Ontario Not on Track to Balanced Budget, Watchdog Says

Ontario’s Financial Accountability Officer (FAO) says the province is not currently projected to balance its budget, with spending increasing and government revenue declining.

The province’s financial watchdog noted in a Feb. 11 report that the Ontario government’s deficit will increase from $1.1 billion in the 2024–2025 fiscal year to $11.1 billion this fiscal year. The report said this “significant” deficit increase is due to a 3.2 percent rise in spending combined with a 1.2 percent fall in revenue, “primarily due to lower non-tax revenues.” In a recent update, the provincial government had set the projected deficit for 2025-26 at $13.4 billion.

According to the FAO, the province’s deficit is expected to climb to $11.8 billion in 2026–2027 before “improving gradually over the rest of the outlook” to 2029–2030. However, the deficit will remain elevated at $6.3 billion by the 2029–2030 fiscal year.

The FAO said Ontario’s revenue is expected to be lower than in previous years, with revenue growth averaging just 2.6 percent from 2025 to 2030 compared to the average of 7.6 percent over the last five years. Revenue will decline from $226.2 billion in 2024–2025 to $223.5 billion in 2025–2026, which is a 1.2 percent drop.

This revenue decline will be driven by lower non-tax revenues, such as the loss of a one-time $3.4 billion revenue gain from a tobacco company settlement in the 2024–2025 fiscal year, as well as declines in revenues from international student college tuition fees, interest and investment income, and recoveries from prior-year expenditures.

Nominal GDP growth, which is “the key driver of overall revenue gains,” will be slower than over the last few years. “Revenue growth over the projection period is also constrained by declines in interest and investment income and international student tuition revenue in the colleges sector,” the report said.

The FAO said spending will grow at an average annual rate of 3 percent, rising from $227.3 billion in the 2024–2025 fiscal year to $262.9 billion in 2029–2030. This is a slower pace than the 6.5 percent seen in the prior five years, which included higher spending in response to the COVID-19 pandemic, higher population growth, inflationary pressures, the introduction of new government programs, and the expansion of existing ones.

While employment growth in the province increased by 1 percent in 2025, the report projected that it would slow to 0.3 percent in 2026 before rising to 0.9 percent in 2027 as “Ontario’s labour market adjusts to a new global trade environment.” The unemployment rate will fall from 7.7 percent to 7.6 percent in 2026 and “continue to trend down over the remainder of the outlook.”

The report said Ontario’s inflation rate fell from 2.4 percent in 2024 to 1.9 percent in 2025, which was mainly due to lower energy prices. The inflation rate is expected to tick up to 2.1 percent in 2026 as the “pressure of tariffs and trade uncertainty on goods prices persists,” but lower economic activity and oil prices will moderate inflation growth.

The FAO noted that the government’s financial assessment released in the 2025 Ontario Economic Outlook does not align with its report that the province is not on track to balance the budget, and pointed out the reasons.

“In contrast to the FAO’s outlook, the Province projects a balanced budget in 2027-28, with stronger taxation revenue gains and significantly lower program spending growth in both 2026-27 and 2027-28 than projected by the FAO,” the FAO said.

When releasing the government’s projected $13.4 billion deficit on Feb. 10 and noting a $0.1 billion improvement compared to last year’s update, Ontario Finance Minister Peter Bethlenfalvy told reporters that the government’s “sustained commitment to fiscal prudence” had left the province in the “strongest position they have been in over a decade.”

When asked by reporters whether the provincial government would be able to balance the budget, he replied that he “won’t speculate on the numbers” that will come out in the upcoming budget.