The Ontario provincial government released its fall economic and fiscal update with its projections for the next few years and the results do not look like smooth sailing. Ontario is of course being hard hit by the ongoing trade and tariff dispute with the United States with its manufacturing sector under a lot of stress. While the Ontario economy is still being forecast to grow over the new few years - demonstrating a surprising amount of resilience - it remains that once inflation and population growth are factored into the analysis, Ontario is looking at continuing anemic per capita income growth. By 2028, if all goes as laid out in this economic statement, Ontario will have a real per capita GDP approximately where it was in 2019. In other words, the third decade of the 21st century will represent a lost decade when it comes to per capita income growth for Ontarians.
In an effort to deal with the effects of a slow growing economy, Ontario is relying on continued large deficits. Figure 1 combines data from the Fiscal Reference Tables and yesterday's economic statement to plot total revenues, total expenditures and the deficit since 1990/91 and up to 2028/29. Needless to say, more often than not, there has been a deficit with the projections calling for a deficit of $16.9 billion in 2026/27 followed by $12.7 billion and $6.7 billion in the two subsequent years. Even if one accounts for the billions of dollars in spending being set aside in contingency funds ($2.2 billion in 2026/27 and $3.6 billion in 2027/28), there are still substantial deficits coming down the road.
By 2028/29, the provincial net debt is expected to surpass the $540 billion dollar mark (see Figure 2) but also growing quickly will be the resources required to service the debt. Annual debt service costs until the 2022-243fiscal year were under $14 billion but are projected to rise substantially to the point that 2028-29 is expected to see debt charges surpass $20 billion dollars. That is about $7 billion more than what the province is expected to spend on post-secondary education in 2028/29 ($12.6 billion) and just under what it is expected to spend on children, community and social services ($21.7 billion). And while we are on the topic of post-secondary education, it should be noted that the economic statement shows spending on the sector at 13.9 billion for 2025-26 meaning that by 2028/29, spending on the sector will have declined by 9.4 percent.
However, the most interesting revelation is for health spending. Figure 3 plots the total amount the provincial government is spending on health as well as adjusted for both population and inflation. Going forward, increases will be about $3 billion annually in total health spending which after factoring in inflation and population growth will result in increases in real per capita spending of 0.5 percent in 2026/27, -0.2 percent in 2027/28 and 0.7 percent in 2028/29. By 2028/29, real per capita provincial government health spending will have essentially been flat since the surge of the pandemic. The pandemic itself saw a substantial bump in real per capita spending followed by a decline and then a slow recovery which flattens out going forward over the next three years. All this in turn comes after a period of essentially flat real per capita health spending since 2008/09. By way of comparison, from 1997/98 to 2008/09, real per capita provincial government health spending growth in Ontario averaged 4.1 percent annually. Since then and projected to 2028/29, the average annual growth rate will be 0.8 percent.
Of course, part of the reason for slow spending growth in important things like health and large deficits at the same time is the anemic performance of the provincial economy and Figure 4 shows where we have been and where it looks like we are going. Much like health spending, projected real per capita GDP by 2028/29 will be where Ontario was just before the pandemic. A slow economy feeds into revenue growth. The result is that while revenues are projected to increase, they are not rising fast enough to both increase spending on key programs, service the debt and balance the budget. Between 2025/26 and 2028/29, total revenue is expected to grow by 11 percent. Program spending is expected to rise by 6 percent. However, debt service costs are going to rise by 32 percent. And with interest rates on the way up, it looks like this is going to be as good as it gets.
