Download Budget Process - Atlas of Public Policy and Management

1
The Making of the
Ontario Budget
Public Sector Financial
Management
Ryerson University
November 18, 2008
Steve Orsini
Assistant Deputy Minister
Office of the Budget and Taxation
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Table of Contents
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Overview
Budget Decision-Making
Stakeholder Engagement
Fiscal Plan
Tabling the Budget
Budget Secrecy
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Budgets…….from the past
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1874 - Hand written Budgets!
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Budgets………..of Today
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Overview
 The Budget presents the government's multiyear economic and fiscal plan:
– Updates the province’s economic outlook;
– Announces expected revenue and program
expenditure intentions; and
– Outlines the government’s borrowing plan
 Developing the Budget is a year-long process
that reflects input from several sources,
including:
– Ontario Legislature and committees (e.g. Standing
Committee on Finance and Economic Affairs)
– Broader public sector entities, community and business
leaders, government stakeholders and the public
– Government ministries through the Results-based
Planning process, and
– Inter-governmental discussions
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Overview (Cont’d)


The Budget is an essential element of the government’s fiscal
transparency and accountability commitment to Ontarians
Fiscal Transparency and Accountability Act, 2004 (FTAA) outlines
the following principles that govern Ontario’s fiscal planning and
budgeting process:
– Responsibility – should be based on cautious assumptions
– Flexibility – should be able to respond to changing circumstances
– Equity – should recognize impact on different groups and on future
generations
– Transparency – should be clearly articulated and information about it
should be readily available to the public
•
Prior to every election, FTAA also requires the release of a preelection report about Ontario’s finances, to be reviewed by the
Auditor General. The pre-election report (drawn primarily from the
Budget) is required to include:
– macroeconomic forecasts and assumptions
– an estimate of Ontario’s revenues and expenses
– details about the reserve required to provide for unexpected adverse
changes in revenues and expenses, and
– information about the ratio of provincial debt to Ontario’s gross domestic
product
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Overview (Cont’d)
 The Minister of Finance, in consultation with the Premier,
determines the direction and content of the Budget
 The Minister of Finance prepares the fiscal plan of the
Province for the current and at least the next two fiscal
years including forecasts of:
– Economic growth and revenue
– Program expenditures and interest on debt expense
– Size of the reserve
 The expense forecast is built using the expense plans
from all government ministries, agencies and broader
public sector enterprises (hospitals, colleges and school
boards)
 The government’s platform, Speech from the Throne and
key policy directions help shape the strategic themes for
the Budget
 Taken together, these products form the core of the
Budget for the province
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Stakeholder Engagement
 The Standing Committee on Finance and Economic
Affairs (SCFEA) is empowered to consider and report
to the Legislative Assembly its observations, opinions
and recommendations on the fiscal and economic
policies of the province
 SCFEA assists in the pre-Budget consultation process
and provides a report to the Minister outlining its
findings from its public consultations, which contributes
to the development of the Budget
 Minister of Finance typically appears before SCFEA as
well as conducts his/her own province-wide pre-budget
consultations (PBCs)
 SCFEA tables its report in the Legislature, usually in
mid-February to early March
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Stakeholder Engagement (Cont’d)

The Minister’s Pre-Budget Consultations (PBCs) provide an
opportunity for individuals, organizations and various stakeholders
across the province to meet with the Minister to discuss a variety of
issues, including expenditure and tax policies and programs
– Some questions that the Minister has put forward to help solicit input for
the Budget include (see page 73 of the 2008 Ontario Economic Outlook
and Fiscal Review):
• During this period of global economic uncertainty and fiscal challenges,
what should the Ontario Government’s top priorities be for the 2009
Budget?
• What further steps can the Ontario Government take to promote
economic growth and job creation?

