Ontario projects $14.6-billion deficit in budget as it wrestles with U.S. tariffs

Globe and Mail

15-05-2025

The Ontario government is forecasting a deficit almost ten times larger than it predicted last fall for the coming fiscal year − at $14.6-billion − as the province wrestles with the impact of U.S. tariffs.
In its budget introduced on Thursday, the province blew away its previous estimate of a $1.5-billion deficit for 2025-26 from last November, which was based on economic projections predating U.S. President Donald Trump's trade war.
It's the latest fiscal plan issued by a Canadian province to show the damage the tariffs are expected to do to government balance sheets, with Alberta, B.C. and Quebec also among those posting ballooning deficits in recent months.
Now, with U.S. tariffs imposed on Ontario's large auto, steel and aluminum industries, the province's economic picture is darkening. The government still expects some annual growth, based on a conservative reading of private sector-forecasts, but predicts real gross domestic product will expand by just 0.8 per cent, half its projection from last fall.
As a result, corporate tax revenues are expected to slip. And the tariff-driven slowdown throws a wrench into Ontario's plan to balance its books. It had predicted a $900-million surplus for 2026-27 in its fall economic statement. But it now expects a deficit of $7.8-billion next year, and isn't pledging a surplus until 2027-28.
Speaking to reporters, Finance Minister Peter Bethlenfalvy said the budget is a plan to protect workers, businesses and communities in the face of U.S. tariffs and economic uncertainty − while arguing that it remains fiscally responsible.
'The U.S. tariffs, and the economic uncertainty surrounding them, highlight the underlying issues we face as an economy and a nation. Now is the time for growth and improvement,' he said. '… That's what a responsible Conservative government looks like.'
As usual, the province's budget documents also include a range of economic-outlook scenarios, ranging from zero real growth in 2025 to as much as 1.6 per cent, while adding that 'significant risks remain regarding the scale, scope and timing of U.S. trade policies.'
The large deficit figure for this year is padded by a $3-billion contingency fund, which grows even larger in future years. The projections also include a $2-billion reserve fund each year meant to cushion the government's bottom line. In all, the province plans to spend a record $235.7-billion in 2025-26.
The budget is being delivered nearly two months later than usual after Progressive Conservative Premier Doug Ford called a snap February election, running against the threat of Mr. Trump with the slogan 'Protect Ontario.'
Other provinces issued budgets earlier this year, when the impact of Mr. Trump's tariff threats was even harder to gauge. B.C. projected a record deficit of $10.9-billion, while warning that it could get even worse. Alberta said in February that it expected a $5.2-billion deficit, instead of an earlier predicted $5.8-billion surplus, but still pledged a tax cut. Quebec projected a record $13.6-billion deficit.
Ontario's fiscal plan incudes a range of measures meant to shore up the province as it faces job losses and economic damage from the U.S. tariffs. Many of the measures were either already announced or enacted, or pledged in the recent election campaign.
The budget enacts a campaign promise to create an 'emergency backstop' fund of up to $5-billion called the Protecting Ontario Account, which the government says would work with Ottawa to provide 'immediate liquidity relief' for companies that are hit hard by tariffs and exhaust other sources of help.
The program adds to previously enacted moves to provide $11-billion in relief to Ontario businesses, mostly in the form of six-month tax deferrals, as well as an expansion of an existing tax credit for manufacturers.
The budget also charges ahead with Ontario's $200-billion plans to build infrastructure such as public transit, new highways and hospitals and schools. And it pledges another $5-billion to the existing $3-billion allocated to the Building Ontario Fund, the province's new infrastructure bank, which has so far not financed many major projects.
It pledges to triple to $3-billion an existing loan-guarantee fund meant to allow Indigenous groups to participate in energy, mining and other resource projects, with the program managed by the Building Ontario Fund. With an eye on the mineral resources in Northern Ontario's Ring of Fire region, the government is creating a $500-million fund to subsidize new processing plants for critical minerals.
Mr. Ford said this week that he did not agree with governments that 'go in there and start slashing and burning.' But his budget does show cuts or frozen funding across wide swaths of his province's spending over the next three years, including in education, social services and justice.
The budget projects the province's net debt rising to just over $460-billion from $428-billion last year. The key net-debt-to-GDP ratio is also projected to climb back up slightly but still remain below Ontario's 40-per-cent target. Interest costs, at $16.2-billion, are also up, but measured as a percentage of operating costs, they remain at near their lowest levels since the 1980s.
The budget pledges up to $280-million for new private-sector health clinics, which will perform more diagnostic tests and, the government has previously announced, orthopedic surgeries − something opposition leaders and health care activists have opposed.
It cuts taxes and costs for microbreweries, cidermakers and those who sell premixed 'ready-to-drink' alcoholic beverages. And it promises $57-million for two new police helicopters to assist with border patrols.
The budget also mentions the Premier's Highway 401 tunnel idea − which expects have warned could cost more than $120-billion and would fail to improve traffic − pointing to a feasibility study that is assessing the concept. It also promises legislation to make red-light and speed cameras 'more transparent.'
And it highlights Mr. Ford's move to rip out bike lanes in Toronto. It adds lanes on Queen's Park Crescent and Avenue Road to the ones he has already targeted on University Avenue, Yonge and Bloor Streets, which remain temporarily spared thanks to a recent court ruling. But it also says the government would consider reinstating vehicle lanes but keeping bike lanes in place 'where possible,' as Toronto Mayor Olivia Chow has advocated.
NDP Leader Marit Stiles called Mr. Bethlenfalvy's budget 'a missed opportunity' to strengthen the province.
'The government could have built a tariff-proof future, with good schools, affordable homes, world-class public health care and reliable public services,' she told reporters. 'Instead, the Ford government chose more cuts, less relief and no real support for families who need help right now.'
Ontario Liberal Leader Bonnie Crombie called the budget a 'painful reminder' that the government is not helping residents, particularly young people who need affordable housing.
'Time and time again, Doug Ford has failed Ontarians,' she said. 'I'm frustrated watching yet again this Premier care more about alcohol, which is mentioned more than 100 times in the budget, than health care.'