.5 73.3 80.0 76.0

Personal income 6.4 3.6 3.2 5.4

Corporate profits 5.8 -12.8 0.0 14.7

Ontario Consumer Price Index 2.9 3.1 1.8 2.0

Labour Market

Employment 3.2 1.5 1.5-2.0 2.5-3.0

Unemployment rate (per cent) 5.7 6.3 6.5-6.8 6.0-6.5

Sources: Statistics Canada and Ontario Ministry of Finance.

(25)

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Impact of Changes in Economic Assumptions on the Ontario Surplus

($ Millions)

Full Year 2002-03

100 Basis Points Lower Canadian Interest Rates 80

1 Percentage Point Higher Real GDP Growth 590

Note: These responses would hold “on average” and could vary significantly depending on the composition of change in income and expenditures.

Source: Ontario Ministry of Finance.

(26)

(27)

Ontario’s Fiscal Plan

(28)

(29)

Introduction

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Section II 2QWDULR·V)LVFDO3ODQ Section III 2QWDULR·V&DSLWDO3ODQ

Section IV 0HGLXP7HUP2XWORRN

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(30)

Section I: Interim Results for 2001-02

Third Consecutive Surplus

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2001-02 In-Year Fiscal Performance

($ Millions)

Budget

Plan Interim

In-Year Change

Revenue 64,270 63,463 (807)

Expenditure

Programs 52,011 52,413 402

Capital 1,944 1,850 (94)

Public Debt Interest

Provincial 8,795 8,553 (242)

Electricity Sector 520 520 -

Total Expenditure 63,270 63,336 66

Less: Reserve 1,000 - (1,000)

Add: Decrease/(Increase) in Stranded Debt from Electricity Sector Restructuring to be Recovered from Ratepayers*

140 (69) (209)

Surplus / (Deficit) 140 58 (82)

* Reflects the estimated excess of revenue over expenditure of the Ontario Electricity Financial Corporation (OEFC). Consistent with the principles of electricity restructuring, OEFC debt is to be recovered from ratepayers, not taxpayers.

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(31)

Treatment of Canada Customs and Revenue Agency Processing Error

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(32)

Federal Transfers to the Provinces

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Going Forward: Improving Accountability in the Personal Income Tax System

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(33)

2001-02 Revenue Performance

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Summary of In-Year Changes to Revenue in 2001-02

($ Millions)

Interim 2001-02 Taxation Revenue

Personal Income Tax 1,185

Retail Sales Tax (587)

Corporations Tax (1,650)

Employer Health Tax (102)

Gasoline and Fuel Taxes (130)

All Other 16

(1,268) Government of Canada

Canada Health and Social Transfer 201

Young Offenders Act 64

All Other 160

425 Income from Government Enterprises

Ontario Lottery and Gaming Corporation 226

Ontario Power Generation Inc. and Hydro One Inc. (345)

All Other 13

(106) Other Revenue

Sales and Rentals 286

Local Services Realignment—Reimbursement of Expenditure (98)

All Other (46)

142

Total In-Year Revenue Changes (807)

(34)

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(36)

2001-02 In-Year Operating Expenditure Changes

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Summary of In-Year Operating Expenditure Changes in 2001-02

($ Millions)

Interim 2001-02 Program Expenditure Changes:

Agriculture Sector Support—extraordinary one-time costs 328

Hospitals—increased funding 291

Teachers’ Pension Plan—revised estimate of expenditure 233

Retirement Benefits—revised estimate of expenditure 138

GO Transit—assumption of Provincial responsibility for GO Transit 124

Social Housing—earlier-than-planned transfer of non-profit housing to municipalities (77)

Student Support Program—impact of reduced student demand (93)

Northern Ontario Heritage Fund Corporation—reclassification of expenditure from operating to capital (97)

Other (Net) (445)

Total Program Expenditure Changes 402

Public Debt Interest (242)

Total In-Year Operating Expenditure Changes 160

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(37)

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(38)

2001-02 In-Year Capital Expenditure Changes

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Summary of In-Year Capital Expenditure Changes in 2001-02

($ Millions)

Interim 2001-02

GO Transit—assumption of Provincial responsibility for GO Transit 173

Northern Ontario Heritage Fund Corporation—net impact of the reclassification of expenditure from operating to capital and lower-than-expected expenditure