The consultations also help generate broad public awareness of
the key issues the Government is considering as part of the Budget

In 2007-08, more than 750 individuals or groups attended 14 PBCs
held across the province over several weeks

Ontarians also have a variety of means to provide their input,
including e-mail, fax, telephone, letters and new on-line
submissions and questionnaires
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Fiscal Plan
 The Budget presents a comprehensive overview of the
government’s fiscal plan: minimum of current year and two
future years
 FTAA imposes certain requirements on Budget making,
including requirements for:
– Balanced budgets and/or recovery plans to achieve
balance;
– Multi-year fiscal plan including:
• Estimates of Ontario’s revenues and expenses;
• Macroeconomic assumptions;
• Details of the reserve, to provide for unexpected
adverse changes in revenue and expense;
• A comprehensive discussion of risks that might
impact the revenue and expense outlook; and
• Information about the Debt to GDP Ratio
– Pre-budget consultations; and
– Role of the Economic Forecasting Council
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Economic and Revenue Forecasting
•
The growth of the economy provides the underlying foundation for
the government’s fiscal plan – increased economic growth
provides the government greater flexibility to invest in priority
areas, reduce taxes or pay down the accumulated deficit
•
Ontario’s real GDP planning growth outlook is normally slightly
below the private sector average, resulting in an economic and
revenue plan that is prudent, reasonable and accountable
•
Ontario’s economic forecast is based on a combination of privatesector forecasts, advice from the Economic Forecasting Council,
macro-econometric models and professional judgment in
interpreting model results and external conditions
•
The revenue outlook is based on the best use of available
information, including the Ministry of Finance economic outlook
and policy decisions to date
•
Taxation revenue forecasting is based largely on revenue receipts
to date, the latest economic forecasts and incorporates tax policy
decisions (e.g., tax changes)
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Global Economic Climate
• The liquidity crisis in financial markets has undermined
business and consumer confidence around the world
– Liquidity challenges in the investment and banking sectors
– Equity markets have experienced sharp price declines
– Central banks have lowered interest rates
• Governments around the world are forced to re-examine
their expenditures and adjust their growth projections
• The Ontario government has lowered its projection for
2008 real GDP growth to 0.1 per cent from the 1.1 per
cent released in the 2008 Budget last March.
- Short-term outlook is heavily influenced by external factors
such as oil prices, the Canadian dollar exchange rate,
interest rates, U.S. economic growth and global financial
market turmoil
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Ontario Real GDP Growth
Per Cent
3.0
Projection*
2.7
2.5
2.5
2.5
2.2
2.0
1.5
1.4
1.0
0.7
0.5
0.1
0.0
2003
2004
2005
2006
2007
2008e
* Based on information as of October 16, 2008 e = estimate; p = projection.
Source: 2008 Ontario Economic Outlook and Fiscal Review, October 22, 2008, pg 23.
2009p
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Key Economic Indicators
Ontario’s Economy*:
Projected Real GDP Growth, 2008
0.1%
Avg. Private-Sector Forecasts for Real GDP Growth, 2008
0.1%
Avg. Private-Sector Forecasts for Real GDP Growth, 2009
0.7%
Jobs since October 2003
Approx
500,000
Jobs Created from January to September 2008
104,100
Real GDP (annual average between 2003 and 2007)
2.3%
Real Disposable Income (annual average between 2003 and
2007)
1.8%
Real Machinery and Equipment Investment (annual average
between 2003 and 2007)
9.0%
Source: 2008 Ontario Economic Outlook and Fiscal Review, October 22, 2008, pages 23-30.
* Based on information as of October 16, 2008
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Expenditure Planning Process
• Ministry Results-based Plans (RbP) are subject to
expense limits provided by the previous year’s Budget
• In preparing for the next Budget, Ministries submit
multi-year RbPs to Treasury Board/Management Board
of Cabinet
• Ministries are guided through the RbP process through
the RbP Guidelines (which reflect Cabinet direction)
• Policy direction and key priorities are set by Cabinet
• Once RbPs are submitted, Treasury Board Office, in
conjunction with Ministry of Energy and Infrastructure
and Cabinet Office, review and comment on the plans
• Treasury Board/Management Board make RbP
decisions based on expense limits developed through
the budget process
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Program Expenditure Planning Cycle
Ministries’ Results
Reporting to TB/MBC
on previous year
Public Accounts
Strategic Plan
Policy Approval of Overall
Direction to Ministries
July
Ministries’ Results-based vv
Plan Briefing Books for new
fiscal year
Q1 Finances
Spring
Printed Estimates**
Summer
Q1
Q2
April
Supply Act for the
previous fiscal year
and the Interim
Appropriation Act for
the coming fiscal year
Winter
Fall
October
Results-Based
Plans Submitted
Q3
Q4
Economic Outlook
& Fiscal Review Q2
Budget*
Q3 Finances
January
Budget
Consultations
Results-based Plans
Reviewed & Approved by
Treasury Board/Management
Board of Cabinet (TB/MBC) Operating and Capital
Ongoing - Ministries report on a quarterly basis to Treasury Board/Management Board of Cabinet
*Treasury Board/ Management Board of Cabinet approve expense portions of the Budget in the morning
on the day of the Budget.
