Ontario: Fall Economic Statement 2024 - Some Treats for Ontarians Just in Time for Halloween

The province of Ontario’s 2024 Fall Economic Statement (FES) again forecasts a return to budget surplus in fiscal year 2026–27 (FY2027), albeit with a smaller deficit profile in each year of the outlook and a larger surplus at the end than in Budget 2024.

An increase in the projections for personal and corporate income tax revenues helped to shore up Ontario’s fiscal outlook, thanks in large part to the federal government’s proposed changes to the capital gains inclusion rate. This bump in revenues more than offset the proposed six-month extension of the reduction to the gas tax this year by a wide margin.

Higher revenues opened the door to new spending, which was largely concentrated in the current fiscal year. The biggest ticket items were the $200 cheques to every eligible Ontarian, to the tune of $3.0B this year, and another $1.6B in additional compensation costs for health and public sector employees.

But total new program spending this year ($4.8B) was more than offset by higher revenues ($6.9B) and lower interest on debt ($1.2B). Hence the swing from a projected deficit of $9.8B for FY2025 projected in Budget 2024 to $6.6B today. This positive fiscal momentum is expected to continue, reducing borrowing requirements and putting downward pressure on the debt-to-GDP and debt service-to-total revenue ratios. Borrowing requirements are now expected to total $37.5B in FY2025, $35.0B in FY2026, and $32.6B in FY2027. Over the three‑year outlook period, total long-term borrowing is projected to be $3.6B lower than forecast in Budget 2024.

Risks to the outlook are tilted to the downside of the baseline economic projection. These include the recently announced planned reduction in permanent resident admissions, possible slower consumption growth as households renew their mortgages at higher rates in 2025 and 2026, and the potential of a second Trump presidency. But the Government of Ontario’s downside scenario seems too bearish in the near term. As such, we expect the actual economic performance to be somewhere in between.