53

Municipal Partnerships Initiatives—lower-than-expected expenditures (171)

Highways (52)

Other (Net) (97)

Total In-Year Capital Expenditure Changes (94)

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(39)

Section II: Ontario’s 2002-03 Fiscal Plan

Fourth Consecutive Balanced Budget

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2002-03 Fiscal Plan

($ Millions)

Interim 2001-02

Plan 2002-03

Change

$ Millions Per Cent

Revenue 63,463 66,544 3,081 4.9

Expenditure

Programs 52,413 54,384 1,971 3.8

Gross Capital Expenditure 1,850 2,713 863 46.6

Less: Net Investment in Capital Assets* - 634 634 -

Public Debt Interest

Provincial 8,553 8,550 (3) -

Electricity Sector 520 520 - -

Total Expenditure 63,336 65,533 2,197 3.5

Less: Reserve - 1,000 1,000 -

Add: Decrease/(Increase) in Stranded Debt from Electricity Sector Restructuring to be Recovered from Ratepayers**

(69) (11) 58 (84.1)

Surplus / (Deficit) 58 0 (58) -

* Starting in 2002-03, major tangible capital assets owned by the Province (land, buildings and transportation infrastructure) are accounted for on a full accrual accounting basis. Other tangible capital assets will continue to be booked as expenditure in the year of acquisition.

** Reflects the estimated excess of revenue over expenditure of the Ontario Electricity Financial Corporation (OEFC). Consistent with the principles of electricity restructuring, OEFC debt is to be recovered from ratepayers, not taxpayers.

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(40)

2002-03 Revenue Outlook

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Revenue

($ Millions)

Actual 2000-01

Interim 2001-02

Plan 2002-03 Taxation Revenue

Personal Income Tax 18,624 19,195 19,085

Retail Sales Tax 13,735 13,753 14,230

Corporations Tax 9,200 6,690 6,150

All Other Taxes 7,723 7,914 8,895

Total Taxation Revenue 49,282 47,552 48,360

Government of Canada 6,129 7,784 8,190

Income from Government Enterprises 4,000 3,318 3,743

Other Revenue 5,271 4,809 6,251

Total Revenue 64,682 63,463 66,544

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(42)

Support for Priority Programs, 2002-03 Total Expenditure: $65.5 Billion

Source: Ontario Ministry of Finance.

Provincial

$8.5B

Health Care

$25.8B

Schools and Post-Secondary

Education

$12.5B Other

$18.2B

Electricity Sector

$0.5B Public

Debt Interest

500 550 600 650 700 750

Mar 95 Feb 96* Mar 97 Mar 98 Mar 99 Mar 00 Mar 01

Civil Servants (FTE) per 100,000 Population

Reducing the Size of Government

* March data not available.

Sources: Management Board Secretariat and Statistics Canada.

751

516

2002-03 Expenditure Outlook

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(43)

Health Base Operating Spending Increases

16 18 20 22 24 26 28

Actual 96-97 97-98 98-99 99-00 00-01 01-02

Interim 02-03

Plan

Note: Ministry of Health and Long-Term Care base operating spending excludes capital, restructuring and major one-time costs.

$ Billions

Commitment

17.4 17.6 17.8 18.3 18.9 20.4

22.2 23.7

1995-96

25.5

Health Care Commitment Grows

38 39 40 41 43 44 45 47

25 30 35 40 45 50

95-96 96-97 97-98 98-99 99-00 00-01 01-02 Interim

02-03 Plan Per Cent of Program Spending

Note: Ministry of Health and Long-Term Care base operating spending excludes capital, restructuring and major one-time costs.

Ontario’s Commitment to Health Care

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(44)

Increased Funding for Health Care Exceeding CHST Commitment

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Ministry of Health and Long-Term Care Spending: Selected Years

($ Millions)

Actual 1994-95

Interim 2001-02

Plan 2002-03

Change from Interim

Base Operating* 17,599 23,709 25,452 1,743

Gross Capital Expenditure 249 203 342 139

Total 17,848 23,912 25,794 1,882

Increase in Base Operating since 1994-95 6,110 7,853

Increase in Total since 1994-95 6,064 7,946

* 2001-02 operating spending excludes Major One-Time Operating Costs of $190 million for medical equipment.

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