** Tabled within 12 sitting days of the Budget.
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Debt and Borrowing Plan
• Interest on debt (IOD) makes up a large, non-discretionary
component of total expense (i.e., 10% of total expenditures)
• Three major components of IOD:
– Public Debt Interest (e.g., accumulated deficits, capital
borrowing)
– Ontario Electricity Financial Corporation Interest
Expense
– Elimination and consolidation adjustments (primarily
sourced from Provincial Controller)
• IOD Forecast
– Conservative assumptions protect against adverse
conditions in capital markets
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Risk Mitigation and Prudence
• The fiscal plan includes key elements of prudence
each year to help protect the government’s overall
fiscal objectives and the achievement of fiscal targets
including:
– Prudent economic assumptions
– A reserve to protect against adverse changes in the
Province’s revenue, expense or economic
performance
– Contingency Funds to mitigate against expense
risks
– Risk Impact Table (sensitivity analysis)
– Expenditure Management
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Expenditure Management
• Over 2004-05 to 2007-08, the government has achieved $806
million of reportable savings, exceeding the target of $750
million.
– Savings were made through possible streamlined purchasing processes,
reduced administrative costs, reduced energy and accommodation,
improved use of IT, and better harmonizing and coordinating
government operations.
• The government continues to implement efficiencies across
the broader public sector through such initiatives as
OntarioBuys, a supply-chain management program, that is
expected to save up to $100 million across the hospital and
education sectors.
• The government is taking further action to save $108 million
in 2008-09 by:
– Delaying the implementation of and slowing down some new spending;
– Restraining internal government expenditures including reducing
government staff travel costs and government use of management and
IT consultants; and
– Requiring ministries to focus on the highest-priority programs during
their 2009-10 planning process.
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Ontario’s Fiscal Performance
Fiscal Balance
($ Billions)
2.3
2.0
0.3
0.6
0.0
(1.6)
(2.0)
(0.5)
(5.5)
(4.0)
(6.0)
2003–04
2004–05
2005–06
Actual
2006–07
2007–08
2008-09
Current Outlook
Source: 2008 Ontario Economic Outlook and Fiscal Review, October 22, 2008, pg 3.
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Financial Reporting Requirements
• The Public Sector Accounting Board (PSAB) of
the Canadian Institute of Chartered Accountants
(CICA) is the body responsible for setting
accounting standards for all levels of government
• PSAB accounting requires accrual and
consolidation reporting in the government’s
financial statements
– To ensure consistency and public understanding
between Budget and Public Accounts (actual results),
the Budget presents its financial information in a similar
manner as Public Accounts
• Accrual transactions: recorded when events
giving rise to their recognition occurred, not when
cash is paid or received.
