On Thursday November 18, the Ontario Minister of Finance, Hon. Dwight Duncan, released the much anticipated Fall Economic Statement and Fiscal Update (the Update) as required by statute. The Update is positioned in the context of providing immediate tax reductions and energy rate reductions for Ontario families. The Update describes a series of initiatives to be taken immediately as well as the current economic and fiscal conditions of the province and its outlook for the next year. The plan also discusses Ontario’s borrowing and debt management strategies, its tax and pension modernization reform and the key elements for public consultation on the 2011 provincial budget.
The following bulletin provides a brief summary of new initiatives outlined in the Update that will be interest to BLG’s clients.
The Update provides detailed background on the electricity policies that have been implemented over the course of the past several years. In the move toward more renewable electricity generation, upgrades to existing generation and increased investment in distribution and transmission infrastructure, the government is forecasting price increases of roughly 3.5% each year for the next 20 years. However over the course of the next five years prices are forecast to increase by 7.9% annually.
In order to offset the new costs associated with the government’s plans, it is proposing direct energy rate reductions through a new Ontario Clean Energy Benefit (OCEB) program. The OCEB would provide eligible consumers with a benefit equal to 10% of the total cost of electricity on their bills, including tax, effective January 1, 2011. The benefit would apply to roughly 4 million residential consumers, and more than 400,000 small businesses, farms and other consumers.
The following is an example of the impact the proposed OCEB would have on monthly electricity bills:
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Due to the length of time required to implement this change, the proposed OCEB price adjustments would appear on electricity bills no later than May 2011, and would be retroactive to January 1, 2011. In 2010-11, the estimated cost of the proposed OCEB is $300 million, with an estimated full-year cost of $1.1 billion in the next fiscal year.
The Update introduces new measures that would protect consumers and investors, and modernize financial regulation in Ontario. Specifically, the government is proposing amendments to the Ontario Securities Act to allow the Ontario Securities Commission to develop and implement a regulatory framework for over-the-counter (OTC) derivatives. These amendments would allow for new rules specifically designed for OTC derivatives and would also include derivatives within the scope of existing insider-trading offences. The OSC will undertake consultations in developing the rules that support these proposals.
Additional proposed amendments to the Ontario Securities Act would provide for regulatory oversight of credit rating agencies, and strengthen the oversight of alternative trading systems, which are securities marketplaces that perform some of the functions of an exchange.
These reforms are designed to assist Canada in achieving its international financial reform commitments and assist in the transition to the new Canadian Securities Regulator.
ECONOMIC AND FISCAL OUTLOOK
The key economic indicators have show some improvement since the 2008 recession. At the present time, the Ministry of Finance is projecting real GDP growth of 3.2% in 2010, 2.2% in 2011, 2.5% in 2012 and 2.7% in 2013. Another indicator shows employment increasing since May 2009 by 2.9% or 186,100 new jobs, with about 75% of jobs lost during the recession having been recovered. Ontario’s budget deficit for 2009 was $19.3 billion but now the government is forecasting a deficit of $18.8 billion for 2010-11.
Total revenue has increased by 0.7% while total expenditure has decreased by 0.2% in 2009-2010. The Update indicates that the government is on track to meet its medium term fiscal targets outlined in the 2010 provincial Budget. The revenue picture is brighter for 2010-11 at $107.7 billion, about $0.8 billion higher than forecast in Budget. In summary, the Update suggests that sustained moderate economic growth is expected due to growth in export markets and increased demand for consumer goods over time.