Ontario's financial outlook is showing signs of improvement as the provincial government projects a smaller-than-expected deficit, despite ongoing economic challenges from international trade tensions and cautious growth forecasts.
Improved Fiscal Position
The government's deficit is now expected to be $13.5 billion for the fiscal year ending March 31, representing a significant improvement from the $14.6 billion projected back in May. According to the fiscal update released on Thursday, the province maintains its plan to further reduce this figure to $7.8 billion the following year.
Cautious Economic Outlook
While the financial picture appears brighter, Ontario remains cautious about its economic growth predictions. The province continues to expect 0.8% growth for 2025 and has slightly trimmed its predictions by 0.1 percentage point for the next two years. These projections fall slightly below the average of private-sector forecasts, reflecting the government's careful approach amid ongoing trade uncertainties.
The economic challenges stem largely from Ontario's significant exposure to international trade, particularly with the United States. As the province that produces more than 38% of Canada's gross domestic product and home to major automotive and steel producers, Ontario has felt the impact of U.S. tariffs particularly hard.
Revenue Growth and Strategic Spending
Ontario's improved fiscal position is largely driven by stronger-than-expected revenues. The province now anticipates revenues rising to $223.1 billion—$3.2 billion higher than forecast in May—primarily due to stronger taxation and public-sector revenue.
However, spending is also increasing. The government plans to grow expenditures to $234.6 billion, which is $2.1 billion more than estimated in May. A significant portion of this additional spending—at least $5 billion—is allocated to supporting workers affected by U.S. President Donald Trump's tariffs, as previously announced.
Ontario Finance Minister Peter Bethlenfalvy emphasized the government's strategic approach, stating that "The government is stepping up to protect Ontario in response to U.S.-imposed tariffs by deploying immediate strategies to boost investment attraction and strengthen the province's supply chains for long-term growth."
Economic experts view the government's cautious approach as prudent. Randall Bartlett, deputy chief economist with Desjardins Group, noted that "The government erred on the side of caution in its fall fiscal outlook, baking material prudence into its baseline economic and revenue projections. This suggests to me that the risks to the forecast for government finances are likely skewed to the upside."
The fiscal update also reinforced the province's commitment to long-term economic development projects, including building small modular reactors in partnership with the federal government and developing the critical mineral-rich Ring of Fire in northern Ontario.
Looking further ahead, the province's finance department doesn't project a balanced budget until the 2027-2028 fiscal year, when it's forecasting a $200 million surplus.
