Economic and Fiscal Outlook Spring 2016

Open PDF

Executive Summary

The FAO is forecasting solid growth for the Ontario economy, with real GDP rising by 2.5 per cent in both 2016 and 2017, in-line with the current average outlook of private sector economists. Beyond 2017, Ontario’s economic growth will moderate slightly, averaging 2.2 per cent per year. However, there are significant risks for both the global and Canadian economies that could lead to weaker economic growth for Ontario.

Consistent with the economic outlook, the FAO is forecasting provincial revenues to rise at an average annual rate of 3.8 per cent from 2014-15 to 2020-21, slightly below the revenue projection in the 2016 Ontario Budget forecast.[1] For program spending, the FAO outlook adopts the 2016 budget projection, which assumes average annual spending growth of 1.9 per cent over the 2014-15 to 2018-19 period. Beyond the budget outlook, the FAO projects program spending to increase by 3.4 per cent in 2019-20 and 2020-21, reflecting rising spending pressures from underlying demographics and higher costs of services.

Based on the revenue and spending outlooks, the FAO forecasts budget deficits of $5.7 billion in 2015-16, $4.0 billion in 2016-17, and $580 million in 2017-18, somewhat larger than the 2016 Ontario Budget projections.[2] However, given the flexibility built into the government’s fiscal projections, the Province is in a position to achieve its commitment of balancing the budget in 2017-18.

Beyond 2017-18, as revenue growth remains moderate, but spending pressures build, the FAO projects a gradual deterioration in the Province’s budget balance, with a deficit of $1.7 billion by 2020-21.

Key Risks

The FAO fiscal outlook is broadly consistent with the consensus forecast for the economy as well as the government’s own projections for program spending to 2018-19. However, there are a number of significant risks to this outlook including weaker than expected economic growth and higher than planned program spending.

If the economy grows somewhat more slowly than expected and maintains the average pace of growth of the past five years, revenues would be lower and the budget deficit would be $1.4 billion in 2017-18, and deteriorate to $3.5 billion by 2020-21.

Over the next four years, the government plans to restrain spending below the growth of underlying demographic and cost pressures. Based on FAO analysis, if the Province were to allow program spending to grow in-line with underlying cost and demographic factors, program expenses would be $4.0 billion higher by 2018-19, compared to the 2016 budget.

The FAO outlook also adopts several key policy assumptions implicit in the government’s fiscal plan. However, if the actual fiscal outcomes differ from the government’s assumptions, there could be a material impact on the government’s budget balance. These assumptions include:

  • Ontario’s continued receipt of Equalization payments, estimated to be $1.6 billion by 2020-21; 
  • $1.3 billion by 2017-18 in new revenues from federal transfers continuing over the medium-term; 
  • $1.9 billion by 2017-18 in new revenues from the cap-and-trade program to reduce greenhouse gas emissions.

Ontario Debt

As a result of projected budget deficits combined with the government’s large infrastructure spending plans, Ontario’s net debt is forecast to rise by approximately $54 billion over the next five years to $350 billion. 

The FAO projects that Ontario’s net debt-to-GDP ratio – a standard measure of debt burden – will peak at 39.6 per cent in 2015-16 and then decline modestly to 38.4 per cent by 2020-21, a decrease of approximately one percentage point over five years. 

The Province has committed to reduce the net debt-to-GDP ratio to 27 per cent, approximately 11 percentage points below the projected value in 2020-21, but has not provided details of how or when it plans to achieve this goal.

Media inquiries - Kismet Baun, Communications Coordinator


[1]   Unless otherwise indicated, all forecasts of economic and fiscal statistics presented in this document are projections based on FAO analysis.

[2]   In this report, the budget balance is presented before ‘reserve’. In 2016 Ontario Budget documents, projections of the budget balance typically include a ‘reserve’, as a prudence measure against worse than expected outcomes.