Ontario Deficit Forecast Jumps on Pandemic Spending Plans
(Bloomberg) -- Ontario said it expects to run deficits totaling $47 billion over the next two years, almost seven times its pre-pandemic forecasts, as the provincial government spends heavily to cushion the economy.
Canada’s economic powerhouse expects a shortfall of C$33.1 billion ($25.4 billion) for the fiscal year that starts April 1, 2021. That number is expected to shrink the following year to C$28.2 billion.
This year’s deficit forecast remains unchanged at C$38.5 billion.
Premier Doug Ford’s government has set aside its goal of balancing the budget amid a worsening outbreak of Covid-19. A second wave of the virus forced Ford to reinstate some lockdown measures in parts of the province, including Toronto and Ottawa.
The government said it’s boosting the size of its Covid-19 action plan to C$45 billion over three years, up from C$30 billion. That spending, plus a loss of tax revenue, is driving the higher deficits.
“We are not alone in facing these fiscal challenges. Every country, province and state is wrestling with them,” Finance Minister Rod Phillips said in prepared remarks to be delivered to the provincial legislature today. “There is still great uncertainty in the global economy. And this means the same thing for the Ontario budget as it does for family and business budgets.”
The budget includes money to boost the pay of health care workers and bolster safety at schools. The government is also doing another round of direct payments to parents, C$200 to C$250 per child, a measure that will cost C$380 million.
Earlier this week, Ford’s government said it will make C$300 million available to businesses that were forced to close or curtail activities in October, and to those operating in areas subject to the two most serious levels of restrictions under a new five-tier system. The measures include rebates on property taxes and energy costs.
Given the uncertainty of the economic recovery, Phillips is providing two alternative scenarios to its outlook. Under the government’s optimistic scenario, the budget deficit for the next fiscal year would be C$27.7 billion. Its pessimistic scenario would see the shortfall reach C$35.6 billion.
Ontario’s ratio of net debt to gross domestic product is expected to rise to 47% by the end of March, up from 39.7% at the end of March 2020, and will be nearly 50% by 2023.
But average borrowing rates are expected to decline to 1.6% this fiscal year, helping to mitigate the impact.
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