With a strong economic recovery boosting government revenues, Ontario is expected to return to a balanced budget in 2023-2024, according to a report from the Financial Accountability Office of Ontario (FAO).
“Ontario’s robust economic recovery and healthy revenue growth are expected to drive significant fiscal progress,” said the FAO, which provides an independent view on the province’s finances, in a report released Tuesday.
The report indicated that a sharp economic rebound — including nominal GDP growth of 11.9% in 2021 and 7.2% in 2022 — is expected to generate average annual revenue growth of 4.8% from 2020-2021 to 2026-2027, which would be “a full percentage point faster than the growth recorded over the previous seven-year period.”
While program spending is also projected to accelerate — increasing by an average annual rate of 3.6%, up from its recent growth rate of 3.4%, due partly to increased commitments for long-term care homes and the federal-provincial deal for affordable child care — faster revenue growth is expected to drive the budget back to surplus over the next couple of years.
The FAO expects the province to record a balanced budget by fiscal 2024, and to reach a surplus of $7.1 billion by fiscal 2027 — although for fiscal 2022 (which ended March 31) it said the province will still record a deficit of $8.7 billion.
A return to budgetary surpluses “would noticeably improve Ontario’s fiscal sustainability indicators,” the FAO said, enabling the province’s net debt-to-GDP ratio to decline to 33.9% by fiscal 2027, which would be its lowest level since 2009-2010.
Additionally, debt interest as a share of revenue is projected to decline from 7.4% in 2020-2021 to 6.2% by 2026-2027, which would be its lowest level since 1982-1983.
“Ontario’s economic recovery has generally been resilient, but an escalation in geopolitical conflict, renewed supply chain challenges, higher inflation or another wave of Covid-19 could lead to weaker economic and revenue growth, and upward pressure on program spending,” the report cautioned.
The Progressive Conservative government is expected to table its 2022 budget in the coming weeks before launching the June election campaign.