Canadian province of Ontario cuts deficit forecast, braces for slowdown

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TORONTO — Ontario on Monday projected a smaller budget deficit for the current fiscal year as robust economic growth boosted tax revenues in Canada’s most populous province, but it also forecast activity would slow in 2023, a fiscal update showed.

The province said it expected a budget deficit of $12.9 billion for the 2022-2023 fiscal year, compared to the $19.9 billion deficit forecast in April’s budget. The fiscal year ends on March 31.

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The improvement was driven by a $7 billion boost to forecasted revenues, at $186.8 billion, helped by higher-than-anticipated tax revenues in 2021 and projected growth in nominal gross domestic product of 9.2 per cent for 2022, versus the 6.7 per cent seen in April.

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Nominal GDP, unlike the real GDP measurement, factors in inflation and tends to be the major driver of tax revenue.

Net debt as a share of GDP was projected to fall to 38.4 per cent, the lowest level since 2012-2013, after peaking at 43.1 per cent in 2020-2021 as the COVID-19 crisis hit the economy. Ontario is one of the world’s largest sub-sovereign borrowers.

Over a three-year horizon through 2024-2025, the government projected a cumulative $18.1 billion improvement in the deficit outlook and a cumulative $26.1 billion reduction in borrowing needs since April’s budget.

New measures were targeted at addressing labor shortages and the cost of living and included $185 million of income tax relief for small businesses over the next three years.

With an uncertain global economic outlook and the Bank of Canada raising interest rates to tackle high inflation, the province dialed back its real GDP forecast for 2022 to 2.6 per cent from the 3.7 per cent expected in April and projected growth of just 0.5 per cent in 2023.

Under an alternate, slower growth scenario, it projected a contraction in 2023 of 0.9 per cent.

© Thomson Reuters 2022