• The Ontario government projects a $1.3 billion deficit in FY 2023 – 2024 and positive budget balances thereafter.
  • Revenues are expected to grow more modestly after surpassing the $200 billion mark in FY 2022-2023.
  • Budget 2023 tightened its previous fiscal anchors from guidelines set out in Budget 2022.
  • Ontario to hold one of the highest debt-to-GDP ratios in Canada at 37.8% in FY 2023-24.

Ontario expects to balance its budget three years ahead of schedule

Bracing for a weaker economy this year, the tone of Ontario’s 2023 budget is more conservative than the last. After big spending announcements in its 2022 pre-election plan, the latest budget demonstrates some restraint. Ontario looks to shrink its deficit to $1.3 billion in FY 2023-2024. This would be down from a significantly revised shortfall of $2.2 billion in FY 2022-23 (was initially -$19.9 billion in Budget 2022). Three years ahead of schedule, the province’s 2023 budget also includes plans to eliminate the deficit altogether by FY 2024-2025. Ontario now expects to keep its books in the black for the remainder of the fiscal planning horizon. This is definitely good news. We hope the government’s line of sight for fiscal forecasting has cleared now that the pandemic-induced fog has largely lifted. The past three budgets’ projections were widely off the mark.

Ontario’s Consolidated Fiscal Plan
($ billions)ForecastEstimateEstimateEstimate
Total revenues200.4204.4213.0226.0
Own-source revenue169.3169.6177.9188.9
Federal transfers31.134.835.137.1
Total expenditures202.6204.7210.8217.5
Program expenses189.1190.6196.4202.5
Debt service13.414.114.415.1
Net Debt-to-GDP (%)37.837.837.736.9

Modest revenue growth

After surpassing the $200-billion mark for the first time in FY 2022-2023, more modest revenue growth (+2.0%) is anticipated in the year ahead. Along with slowing business activity, a new corporate income tax credit for Ontario manufacturers is expected to drag down corporate taxation revenues (-11%), costing the government an estimated $780 million in potential income. The dip in revenues from corporate taxes is expected to be exactly offset by an 11% ($3.5 billion) increase from federal transfers.

Tight grip on expenditures

Budget 2023 is relatively slim in terms of new spending. It contains little more in the way of support against affordability struggles and cost of living increases than the heftier Budget 2022 did. Expenditures for FY 2023-2024 are set to grow only slightly (+1.0%). Save for a $6.1 billion increase to the healthcare sector, Ontarians can expect much of the same from their government in the year ahead. While restrained expenditure growth demonstrates fiscal prudence, it leaves some stakeholders hanging. Municipalities, for instance, didn’t get the funding commitment they sought to fill the gap from government-imposed cuts on real estate development charges.

Investing in infrastructure

Building on last year’s budget, investment in infrastructure was a major theme again this year. The province’s $20.6 billion capital plan for FY 2023-2024 represents a $3.3 billion (+19%) increase from the previous year. Notable investments include a $10.9 billion (+11%) commitment to fund transportation initiatives including transit ($4.5 billion) and provincial highways ($3.2 billion); as well as a $3.8 billion (+9%) investment to the healthcare sector.

More stringent fiscal anchors

Mindful of the risk of soaring debt servicing costs and keen to maintain strict fiscal discipline over the longer term, the provincial government tightened the fiscal anchors it introduced in Budget 2022. It now commits to keeping the province’s net debt-to-GDP ratio below 40% (down from 42% previously), the net debt-to-revenue ratio below 200% (down from 250%) and interest on debt-to-revenue below 7.5% (down from 8%). Although moving in the right direction, these targets are still somewhat loose compared to other jurisdictions. Quebec, for example, set a net debt-to-GDP target of 30% by FY 2037-2038.

Topping off Canada’s provincial debt burden

Focusing on fiscal prudence this time around, the Ontario government made efforts to reduce its large debt burden. But after overtaking Quebec in FY 2020-2021 and now temporarily tied with Newfoundland and Labrador, Ontario still holds one of the heavier net debt-to-GDP ratios in the country. While the province’s net debt to revenues target (200%) is forecast to be on the mark in FY 2023-2024, it’s net debt (37.8% of GDP) and debt charges to revenue (6.9%) ratios beats its new, more stringent targets—suggesting that it still may not be strict enough. We’re pleased to see, at least, that further progress is expected over the medium term.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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