[La version française suit le texte anglais.]
FAO PROJECTS BUDGET DEFICIT OF $2.5 BILLION IN 2022-23 FOLLOWED BY SURPLUSES
TORONTO, February 7, 2023 – Today, the Financial Accountability Office of Ontario (FAO) released a report that provides its projection of the Ontario government’s fiscal position over the 2022-23 to 2026-27 period, based on current and announced government policies and the FAO’s economic forecast.
Ontario’s rapid economic recovery from the pandemic is expected to slow sharply in 2023, reflecting the impact of elevated inflation, high interest rates and a weaker global environment. Although there are notable downside risks to the outlook, a modest economic recovery is expected to begin in 2024.
After total revenues grew by an exceptional 12.2 per cent in 2021-22, revenue growth is projected to moderate to 3.6 per cent per year over the outlook, in line with the slowing economy. Compared to the government’s three-year projection in the 2022 Fall Economic Statement (FES), the FAO’s revenue forecast is $1.7 billion higher in 2022-23, narrowing to $0.7 billion higher by 2024-25.
The FAO projects that program spending will grow by an average annual rate of 3.2 per cent over the outlook. Compared to the government’s three-year program spending plan in the 2022 FES, the FAO expects that spending on programs will be $6.8 billion lower than planned by the Province in 2022-23, narrowing to $4.5 billion lower in 2023-24, and $1.2 billion lower in 2024-25. In total, over the three-year spending plan in the FES, the FAO projects that the Province has allocated a cumulative $12.5 billion in excess funds that are not currently required to support existing programs and announced commitments. The excess funds in the government’s spending plan is due to significant contingency funds, which are excluded from the FAO’s projection as the purpose of the funds have not yet been announced.
With revenue gains expected to exceed program spending growth over the outlook, the FAO projects that the budget balance will improve from a deficit of $2.5 billion in 2022-23 to a surplus of $1.0 billion in 2023-24, growing to a surplus of $7.6 billion in 2026-27. The FAO’s deficit projection of $2.5 billion in 2022-23 is considerably smaller than the government's $12.9 billion deficit projection in the 2022 FES. By 2024-25, the last year of the FES outlook, the government projects a $0.7 billion deficit, in contrast to a surplus of $4.2 billion expected by the FAO.
The FAO’s budget outlook for Ontario is subject to the same risks affecting the economic outlook, in addition to various other uncertainties, including the potential for higher-than-expected wage settlements, the ongoing legal challenge to Bill 124, a potential increase in federal transfer revenue as health care agreements between the federal government and the provinces and territories are finalized, and any future policy announcements, including tax cuts or new spending initiatives.
To learn more, read the full report here.
- Compared to the FAO’s last update, the FAO’s budget outlook for 2022-23 moved from a surplus of $0.1 billion to a deficit of $2.5 billion, mainly due to new government revenue and spending measures (approximately $1.3 billion) and a slight deterioration in the economic outlook for 2023.
- After rapid economic growth of 5.2 per cent in 2021 and an estimated 3.7 per cent in 2022, Ontario's real GDP growth is projected to slow sharply to just 0.5 per cent in 2023.
- As the economy recovers and grows faster than the increase in debt, the FAO expects the net debt-to-GDP ratio to decline to 34.1 per cent by 2026-27 – the lowest ratio since 2010-11 and well below the government’s medium-term target of 42 per cent.
- Despite the $12.5 billion in excess funds in the government’s three-year program spending plan, there are still funding shortfalls in some sectors, including health (net $5.0 billion over three years), education ($1.1 billion) and justice ($0.8 billion). On the other hand, the Province has allocated excess funds to ‘other programs’ (net $19.7 billion over three years), largely due to the contingency fund. If the government intends to support its existing programs and announced commitments, then it will need to move funds from the contingency fund to cover the shortfalls identified by the FAO.
About the FAO
Under the Financial Accountability Officer Act, 2013, the Officer provides independent analysis on the state of the Province's finances, trends in the provincial economy, and related matters important to the Legislative Assembly of Ontario. Visit our website and follow us on Twitter and LinkedIn.