Ontario faces a longer path to fiscal balance than projected in last spring’s budget, the Ministry of Finance says, as elevated interest rates and stubborn inflation put pressure on the province’s economy.
The projected deficit for this year has more than quadrupled to $5.6 billion, up from $1.3 billion in March, the ministry revealed in its latest fall economic statement on Thursday. A moderate $200-million surplus that had been expected for next year will instead likely be a $5.3 billion deficit, the document says.
The updated fiscal outlook comes with downward revisions in growth projections and job creation for 2024 and 2025.
“As I have cautioned many times over the past year, we are not immune to the risk of an economic slowdown,” Finance Minister Peter Bethlenfalvy said as he tabled the fall economic statement in the legislature.
“The impacts of high inflation and the Bank of Canada’s rapid interest rate increases are weighing on Ontario’s economic outlook for the remainder of this year, and into next year.”
The significant change to this year’s deficit forecast was largely due to unanticipated increases in spending and reduced revenue expectations from some taxes, particularly personal income taxes.
The ministry also put another $2.5 billion into the province’s contingency fund, which has ballooned to $5.4 billion. At a technical briefing for media, a senior finance ministry official said the sizeable contingency fund is meant to offer fiscal flexibility amid continued economic uncertainty.
Ontario is now on track to get back to balance in 2025-2026, with a projected $500-million surplus.
Offering the Official Opposition’s response to the fiscal update, New Democrat MPP Catherine Fife said the size of the contingency fund is “really irresponsible when so many people in the province are hurting.” Fife said those billions could be used for strategic investments to address the cost of living and housing crises.
“It’s hoarding money instead of investing in key, critical services people rely on like healthcare, paramedics, nurses. child-care workers, transit and affordable housing,” she said.
In the lead up to Thursday, the NDP and Ontario Liberals both called on the government to reintroduce rent controls, which were rolled back in 2018.
The government announced most of the new measures included in the fall economic statement, sometimes called a mini-budget, throughout this week. Those include extending the 5.7 cent per litre gas tax cut to June 2024; eliminating the provincial portion of the HST on purpose-built rental units; and lowering the age for regular, publicly funded breast cancer screenings from 50 to 40.
$3B for new Ontario Infrastructure Bank
The largest new investment is $3 billion earmarked for the creation of the Ontario Infrastructure Bank. The ministry official said the new entity will be board-governed and mandated to seek institutional investment into major public infrastructure projects, particularly in the long-term care, energy and affordable housing sectors. The official was unable to provide a timeline on when the infrastructure bank will be up and running.
The bank would reduce risk associated with complex, long-term projects and provide more flexible financing terms for investors, the official said. It would also reduce the amount of borrowing required by the government for those projects, therefore reducing spending on servicing debt.
“Following in the steps of many other jurisdictions around the world with similar entities, the bank will attract trusted institutional investors to help finance essential infrastructure that would not otherwise get built,” Bethlenfalvy said in his address.
“Canada is renowned for one of the strongest pension systems in the world, including what we call the Maple Eight, the largest funds in Canada and some of the most influential investors in the world. We’ve heard from these funds that they are looking for more opportunities to invest workers’ savings in Canada.”
The Progressive Conservative government plans to spend $185 billion in the next 10 years on building infrastructure.
Housing starts up but off pace for 1.5M new homes goal
The province is also launching what it calls a new “housing-enabling water systems fund.”
Ontario plans to spend $200 million over three years into the fund that will be available for municipalities to apply to for the “repair, rehabilitation and expansion of core water, wastewater and stormwater projects that promote growth and enable housing development.” The province says the new fund will complement its recently announced “building faster fund,” a $1.2-billion purse over three years available to municipalities to help them reach housing targets set by the province.
As for new housing construction, the fall economic statement showed that projected housing starts — which are based on private sector forecasts — are up over those in the spring budget, but still well short of the pace needed to build 1.5 million homes.
The government has pledged to build that many homes within 10 years, by 2031, but at no point in the next few years does the province expect to even hit 100,000 new homes per year. An independent analysis found the annual pace of construction needs to nearly double to 150,000 by 2025 to have any hope of hitting the government’s target.
This latest fiscal blueprint comes as Canada’s wider economy is showing clear signs of a slowdown, with the country’s GDP flat for at least two straight quarters. Meanwhile, the Bank of Canada’s overnight rate stands at five per cent after 10 consecutive hikes, while inflation has cooled but remains stubborn.
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