Ontario is not currently on course to eliminate its deficit, according to the province’s independent financial watchdog, which warns that rising spending and weakening revenues will keep the books in the red for years to come.
In a report released Feb. 11, the Ontario Financial Accountability Office (FAO) projected that the province’s deficit will widen sharply from $1.1 billion in the 2024–25 fiscal year to $11.1 billion in 2025–26. The increase reflects a 3.2 per cent rise in government spending alongside a 1.2 per cent drop in revenues, driven largely by lower non-tax income.
The provincial government’s own recent update pegged the 2025–26 deficit slightly higher, at $13.4 billion.
Looking ahead, the FAO expects the shortfall to climb further to $11.8 billion in 2026–27 before gradually narrowing over the remainder of the forecast period. Even by 2029–30, however, the deficit is projected to remain elevated at $6.3 billion well short of balance.
A key concern highlighted in the report is Ontario’s slowing revenue growth. Between 2025 and 2030, revenues are expected to rise by an average of just 2.6 per cent annually, a marked slowdown from the 7.6 per cent average recorded over the past five years.
Total revenue is forecast to fall from $226.2 billion in 2024–25 to $223.5 billion in 2025–26. The decline is largely attributed to the disappearance of temporary revenue sources, including a one-time $3.4 billion tobacco company settlement booked in 2024–25.
The FAO also cited shrinking international student tuition fees in the college sector, reduced interest and investment income, and lower recoveries from prior-year expenditures as additional pressures on the province’s finances.
Nominal GDP growth a key driver of tax revenues is expected to moderate compared to recent years, further constraining income growth. Trade uncertainty and global economic shifts are also weighing on the outlook.
On the expenditure side, program spending is projected to increase at an average annual rate of three per cent, rising from $227.3 billion in 2024–25 to $262.9 billion by 2029–30. Although this pace is slower than the 6.5 per cent annual growth seen over the previous five years a period marked by pandemic-related costs, population growth and inflation it remains sufficient to outstrip revenue gains.
The FAO noted that recent years saw elevated spending due to COVID-19 measures, demographic pressures, inflation, and the launch and expansion of government programs.
The broader economic picture shows signs of cooling. Employment growth, which rose by one per cent in 2025, is expected to slow to 0.3 per cent in 2026 before rebounding to 0.9 per cent in 2027 as Ontario adjusts to evolving global trade conditions.
The unemployment rate is forecast to edge down from 7.7 per cent to 7.6 per cent in 2026 and continue declining gradually through the remainder of the forecast period.
Inflation, meanwhile, has eased from 2.4 per cent in 2024 to 1.9 per cent in 2025, largely due to lower energy prices. It is expected to tick up slightly to 2.1 per cent in 2026 as tariffs and trade-related pressures affect goods prices, though weaker economic activity and lower oil prices are projected to temper overall price growth.
The FAO’s projections differ significantly from the government’s own outlook. While the watchdog does not foresee a balanced budget within the forecast horizon, the province’s 2025 economic update anticipates returning to balance in 2027–28.
According to the FAO, the government’s forecast relies on stronger tax revenue growth and considerably lower program spending increases in 2026–27 and 2027–28 than those projected by the watchdog.
Speaking to reporters on Feb. 10, Ontario Finance Minister Peter Bethlenfalvy described the government’s fiscal approach as prudent, saying it has left the province in its strongest financial position in more than a decade. When asked whether Ontario would balance its budget, he declined to speculate ahead of the upcoming budget release.
The contrast between the FAO’s independent assessment and the government’s fiscal projections sets the stage for heightened scrutiny when the province tables its next budget, as questions remain about whether Ontario can rein in its deficit in the years ahead.
