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Ontario budget deficit expected to double due to US tariffs

Ontario budget deficit expected to double due to US tariffs

Ontario, Canada's largest province and manufacturing powerhouse forecast on Thursday its biggest budget deficit since the peak of the pandemic. It also predicted a slower transition into surplus, as the province increased spending to support the economic in a trade conflict with the United States.

The Progressive Conservative Party, which rules the province, retained its power after a February vote. Premier Doug Ford called the election more than a calendar year in advance, claiming that he wanted a stronger mandate for his fight against President Donald Trump's Tariffs.

Ontario exports over three quarters of its goods to the United States. This includes autos, aluminum, and steel, all of which face heavy U.S. tariffs.

The province announced that its deficit will increase to C$14.6 Billion ($10.4 Billion), or 1.2%, of the gross domestic product in the current fiscal, which is its largest by far since 2020-21. It was estimated at C$6 Billion in 2024-25. The fiscal year started on April 1.

In 2026-27 a deficit of C$7.8billion is expected, followed by a surplus in 2027-2028. This year's forecast was one year behind the October update. Each fiscal year, a reserve of C$2 billion is set aside.

The economic growth is expected to drop to 0.8% in this year, from 1.5% by 2024. Quebec, British Columbia, and Alberta are also major provinces that have projected a decline in their finances.

Peter Bethlenfalvy, Ontario's Finance Minister, said that the government was delivering on its mandate to protect Ontario, help workers and business weather the storm and create the long-term basis for a competitive, resilient, and strong economy.

Bethlenfalvy stated, "We are making investments in workers and infrastructure that will protect Ontario no matter what."

The measures include C$5 billion in emergency funding for businesses that are facing tariff-related disruptions. C$1.3 billion will be spent on expanding the manufacturing investment tax credit and C$500,000,000 for a fund to increase processing capacity of critical minerals.

The province is one of the largest sub-sovereign lenders in the world. It has also added C$5 billion into a fund which partners with Canadian institution investors to finance infrastructure, including energy, affordable housing and long-term care.

The forecast predicts that the net debt-to GDP ratio will increase to 37.9% during this fiscal year, from 36.3% (its lowest level in over a decade) in 2024-25. In 2026-27, a further increase of 38.9% will be expected before the ratio dips to 38.6%.

Even though the long-term debt is expected to fall to C$42.8billion in 2025-26, from C$49.5billion in the previous fiscal year, this was higher than anticipated. Further declines are expected in future years.

(source: Reuters)