The government of Ontario will spend $38.5 billion more than it takes in over the 2020-21 fiscal year, nearly double the deficit projected when Finance Minister Rod Phillips presented a mini-budget in the spring at the outset of the pandemic. That deficit is being driven both by lower-than-projected revenues (down $6 billion from March’s forecast) and higher spending (up $13 billion). “There are two words for it: global pandemic,” Phillips said when asked to account for his small-government party's record-setting provincial deficit.
The government projects a new total of $30 billion in COVID-19 supports, which, like the March update, includes direct spending and allows tax payments to be deferred to later dates to help households and businesses better manage their cash flows. That figure also still includes billions of dollars in electricity subsidies that the Financial Accountability Officer has previously said were not really related to the pandemic.
Predictably, this is going to mean an increase in the province’s total debt and, more significantly, its debt-to-GDP ratio — which will now climb to 47.1 per cent. (The Ministry of Finance had projected 41.7 in March.)
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But, because 2020 never stops surprising, it will actually cost Ontario less than projected to service this substantially larger deficit: total government debt service will be $741 million lower than projected in March, because interest rates have fallen so substantially since the mnistry’s earlier estimates.
Two programs from the Bank of Canada — the Provincial Money Market Purchase and the Provincial Bond Purchase Program — have helped keep interest rates low for the provinces, despite concerns early in the pandemic that some provinces could face real financial distress.
The release of the first-quarter finances — the governments taxing and spending for April, March, and June 2020 — does not include any new spending announcements; it simply summarizes the results of decisions already made and announced. So, for example, it reflects the government’s spending on long-term care in the spring and early summer but does not yet reflect any of the government’s announced spending in education.
The snapshot of Ontario’s public finances does reflect, however, the interaction between the provinces and the federal government during the pandemic. Provincial tax revenues have fallen dramatically since March, with corporate and personal income taxes down more than $5.6 billion and sales-tax revenues down $4.1 billion. That has been offset, somewhat, by a $6.2 billion increase in federal transfers, including the Safe Restart Agreement, which was finalized last month.
Ontario has still not presented a formal budget for the 2020-21 fiscal year; Phillips reiterated his commitment to presenting one to the legislature no later than November 15.