• Province anticipates $9.8 billion deficit, scrapping last year’s plan for a surplus ($200 million) in 2024-25.
  • Return to balance has been delayed two years to fiscal 2026-27.
  • Revenue growth is expected to slow to a crawl in 2024-25 (0.6%) as Ontario’s economic outlook weakens.
  • Infrastructure expansion remains an investment priority.
  • Ontario is on track to meet two out of the three self-imposed fiscal anchors in 2024-25.
  • Net debt-to-GDP is revised higher and now set to increase until fiscal 2025-26.

Erasing progress made in last year’s budget

The word “balance” appeared several times in the 2024 Ontario Budget despite red ink splayed over the books for the next two fiscal years. The buzzword refers mainly to balancing of priorities—like housing, municipal infrastructure support and making life more affordable—rather than provincial finances.

The Ontario government is now planning for the deepest deficit in a decade, outside of the pandemic years. The $9.8 billion shortfall in 2024-25 is expected to be more than three times deeper than the 2023-24 deficit ($3.1 billion) and replaces the anticipated $200 million surplus announced in last year’s budget—even after shrinking the contingency reserve fund. Budget 2024 takes a detour just one year after touting plans for a speedy return to fiscal balance.

Slower than expected revenue—particularly from personal income taxes—are playing a big role in the budget shortfall. In fact, total revenue is expected to remain relatively unchanged at $206 billion from the 2023-24 revenue estimate , reflecting expectations for weaker economic growth.

Total expenditure, on the other hand, is set to grow to $215 billion (3.5%)—further widening the gap between government spending and income in the fiscal year ahead.

The province is now expecting a higher net debt-to-GDP ratio in 2024-25 relative to previous estimates. The new fiscal plan will also keep the debt burden on a higher trajectory during most of the fiscal plan, flirting with the upper bound (40%) of the net debt-to-GDP fiscal limit set in Budget 2023.

There seems to be ‘enough’ money to go around

Total expenditure is now set to reach $215 billion, an increase of $7.2 billion (3.5%) from the 2023-24 estimate. Of that increase, other programs (mainly related to infrastructure supports) are set to see more than half ($4.7 billion) of the new funding. A good chunk of this ($1 billion) will go to support the implementation of high-speed internet across all Ontario communities.

A portion of the additional $4.7 billion that’s been allocated to other programs will also fund Ontario’s new Municipal Housing Infrastructure Program ($1.8 billion over three years) which will support core infrastructure projects including roads and water systems. This, we expect, comes as welcome news for municipalities after government-imposed cuts to residential development charges came into effect last year, hampering municipal revenue collection.

Interest on debt ($1.1 billion) and health ($1 billion) will eat up another $2.1 billion in new spending, reflecting interest costs and a growing debt burden. Retroactive pay to public sector workers will take up a significant portion of new health spending after the wage restraint legislation, Bill 124, was ruled unconstitutional.

Post-secondary funding is one of two expense categories to see a cut in 2024-25 (-$400 million). This reflects the recently announced cap on foreign international students, which is expected to impact international student enrollment in Ontario in the upcoming fiscal year.

Delayed economic rebound to weigh on revenue

The province was expecting Ontario’s economy to rebound this year at the time of Budget 2023, but few economic indicators now support this projection. Growth projections for 2024 have since been revised lower to reflect the province’s weakening economic backdrop and are closely aligned with our own.

Revenue projections have also been revised substantially lower from previous baselines with a cyclical trough now expected in fiscal 2024-25. Revenue is now expected to grow just marginally to $206 billion (0.6% from 2023-24 estimate). Soft personal income taxes will be the main factor restraining revenue growth as Ontario’s labour market wavers.

The government made little changes to its tax system despite the planned spending spree. In fact, new adjustments have come in the form of additional cuts. The government intends to keep the 5.7 cent per litre gas tax cut until the end of the calendar year—costing the province $620 million in lost revenue in 2024-25. Elimination of the wine basic tax (effective April 1, 2024) will cost an additional $8 million in the upcoming fiscal year.

Investing in transportation

The budget includes capital investment of $103 billion over four years, including $26.2 billion in fiscal 2024-25. Transportation will remain a priority as in previous years—eating up more than half (56%) of planned capital spending.

Public transit investments ($10.7 billion) will account for the lion’s share in 2024-25. This includes funding support for GO Transit service increases and advancing work on the Ontario Line among other initiatives.

Flirting with the limits of its fiscal anchors

The Ontario government maintains the three fiscal anchors outlined in Budget 2023 (net debt-to-GDP below 40%, net debt-to-revenue below 200%, and interest on debt-to-revenue below 7.5%). The latest fiscal plan, however, already violates one of them (net debt-to-revenue) and is flying very close to the upper bounds of another (net debt-to-GDP).

We hope to see the Ontario government keep its fiscal plans within self-imposed guidelines in the future—especially given its leniency relative to other provinces.

Staying near the top of Canada’s provincial debt burden

Budget 2024 reverses some of the earlier strides made in reducing the province’s debt burden. It now expects the net debt-to-GDP ratio to increase to 39.2% in 2024-25 from an estimated 38% in 2023-24—and continuing upwards until fiscal 2025-26.

The province has left little wiggle room for itself with the debt burden now peaking at 39.5% in 2025-26. This isn’t an ideal situation given the uncertain economic outlook and the potential revenue risk. Wage settlements from Bill 124 could further elevate spending, adding risk to the expenditure side of the ledger.

Credit rating agencies may not look fondly at the budget, given the regression in the province’s fiscal guidelines. Let’s hope the economic situation turns around quickly so that the Budget 2025 brings the government back on track.

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