– Revenues: recognized when earned
– Expenses: recognized when incurred
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Reporting Entity Consolidations
 Governments carry out their policies and deliver
services through various government organizations
 The purpose of consolidation is to provide a complete
picture of the full nature and extent of the financial
affairs and resources which the government controls
 Ontario’s Budget and Consolidated Financial
Statements currently include:
 Ministries
 Government business enterprises (e.g., Ontario Lottery and
Gaming Cooperation)
 Other government organizations (e.g., GO Transit)
 BPS sectors (hospitals, school boards and colleges)
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TP Accountability Guidelines
•
•
•
•
•
Transfer payment (TP) recipients are responsible for delivering
provincially funded services and are accountable to ministries and
classified agencies for the funds they receive and the results achieved
Transfer payments may only be provided:
– according to program criteria approved by Treasury Board /
Management Board of Cabinet;
– in amounts not exceeding requirements for the fulfillment of
approved program objectives; and
– in accordance with commitments made in ministry results-based
plans
Risk assessment is used in the design of transfer payment programs,
the selection of eligible transfer payment recipients to deliver
programs, and the choice of appropriate accountability requirements
for transfer payment recipients
Value for money is expected in the expenditure of government funds
Specific reporting requirements must be in proportion to the needs of
the ministry, the capacity of the recipient, and the risks related to the
program
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Investing in Ontario Act, 2008
• Previously, all year-end surpluses went toward the
reduction of the accumulated financial deficit regardless
of the size of the surplus
• In 2008, the government introduced the Investing in
Ontario Act, 2008.
• The Act permits the use of a portion of unanticipated
year-end surpluses to address priority public needs, such
as municipal infrastructure, as well as to reduce the
province’s accumulated deficit
• In the 2007-08 regulation under the act, the government
designated municipalities as the recipient of any funding
from the Investing in Ontario Act, 2008. The surplus for
the fiscal year ending March 31, 2008 was $0.6 billion
after $1.1 billion was provided to municipalities under the
regulation.
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Net Debt-to-GDP
Per Cent
34
32.9
32
30
29.1
28
27.3
26
26.5
25.2
24
24.4
24.5
22
20
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1998–99
2000–01
2002–03
2004–05
2006–07
Actual
Net Debt = difference between total liabilities and total financial assets
Source: 2008 Ontario Economic Outlook and Fiscal Review, October 22, 2008, pg 44.
2008–09
Current
Outlook
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Tabling the Budget
•
The Budget is tabled in the Legislative Assembly of Ontario and
presented with the Budget Speech
•
The Budget Speech and its papers become public documents as
soon as the Budget is tabled with the Clerk of the Legislative
Assembly
•
The Minister of Finance begins the Budget Speech at that point,
typically at 4:00 after the markets close
•
Any statutory amendments required to implement the initiatives
contained in the Budget may be introduced as a Bill in the
Legislative Assembly on the same day that the budget is tabled or
may be included in a bill introduced on a later day
•
Like any other provincial legislation involving the raising of
revenues, a Budget bill must be accompanied by a Royal
recommendation, approved by the Legislative Assembly and
receive Royal Asset in order to take effect. It is not uncommon for
Budget bills to be made effective as of the date of the Budget
•
As a statement of the Province’s economic and fiscal position and
outlook, as well as the Government’s key policy priorities, the
budget is often a reference point for public policy discussions in the
Legislature
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Tabling the Budget (Cont’d)
• The Printed Estimates are tabled annually in the Legislative
Assembly of Ontario no later than 12 sitting days after the
presentation of the Budget
• The Estimates, known formally as the “Expenditure
Estimates,” set out details of the operating and capital
spending requirements of ministries and constitute the
Government’s annual formal request for approval of the
expenditures involved
• The Estimates are the basis for the legal spending authority
for each ministry provided in the Supply Act
• Upon tabling, the Printed Estimates are referred to the
Standing Committee on Estimates
• If no budget has been presented by the first sitting day
following Victoria Day, the main Estimates shall be tabled at
the next available sitting day
• Upon Tabling, the Estimates shall be deemed to be referred
to the Standing Committee on Estimates
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Budget Secrecy
• Ministry of Finance develops the Budget under a veil
of “Budget Secrecy”
• Budget secrecy is both a political and parliamentary
tradition, inherited from the British parliamentary
system
• Historically, ministers have, in other jurisdictions,
resigned as the result of Budget leaks
• The purpose of Budget secrecy is to protect the
integrity of financial markets
– Ensures no disruption to the marketplace or unfair
access to market information as all information is
disclosed at the same time
– Ensures individuals are unable to profit from Budget
information at the expense of others