Finance Minister Peter Bethlenfalvy will introduce a budget for the province of Ontario projecting a deficit that will yawn to $9.8 billion, about double what was projected in last year’s fall economic statement only 145 days ago. The reversal in government fortunes is even more stark compared to last year’s budget, which had projected a modest ($200 million) surplus.
Bethlenfalvy defended the government’s spending this afternoon before his speech to the legislature: “While this indeed leads to us a higher deficit than what we had projected last year, it is temporary, while the return on our investments will remain for much longer.”
The government is now projecting that the province’s books will return to balance by the 2026-27 fiscal year — just as it returns to the voters for a re-election campaign.
This year’s budget, like any budget, is the sum of both the government’s revenues and its expenses, and the coming deficit is the result of both unexpected changes in expenses and lower revenues. Here’s what you need to know.
Interest rates and the economic slowdown
The biggest single driver of the change in Ontario’s finances is the economic slowdown caused, in large measure, by the interest-rate hikes from the Bank of Canada. The government is projecting only 0.3 per cent economic growth in the coming year — very near, but not quite meeting, the technical definition of a recession. With a slowdown in economic growth, the government has revised its projected income and sales-tax revenues.
Government spending, however, is continuing to grow at an annual rate of 2.4 per cent over the planning period provided by the government. The relative good news is that the government is projecting economic growth, and thus revenues, to start recovering substantially in later years. While government revenue is projected to increase only $1.4 billion in the coming year, that number jumps by more than $10 billion in 2025 and a further $9 billion in 2026.
Total program spending is projected to increase overall by $8.3 billion between 2024 and 2026: in effect, Bethlenfalvy and the government are projecting that, with some spending restraint (though less than they used to advocate), the budget will come to balance with a surge in revenues. The modest surplus projected for 2026 — only $500 million — is small enough that, if the current projections are correct, the government won’t have much room for election-season generosity: something like the “temporary” cut to provincial gas taxes (which has already been renewed multiple times) already costs the province more than $1 billion annually.
Ontario’s colleges will miss those foreign students
One of the other changes in the province’s spending is the changes to foreign-student rules imposed by the federal government as a reaction to the surge in student numbers in recent years. The change in federal policy, not anticipated at the time of the fall economic statement, is going to cost the province $1.4 billion in 2024 and a further $1.7 billion in 2025.
Ontario’s colleges and universities have warned that many are looking at a year of financial distress as the source of lucrative foreign dollars dries up. The government had already announced measures to try to stabilize the post-secondary sector, and they’re reiterated in the budget: $903 million for a Postsecondary Education Sustainability Fund, as well as other smaller measures targeted at the postsecondary sector. In total, the government says it plans to spend $1.3 billion while continuing to freeze tuitions for Ontario students.
Changes to the province’s Green Bond program
Since 2014, Ontario has issued “green bonds” as part of its general debt-management plan. The policy, introduced under then-premier Kathleen Wynne, gives the province access to lower interest rates for debt that can be tied specifically to environmentally targeted projects. In the past, that’s included sustainable-energy and transit programs. But now Ontario is adding another category to its Green Bonds (and renaming them while we’re at it): nuclear power. The province will include its new nuclear-power projects — such as the small modular reactors at Darlington and the proposed expansion of the Bruce nuclear-power station — in its next “Ontario Sustainable Bond Framework.”
The addition of nuclear power to the category doesn’t fundamentally alter the financial relationship between the government and the nuclear-power sector: Ontario Power Generation, the owner of the Darlington and Bruce sites, is a Crown corporation whose debts are already ultimately accounted for in the province’s consolidated financial statements.
A new med school at York University (eventually)
Ontario is suffering a dire shortage of family doctors, and the government is proposing to address that shortage with a few measures in this year’s budget. It’s increasing the funding for family health teams by $546 million, building on $100 million announced earlier this year. In total, the government says it’ll be able to connect 600,000 patients with new family doctors.
In order to ensure that there are actual doctors to see them, however, the government also announced that it’s supporting the creation of a new medical school at York University that will specialize specifically in the training of family doctors. The province will contribute $9 million to early planning costs to get the medical school started, but Ontario is certainly several years away from York University graduating its first class of family doctors.
Ontario’s infrastructure bank gets closer to reality
Announced in last November’s fall economic statement, the province’s infrastructure bank — a complement to a similar federal agency — is a bit closer to reality. In the legislation Bethlenfalvy will introduce with Tuesday’s budget plan, the government is formally establishing the Building Ontario Fund as an arm’s-length Crown agency with the goal of using public funds to entice large institutional investors such as pension funds to invest in public infrastructure. Among the types of projects the government cites as examples the BOF could invest in are student housing, long-term-care homes, and municipal infrastructure.
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