Ontario deficit shrinks by $1 billion as trade war chips away at economic outlook

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Ontario Finance Minister Peter Bethlenfalvy speaks about fall fiscal update

‘Ontarians heard nothing that would bring them hope’: Stiles reacts to fiscal update

How Trump’s tariffs will guide Ontario’s fall economic statement

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Federal budget falls short in moving Ontario forward: Bethlenfalvy

Ontario’s PC government is projecting a slightly smaller deficit of $13.5 billion as it moves forward with its plan to spend billions of dollars to bolster Ontario’s economy in the face of U.S. tariffs.

Rising at Queen’s Park to deliver a fall economic update Thursday, Finance Minister Peter Bethlenfalvy said Ontario “finds itself in a very different place than it did seven years ago.”

He lauded the province’s GDP growth since then but also said U.S. tariffs continue to make “an already-uncertain global economy even more challenging and unpredictable.”

The provincial budget unveiled in May included billions of dollars for roads, bridges and transit in the face of tariff threats from U.S. President Donald Trump, as well as billions of dollars for various funds meant to help shore up businesses and jobs in the face of the trade war.

The fall update continues on that theme, with few major changes.

Despite all that spending, the province said Thursday the deficit this year is now projected at $13.5 billion, compared to a projected $14.6 billion in the spring budget. The smaller deficit comes amid higher-than-expected revenue for 2025-26 of $223.1 billion -- $3.2 billion more than forecast in the spring budget. The province says the increase is driven mainly by stronger tax revenue and broader public sector revenue.

Bethlenfalvy says the province is providing a $100 million injection into the Ontario Together Trade Fund – an initiative meant to help businesses impacted by trade disruptions – bringing it up to a total of $150 million.

While it wasn’t included in the economic update, the Ministry of Transportation confirmed Thursday that it has awarded $9.1 million to a Waterloo, Ont., company to do a feasibility study on Premier Doug Ford’s proposed Highway 401 tunnel – a project the premier has touted as a major initiative to stimulate the economy and fight gridlock.

The province is also looking at carrying out consultations on standardizing the rules for ride-share services, which can vary across municipalities, and is eyeing the creation of a new pension option.

Previously announced initiatives include removing the HST on new homes up to $1 million for first-time homebuyers, $1.1 billion for home care, scrapping fixed election dates and raising the political donation limit to $5,000.

Weaker economic indicators

While there were no major changes to the government’s plan, the economic update does reflect a situation where tariffs continue to chip away at Ontario’s finances, though government officials caution it is very difficult to factor in the tariffs precisely because they keep changing.

Real GDP growth is expected to dive from 1.4 per cent in 2024 to 0.8 per cent this year. It’s projected to climb to 0.9 per cent in 2026 and 1.8 per cent in 2027.

Housing starts are worse than projected in the spring, just 64,300 compared to a projection in May of 71,800. The projection for housing starts for the next three years has also been adjusted downward by a few thousand each year compared to projections in the spring.

Ontario is also projecting higher unemployment rates over the next few years, compared to the spring budget. The 2025 estimate has been adjusted to 7.8 per cent from 7.6 per cent in the spring. A rate of 7.6 per cent is expected in 2026, up an extra 0.3 per cent from the budget. That’s expected to drop to 7 per cent in 2027 and 6.5 per cent in 2028.

When it comes to job numbers, the province is projecting fewer new jobs created this year. While the spring budget forecast 73,000 new jobs this year, the government now says that number will be closer to 70,000.

While the province is now projecting 2,000 more jobs will be created in 2026 than the budget suggested, that number is still low -- just 35,000. It is also projecting just 66,000 new jobs in 2027, compared to 74,000 projected in the spring.

Long-term, it has a rosier projection for 2028 – 83,000 new jobs compared to a spring projection of 75,000.

Ontario’s overall debt stands at $460.8 billion for 2025-26 and is expected to climb to $487 billion in 2026-27, reaching $501 billion in 2027-28

Opposition parties say government has ‘thrown in towel’ on housing, environment

Opposition parties at Queen’s Park slammed the update Thursday, saying it does little to help workers and families.

Pointing to the dismal housing starts, Ontario NDP Leader Marit Stiles said, “It looks like the government has thrown in the towel on building housing in the province of Ontario.”

Speaking with reporters, Bethlenfalvy acknowledged that Ontario’s original target of building a minimum of 1.5 million new homes by 2031 is now considered a “soft target.”

The government had previously insisted that it would maintain the target, despite building far fewer homes annually than would be needed to meet it. The fall update omits the target altogether.

“Not only does it mean that we’re not building homes, any homes, let alone affordable homes that people can truly afford in the province of Ontario, but it also means that we have people who are home construction workers that can’t find work at a time when we know there is a housing crisis,” Stiles said. “We desperately need homes.”

Stiles also slammed the government for scrapping requirements that it set an emissions target and update its climate plan.

“They have no plan to reduce our greenhouse gas emissions. They have got no plan to protect our future from the climate crisis,” she said.

Bethlenfalvy said the province is still working to reduce greenhouse gas emissions with investments in nuclear energy and hydro, even if there aren’t specific targets.

“We’re not going to relent, but we’re going to focus on outcomes and not targets,” he said.

He added, “We also need to continue to lean into our conventional oil and gas, build the infrastructure, get it to new markets.”

Liberal MPP John Fraser said the economic update does nothing to help when it comes to affordability. He called on the government to spend $1 billion to bolster the province’s hospitals.

Balance forecast for 2027-28

Despite the choppy economic waters, the province continues to project a path back to balance

The government expects to have a smaller deficit of $7.8 billion in 2026-27 and eventually balance the books and show a small surplus of $200 million in 2027-28.

The province says there are some things that could support stronger growth than projected, such as a “mutually favourable” trade deal with the U.S. and in the longer term, new technologies such as artificial intelligence.

While the fall economic statement represents the government’s latest thoughts about the state of the economy, officials caution that it comes at a shorter interval from the budget than usual, with the government obliged to deliver a fiscal update by Nov. 15. They say the federal budget only coming down two days earlier also made it difficult to plan for any sort of new direction.