Ontario Raises Deficit Forecast, Plans Launch of Infrastructure Bank – Reuters

By Fergal Smith

TORONTO – Ontario has announced a larger budget deficit for the current fiscal year than previously anticipated, along with plans to establish an infrastructure bank aimed at supporting projects in Canada’s most populous province, according to a recent fiscal update.

The province, a significant sub-sovereign borrower globally, is now expecting a budget deficit of C$5.6 billion (approximately $4.1 billion) for the 2023-24 fiscal year, a notable increase from the C$1.3 billion deficit forecast in the budget released in March. The fiscal year concludes on March 31.

This expanded deficit is attributed to lower-than-expected tax revenues and a C$2.5 billion rise in the contingency fund. Ontario’s Finance Minister, Peter Bethlenfalvy, acknowledged the economic challenges, stating, "We are not immune to the risk of an economic slowdown. 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."

Growth projections indicate a slowdown to 1.1% in 2023, down from 3.7% in 2022, with a further decline expected to 0.5% in 2024. Recent data suggests that Canada’s economy may have experienced a mild recession in the third quarter.

A C$5.3 billion deficit is anticipated for the 2024-25 fiscal year before a return to surplus is expected in 2025-26, one year later than previously projected.

The province plans to invest C$3 billion in a new infrastructure bank, which will focus on attracting institutional investors for large-scale projects in energy, transportation, and affordable housing. Rapid population growth in Ontario, driven by high immigration, has intensified the demand for improved infrastructure.

Additional measures include the elimination of the 8% provincial portion of the sales tax on rental housing construction projects, along with extending gas and fuel tax rate cuts until June 30, 2024.

On Wednesday, Bank of Canada Governor Tiff Macklem noted that ongoing federal and provincial government spending could begin contributing to inflation next year if current spending patterns remain unchanged.

The net debt-to-GDP ratio is projected to rise slightly to 38.4% in the current fiscal year, up from 38.3% in 2022-23, with further increases anticipated to 39.1% in 2024-25.

The province’s long-term borrowing is projected to reach C$34.7 billion for 2023-24, which is C$7.2 billion more than previously expected.