Ontario’s deficit has grown by more than $3 billion in the past few months as the province continues to face economic headwinds blowing up from the U.S.
In an economic update delivered on Thursday, the Ford government said the deficit for 2026-27 is now projected to be $16.9 billion, up from the $13.8 billion that was projected in the budget tabled back in March.
“Our government continues to face significant economic uncertainty driven by U.S. tariffs on Canada, but our government has a plan to protect workers, businesses and communities while building a stronger economy for the future,” Finance Minister Peter Bethlenfalvy said in a written statement accompanying his fall economic statement.
Most of the measures to do so have previously been announced. They include the joint $8.7 billion Canada-Ontario action plan with the federal government to bolster the steel, automotive and critical mineral sectors, as well as a recently announced plan to provide $8 billion in provincial tax relief to businesses by allowing them to write off a wide arrange of assets, another joint venture with the feds.
Some of the higher deficit owes to boosted funding to the government’s contingency and reserve funds.
Ontario has increased funding in its fiscal reserve fund from $1.5 billion to $2.2 billion. The province says the increase reflects “ongoing extraordinary circumstances, including significant trade-related risks to Ontario’s economic outlook.”
Smaller deficits of $12.7 billion and $6.7 billion are expected over the next two fiscal years, with a small surplus of $200 million projected for 2029-30. The government had projected in the spring budget that it hoped to return to balance in 2028-29 with a surplus of $600 million.
The government says that despite the economic uncertainty, the province’s economy is expected to continue growing. Real GDP is projected to increase by just 0.5 per cent in 2026 and 1.5 per cent in 2027.
Corporate tax up, personal income tax down
The higher deficit comes even as overall government revenue is actually up, now projected at $2 billion higher than the $232.6 billion forecast in the spring budget. The government says this is due to higher-than-expected federal transfers, as well as $878 million more in sales tax and around $1.5 billion more in corporate tax revenue.
At the same time, the province has seen revenue drop in other areas. Revenue from personal income tax is $1.7 billion less than previously forecast, due to less-than-expected revenue from the CRA for 2025. Government officials say this mainly reflects less capital gains tax revenue than expected and also stems from difficulties in projecting personal income revenue.
The province is also now projecting $3.28 billion in Land Transfer Tax revenue, $497 million less than forecasted in the budget. That’s mainly owing to the sluggish housing market, the government says.
To help make up the shortfall, the government is borrowing $3.9 billion more, bringing long-term borrowing to $51.1 billion.
While the government is projecting a return to balance in three years, a slower-growth scenario contemplates more large deficits over the next few years, while a faster-growth scenario could see the province return to balance as soon as 2028-29.
Unemployment in the province sits at 7.2 per cent for 2026, but the government says it expects that to decrease to 6.1 per cent in 2029 with strengthening economic growth.
Other highlights
- The province says it is increasing the penalty for people who fraudulently claim the first-time homebuyers’ credit
- Ontario is capping the monthly credit for the Ontario Electricity Rebate at 1,200 KWh for residential customers as of May 1, 2027. The government says this will maintain affordability and ensure stability. The average residential customer uses 700KWh.
- The $4 billion Protect Ontario Investment Fund announced in the spring budget has now been paused as the government explores possible better uses for the funds in the wake of further instability
- The province is proposing narrowing the Ontario Computer Animation and Special Effects Tax Credit so that just TV and film producers will be eligible, a move asked for by the industry to help support it.
