Ford Gov’t Headed For Massive Budget Deficit Due To Interest Rates And $3B Infrastructure Bank

Ontario’s journey towards fiscal balance has encountered unexpected hurdles, according to the Ministry of Finance. Elevated interest rates and persistent inflation are exerting pressure on the province’s economy, resulting in a longer road to financial equilibrium than previously anticipated, as highlighted in the spring budget.

The anticipated deficit for the current year has ballooned to $5.6 billion, a significant increase from the $1.3 billion projection in March. This revelation was disclosed in the latest fall economic statement unveiled by the ministry on Thursday. Moreover, what was initially a modest $200-million surplus forecast for next year has now transformed into an expected $5.3 billion deficit, as indicated in the document.

This revised fiscal outlook coincides with downward revisions in growth forecasts and job creation estimates for 2024 and 2025.

Finance Minister Peter Bethlenfalvy, while presenting the fall economic statement in the legislature, acknowledged the economic uncertainties, stating, “As I have cautioned many times over the past year, we are not immune to the risk of an economic slowdown. The impacts of high inflation and the Bank of Canada’s rapid interest rate increases are weighing on Ontario’s economic outlook for the remainder of this year and into next year.”

The notable shift in this year’s deficit forecast can be attributed largely to unexpected increases in spending and reduced revenue expectations from certain taxes, particularly personal income taxes.

Ontario Premier Doug Ford has been consistently asking the Bank of Canada to refrain from another interest rate increase, adding “there is simply no excuse for increasing the already crushing pressure previous interest rate hikes have placed on so many families and businesses.”

Additionally, the ministry has allocated an additional $2.5 billion to the province’s contingency fund, which has now swelled to $5.4 billion. A senior finance ministry official, during a technical briefing for the media, explained that this substantial contingency fund is intended to provide fiscal flexibility amid ongoing economic uncertainty.

As a result of these developments, Ontario is now on track to achieve fiscal balance in 2025-2026, with a projected $500-million surplus.

In response to the fiscal update, Catherine Fife, an MPP from the New Democrat party, expressed concern about the size of the contingency fund, deeming it “irresponsible when so many people in the province are hurting.” She advocated for utilizing these funds for strategic investments to address the cost of living and housing crises, emphasizing the importance of healthcare, paramedics, nurses, child-care workers, transit, and affordable housing.

Leading up to the announcement, both the NDP and Ontario Liberals had called on the government to reintroduce rent controls, which were rolled back in 2018. Stephanie Bowman, the Liberal finance critic, echoed these concerns and criticized Ford’s government for not implementing measures to benefit Ontario families.

“Nothing but re-announcements of old policies and the creation of a bureaucratic bank,” Bowman said. “Not a single Ontario family is better off today than they were yesterday.”

Throughout the week, the government had already unveiled most of the new measures included in the fall economic statement, often referred to as a mini-budget. These measures include extending the 5.7 cent per litre gas tax cut until June 2024, eliminating the provincial portion of the HST on purpose-built rental units, and lowering the age for regular, publicly funded breast cancer screenings from 50 to 40.

$3-billion infrastructure bank

The most substantial new investment is the allocation of $3 billion to establish the Ontario Infrastructure Bank. This new entity is expected to attract institutional investment into major public infrastructure projects, particularly in the long-term care, energy, and affordable housing sectors. The bank aims to reduce risks associated with complex, long-term projects and offer more flexible financing terms for investors while reducing the government’s spending on servicing debt.

Bethlenfalvy highlighted the appeal of Ontario to trusted institutional investors and the potential for the bank to leverage Canada’s robust pension system.

Ontario’s commitment to investing $3 billion in the creation of an infrastructure bank reflects its intention to facilitate the development of major projects in affordable housing, healthcare, and transportation, with a focus on attracting private capital from institutions like pensions and insurance funds. The new agency will operate independently from the government, governed by a board of directors responsible for making investment decisions.

Ontario’s initiative follows a model similar to the Canada Infrastructure Bank (CIB) established by Prime Minister Justin Trudeau’s government in 2017, albeit with some lessons learned from the CIB’s experience. The CIB, which had a $35 billion budget, initially faced criticism for its slow start in attracting private capital. However, in recent years, it has gained momentum, with $10 billion committed to 48 projects, attracting about $20 billion in additional private investments.

The CIB provided guidance to Ontario’s Department of Finance in setting up the new fund, and collaboration between the federal agency and the provincial body is anticipated.

Ontario’s population is growing rapidly, and the province faces housing shortages and affordability challenges. To address these issues, the government is launching a “housing-enabling water systems fund,” with $200 million allocated over three years. This fund will support municipalities in financing the repair, rehabilitation, and expansion of core water, wastewater, and stormwater projects that promote growth and enable housing development.

Despite an increase in projected housing starts, the province remains short of the pace required to achieve its goal of building 1.5 million new homes by 2031. An independent analysis revealed that construction needs to nearly double by 2025 to have any hope of reaching this target.

In September, Ford’s administration rescinded a controversial proposal that would have permitted development on environmentally protected lands near Toronto.

This fiscal update coincides with signs of an economic slowdown in Canada, marked by two consecutive quarters of flat GDP and the Bank of Canada’s overnight rate standing at five percent after a series of rate hikes, while inflation remains a persistent concern.


Information for this briefing was found via CBC, Bloomberg, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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