Canada’s Ontario sees lower deficit on higher tax revenue

Ontario Premier Doug Ford speaks during his Ontario PC Party provincial election watch party at the Toronto Convention Center in Etobicoke, Ontario, Canada June 2, 2022. REUTERS/Chris Helgren

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OTTAWA/TORONTO, Aug 9 (Reuters) – Ontario, Canada’s most populous province, said on Tuesday it expected a smaller budget deficit as soaring inflation boosted tax revenue forecasts for the current fiscal year.

The province forecast a budget deficit of C$18.8 billion ($14.6 billion) for the 2022-23 fiscal year, compared to a deficit of C$19.9 billion projected in the April budget.

The April budget, which forecast steadily declining deficits over the medium term, helped by a strong economic recovery and projected a return to surplus by 2027-28, failed to pass a parliamentary process before the election provincials of June 2.

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Premier Doug Ford’s Progressive Conservatives returned to power in June with promises to increase spending, raise the minimum wage and offer tax breaks at the gas pump.

The budget was again tabled in Parliament on Tuesday after Ontario Lieutenant Governor Elizabeth Dowdeswell marked the opening of a new provincial parliamentary session with a speech on Ford’s behalf.

In his speech, the government noted a growing sense of uncertainty and warned that an economic slowdown could occur in the province as Canada’s central bank rapidly raises interest rates to curb inflation.

“Ontario, like the rest of Canada and North America, must be prepared for the possibility of a near-term economic downturn,” Dowdeswell said in his speech.

The speech reiterated promises to build more homes and highways, and again called on the federal government to allow increased immigration to meet labor demand.

Inflation hit an almost 40-year high of 8.1% in June. That prompted the Bank of Canada to raise its key rate by 100 basis points last month, its fourth increase this year, as it pledged to raise more. Read more

It also raised tax revenue projections for Ontario, with total revenue expected to be C$1.2 billion higher than the 2022 budget forecast, according to a first-quarter budget update.

Inflation tends to boost nominal GDP, the engine of tax revenue.

“The financial update suggests that Ontario’s finances are in better shape than expected at budget time, and we see further upside potential,” said Marc Desormeaux, senior economist at Desjardins.

Ontario is the manufacturing heartland of Canada and home to approximately 40% of Canada’s 38.2 million people. It is one of the largest sub-sovereign borrowers in the world, with public debt standing at C$418.7 billion ($324.85 billion) at the end of the last fiscal year.

($1 = 1.2889 Canadian dollars)

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Reporting by Ismail Shakil in Ottawa and Fergal Smith in Toronto, additional reporting by Julie Gordon; Editing by Cynthia Osterman and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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