Ontario Fall Economic Statement 2026: A Longer Road to Balance, a Bigger Bet on Investment
Ontario’s fall economic statement revealed a steeper-than-expected deficit for fiscal year 2026-27. The province’s shortfall is now projected at $16.9 billion, up from the $13.8 billion forecast in Budget 2026.
- Revenues have held up reasonably well and are now projected at $2.0 billion above the spring forecast reflecting stronger federal transfers and tax revenues. While economic growth has held on, especially in nominal terms, the outlook for the province comes with plenty of risks.
- The province expects the deficit to shrink over the next few years, from $12.7 billion in 2027-28 to $6.7 billion in 2028-29, before reaching a $200 million surplus in 2029-30.
- The deficit reduction relies on modest program spending growth. Excluding contingencies, program spending is expected to rise by an annual average of just 1.0 per cent after this fiscal year, well below the 3.5 per cent average increase in revenues over the same period.
- Despite a larger near-term deficit, Ontario’s debt burden remains elevated but manageable, with net debt-to-GDP anticipated to rise from 37.4 per cent in 2026-27 to 38.3 per cent by 2029-30. These figures remain below the province’s 40 per cent target.
- Other fiscal metrics provide more reason for concern. The interest-to-operating revenue ratio is forecast to be 6.7 per cent in 2026-27 and reach the province’s 7.5 per cent target ceiling by 2028-29, while net debt-to-revenue is already above its 200 per cent target and is expected to rise further over the outlook.
- The province expects real GDP growth to strengthen gradually, from 0.5 per cent in 2026 to 1.5 per cent in 2027, 1.8 per cent in 2028, and 2.0 per cent in 2029. These projections are somewhat weaker than our own, which assume some improvement in the trade environment in 2027.
- In contrast, Ontario’s fiscal outlook is more optimistic than our own despite our stronger economic growth forecast. Compared with our recently released Provincial Fiscal Outlook, we see similar near-term deficits but expect the deficit to narrow to only $5.8 billion by 2029-30.
- While our revenue outlook is aligned with the province’s, we expect greater spending pressures, particularly in the healthcare sector.
- On the policy front, the Ontario government continues to prioritize stimulating investment and competitiveness. Through the Tax Action Plan, the province announced an additional $8 billion in tax relief to benefit businesses making capital investments over the next five fiscal years. This new program would permanently allow businesses to immediately write off 100 per cent of the value of a broad range of assets. This is an expansion of similar measures introduced in Budget 2026, bringing the total tax relief to $12 billion over five years.
- The province is also expanding eligibility for support programs to help businesses weather the storm of August’s escalation of U.S. trade tensions. This includes up to $1 billion in capital loans from the Protect Ontario Financing Program and expanded eligibility for tariff-impacted industries to receive trade-diversification funding from the Ontario Together Trade Fund.
- The government’s ambitious 10-year, $210-billion capital spending plan was reaffirmed in the Fall Economic Statement. This includes $37 billion in fiscal year 2026–27 to build highways, public transit, health infrastructure, and schools.
- On the housing side, the temporary removal of all HST from new home purchases priced up to $1 million, with additional relief measures for homes valued up to $1.5 million, will be maintained until March 31, 2027, as planned in Budget 2026.
- The province also remains keen to increase housing supply, highlighting the Development Charge Reduction Program announced earlier this year with federal and municipal governments to reduce housing and critical infrastructure building costs. Municipalities that can reduce and maintain development charges by at least 30 per cent will receive priority funding.
Key insights
Ontario is weathering the storm relatively well, though longer-term pressures are building. Much of the larger near-term deficit reflects higher contingencies given near-term uncertainty. Revenues have also held up better than expected despite the challenging trade environment. The biggest concern is the continued delay in the path to balance. Ontario now expects to return to balance by 2029–30, one year later than projected in Budget 2026, extending the period of sizeable deficits and adding further to its debt burden. That strain is beginning to show up in some key fiscal metrics. Net debt-to-revenue is already above the province’s 200 per cent target and is expected to rise further, while interest costs as a share of revenue are expected to reach the province’s 7.5 per cent target ceiling by 2028-29.
Keeping spending in check will be key, but it won’t be easy. Ontario’s plan relies on keeping program spending growth modest over the coming years. Our demand-driven estimates for education and healthcare suggest that restraint is achievable in education, though healthcare is likely to face stronger cost pressures. Stronger business investment could provide some upside to revenues, particularly as new federal and provincial measures take effect, though much of that benefit is likely to materialize gradually. Another global event that impacts the province’s economy, as has been the norm in recent years, would make keeping spending in check even harder. Taken together, the province’s path back to balance looks somewhat ambitious based on our own analysis.
Redoubling efforts to stimulate investment. Ontario continues to put investment and businesses front and centre. The province’s ambitious capital plan and private sector support could boost investment and increase productivity, taking a swing at addressing some of Canada’s and Ontario’s most pressing challenges. In addition, the focus on trade diversification and local procurement today could ultimately help build firms’ resilience to trade disruptions in the long run, even as the U.S. remains our primary trade partner. The key question is how meaningfully firms increase capital spending while staring down weaker growth expectations and geopolitical uncertainty.
No new news for households. With the Fall Statement focused on boosting investment across the province, new household support was relatively modest. Instead, the government is leaning on previously announced affordability measures such as the permanent gas and fuel tax cuts, the removal of some highway tolls, and lower public transit costs.
Provincial Fiscal Outlook
The Provincial Fiscal Outlook provides an independent five‑year forecast of each province’s finances, offering an objective evaluation of government budget projections and the economic trends and risk factors that could challenge them.
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