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Staying the Course: Our Analysis of Ontario’s 2025 Fall Economic Statement

Canadian Economics

By: Signal49 Research Economics Team

    

Key Findings

  • After turbulent U.S. trade policy and tariffs pushed Ontario’s budget off course in the spring, the outlook presented then remains largely intact. While the deficit is now projected to improve from $14.6 billion in the 2025 Ontario Budget to $13.5 billion for fiscal year 2025-26, the deficit is still notably higher than $1.5 billion projected in the mid-year fiscal update last fall, highlighting the damage of the trade war.
  • With no major changes in economic projections, the deficit story is consistent with what the province announced in the spring, with the government planning for another year of deficits next year before reaching balance in fiscal year 2027-28. The deficit is expected to be $7.8 billion in fiscal 2026-27, followed up by a small surplus of $0.2 billion in fiscal 2027-28. These balances include the continuation of the annual $2 billion in contingencies implemented for this fiscal year, and the next two.
  • In line with the slight upgrade in the deficit, Ontario projects a 0.2 per cent improvement in the debt-to-GDP ratio from 37.9 per cent in the 2025 budget to 37.7 per cent in the fall update. That the debt metric remains intact given the province’s economic turbulence of the past year is a good sign for the resiliency of the province’s finances, though it does move slightly upward over the next two years.
  • Higher than expected revenues should outpace an uptick in program spending to moderate this year’s deficit. Revenues are projected to rise by 1.5 per cent relative to the 2025 budget for fiscal 2025-26, while program spending is expected to rise by 1.0 per cent.
  • The government’s medium-term outlook remains consistent with its trajectory in the 2025 budget, focusing on caution rather than big promises. Program spending growth is projected to average 0.4 per cent in fiscal years 2026-27 and 2027-28, while revenues are expected to increase by an average of 3.7 per cent annually over the same two years.
  • Naturally, fiscal plans are full of uncertainty given the current circumstances. The province’s budget uses a reasonable outlook for its projections, with GDP increasing by 0.8 per cent in 2025, 0.9 per cent in 2026, 1.8 per cent in 2027, and 1.9 per cent in 2028. These remain largely the same as the forecasts in the 2025 budget.
  • Given the high degree of uncertainty, the fall economic statement came with two scenarios outlining the impacts of higher and lower growth. The higher growth scenario sees GDP growth 0.6 points higher than the baseline in 2025, 1.0 point higher in 2026 and 0.3 points higher in each of 2027 and 2028. Meanwhile, the lower growth scenario sees GDP growth 0.3 points lower in 2025, 1.2 points lower in 2026, and 0.1 points lower in 2027 and 2028. The high scenario represents an easing of the trade war, while the low scenario represents an elimination of CUSMA exemptions on Canadian goods.
  • In the high scenario, cumulative deficits over the next three years will come in at $1.5 billion, compared to $21.1 billion in the baseline scenario. The deficit in the low scenario is estimated to be $39.1 billion.
  • More broadly, the underlying projections from the government remain prudent. The average private sector forecasts, including our own, estimate a better economic environment this year and next than what is used in the fall economic statement, and there is prudence in planning around a $2 billion contingency per year over the next three years. Despite this, the scenarios are illuminating, as it isn’t unlikely that one of the two scenarios come to fruition, highlighting the precarious nature of fiscal planning today.
  • The fiscal update came with little in the way of new spending announcements. Incremental spending was mostly limited to cost adjustments for previously announced programs.
  • The spending priority continues to be on infrastructure, re-emphasizing its capital plan of $201 billion over 10 years. That plan focused on improving highway and train transit to reduce congestion, investing in public services like hospitals and schools, and a broader focus on improving energy security.
  • Of note, the capital plan includes $30 billion over the next ten years for highways, including Highway 413, the Bradford Bypass, a feasibility study on a tunnel expressway for Highway 401, and work on other highway projects across the province.
  • Transit continues to be a focus, with $61 billion planned for public transit projects across the province, with a focus on improving commutes across the Greater Toronto-Hamilton area.
  • Health care, too, is expected to benefit from the infrastructure funding, with $56 billion over the next 10 years to improve health care access across Ontario.
  • A notable policy is the plan to mirror the federal government’s proposal to remove the provincial portion of GST/HST for first time homebuyers on homes purchased below $1 million.
  • More detail was also provided for the Protecting Ontario Account. The first phase was rolled out, with $1 billion allocated to helping workers in metals manufacturing and automotive sectors. The remaining $4 billion is set to help businesses shift their exports away from the U.S. and boost their productivity.
  • Other supports from the budget remain in place, including $40 million in funding from the Trade-Impacted Communities Program, $20 million in funding to POWER centers for re-training affected workers, and deferrals of selected provincial taxes for affected businesses.
  • Beyond that, the fall update suggested support for various energy generation projects, especially nuclear, and a focus on trying to expand the province’s critical mineral sector, particularly in the Ring of Fire.
  • Overall, today’s fiscal update makes it clear the Ontario government remains committed to reaching balance sooner rather than later. While revenues held up strong even in the face of the trade war, the government kept its commitments in line with what was presented in the budget. Keeping the fiscal plan cautious for now is a prudent choice, given that economic risks remain plentiful, and the outlook could worsen next year and beyond.

Insights

Ontario is watching the storm. The fall economic statement has reinforced the government’s strategy in the 2025 budget: precaution. With no major changes to the economic outlook or revenue and spending projections, it feels like Ontario is waiting to see what 2026 brings. The current outlook is largely intact from the spring, but the risks have increased. With that, the province’s high and low alternative economic scenarios could be seen as two likely futures: one where a resolution is reached and trade barriers are minimized, and another where Canada loses the benefit of exemptions for CUSMA compliant goods. By not committing to any new spending this fiscal year or next, the Ontario government is leaving room to react to the downside. In the positive case, Ontario will find a surprisingly better fiscal situation to work from. Whatever happens in the next year, there is a good chance the 2026 budget will come with more weight than the fall economic statement.

The focus remains on infrastructure. The fall economic statement keeps a heavy emphasis on infrastructure, with a capital plan of $201 billion over the next ten years. Most of that spending is dedicated to previously announced projects including highways, transit systems, hospitals and schools. The update does make mention of nation-building projects, but direct funding to support those do not show up in a major way, with some of those announcements potentially waiting for the next budget. Further, there was little in the way of new funding above the budget to help businesses, likely a nod to the fact the economy is largely holding together. The focus on infrastructure is welcome, especially given the strong population gains the province has seen over the last several years. In many communities, transportation infrastructure can be productivity enhancing. However, there are new projects that could have wide-ranging impacts on the province’s economy, something that might need to wait for the next budget once there is more clarity on how the trade war will unfold.

2025 Budget Analyses

Investing in Canada’s Future: A Costly Endeavour—Our Analysis of the 2025 Federal Budget

Investir dans l’avenir du Canada :Une entreprise coûteuse – Notre analyse du budget fédéral de 2025

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