FOR IMMEDIATE RELEASE:
[La version française suit le texte anglais.]
ONTARIO’S DEFICIT AND DEBT BURDEN REACH RECORD HIGHS AMID COVID-19 PANDEMIC
TORONTO, October 15, 2020 - Today, the Financial Accountability Office of Ontario (FAO) released its 2020 Fall Economic and Budget Outlook. This report provides an update on the impact of the COVID-19 pandemic, which will deliver a significant negative shock to Ontario’s economy, resulting in a record deficit and debt burden, and the highest unemployment rate in 26 years.
The FAO projects Ontario’s budget deficit will increase to a record $37.2 billion in 2020-21, up from $8.7 billion last year, due to a sharp drop in revenues coupled with a rapid increase in program spending. Notably, the government could report a substantially smaller budget deficit for 2020-21 than the FAO’s projection of $37.2 billion if it does not allocate $9.3 billion of unused contingency funds to specific programs.
As the province recovers from the COVID-19 pandemic and the economy rebounds, the FAO projects that the budget deficit will improve to $20.4 billion in 2021-22. However, if the recent rise in daily COVID-19 cases prompts the government to reintroduce significant pandemic restrictions in select regions or sectors, the economic recovery will be weaker, and next year’s deficit would be much larger.
Ontario’s Fiscal Sustainability, Transparency and Accountability Act requires that the government publish a recovery plan indicating how and when the budget will be balanced. If the government chooses to balance the budget over the next five years, the FAO estimates that it would require about $14 billion in permanent revenue increases or spending cuts, or a combination of both.
To learn more, read the full report here.
- Ontario real GDP is projected to decline by a record 6.8 per cent in 2020, followed by a gain of 5.1 per cent in 2021.
- Ontario’s annual average unemployment rate is projected to reach a 26-year high of 9.7 per cent in 2020, before declining modestly to 8.5 per cent 2021.
- Tax revenues are projected to drop $12.1 billion (11.2 per cent) in 2020-21. The decline in tax revenues will be partly offset by a significant $7.2 billion (28.2 per cent) increase in temporary transfers from the federal government, related to the COVID-19 crisis.
- Household disposable income is projected to increase by 7.3 per cent this year, the strongest annual gain since 1989, and largely the result of emergency support measures from the federal government. Without this government support, household income would have declined in 2020.
- Despite ongoing deficits of roughly $14 billion under the FAO’s extended outlook, interest on debt payments as a share of revenue are projected to decline from 8.3 per cent in 2020-21 to 7.2 per cent by 2025-26, due to steady revenue growth coupled with very low interest rates.
About the FAO
Established by the Financial Accountability Officer Act, 2013, the Financial Accountability Office (FAO) 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 at http://www.fao-on.org/en/ and follow us on Twitter at https://twitter.com/InfoFAO.