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Ontario budget

Ontario: Budget 2025 - Balance Waits on the Bench for Another Year

May 15, 2025
Laura Gu, Senior Economist • Kari Norman, Economist

Ontario’s fiscal year 2025–26 (FY2026) maintains plans to balance the books but now aims to do so in fiscal year 2027–28 (FY2028) rather than next year. The budget raised this year’s deficit projection by $13.2B compared to projected in 2024 Fall Economic Statement (FES) to $14.6B (1.2% of nominal GDP). Net debt is expected to climb from 36.3% of nominal output in FY2025 to 38.9% in FY2027—a slightly higher trajectory than projected in the FES but still sits below the 40% target.

A better handoff from FY2024–25 (FY2025) positioned the province well to weather the slowdown. Previous revenue projections have largely been maintained. Higher spending projections—largely attributable to the carry-over from higher operating expenses in health and education—were responsible for much of the deterioration in the bottom line. Targeted new policy measures also weigh on the bottom-line.

The signature new policy measures focus on supporting the economy, and include enhancing the Ontario Made Manufacturing Investment Tax Credit ($1.3B), expanding the Skills Development Fund ($1B), and the permanent reduction of gas and fuel taxes.

The prudent revenue outlook is based on weaker economic growth assumptions, with real growth expected to decelerate to 0.8% in 2025 and 1.0% in 2026. A more pessimistic alternative scenario factoring in prolonged tariff impacts sees the deficit deepen to $17.1B in FY2026.

Borrowing requirements are now expected to total $42.8B in FY2026, $41.1B in FY2027, and $33B in FY2028. Pre-borrowing activity and more short-term financing are expected to partially offset the effects of larger deficits.

Budget 2025 reveals a deterioration in Ontario's financial position, yet this does not undermine the government's prudent practice over the past few years. The increased spending is largely warranted, and new policy measures remain targeted and focused on stimulating growth and improving affordability during a period of economic pressure. Amid heightened economic uncertainty, the updated plan remains characteristically conservative with significant prudence built-in, ensuring the debt burden remains manageable.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.