Ontario deficit increases by over $4B, province launches new 'infrastructure bank'

The Ontario government is forecasting larger than anticipated deficits while also pledging to invest an additional $3 billion in a new “infrastructure bank” to help spur community development.

Eight months after promising to balance the budget by 2025, the province is projecting a $5.6 billion deficit for 2023-24.

This is a significant increase from the $1.3 billion deficit forecast in this year’s budget back in March.

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According to the government’s fall economic statement, which was released on Thursday, this will be followed by a $5.3 billion deficit in 2024-2025 and a surplus of $500 million in 2025-2026.

In March, the government projected a small surplus of $200 million in 2024-2025.

The new numbers reflect “updated economic revenue information and higher contingencies,” the statement said, as well as slower economic growth projections for the next two years.

The government also cited high inflation and the Bank of Canada’s interest rate increases as two factors impacting Ontario’s economic outlook.

“We haven't wavered from our target to balance a budget, but we also have to recognize the environment we're in,” Finance Minister Peter Bethlenfalvy told reporters Thursday. “We're prepared for whatever comes around.”

Revenue is predicted to be $2.6 billion lower than planned for 2023-24 while program expenses are anticipated to be $2.3 billion higher than expected. Officials say this is primarily due to the replenishment of the Contingency Fund.

The province has also said it will be launching the “Ontario Infrastructure Bank,” which they say will operate as an arm’s-length, board-governed agency to encourage institutional investor participation in development. Officials say it will enable public sector pension plans and other “trusted institutional investors and Indigenous communities” to “further participate in large-scale infrastructure projects.”

The government said they will be investing an initial $3 billion in the infrastructure bank.

“You look around the world and there's many infrastructure banks in many parts of the world that helps get things built that perhaps otherwise wouldn't get built,” Bethlenfalvy said. “It'll give them more opportunities to invest in more on infrastructure that will stay right here in Ontario.”

“What the bank will be able to help is another tool on top of the $180.5 billion that we've committed for a 10-year capital plan for building hospitals and roads and transportation. This is another tool which is successful around the world to get more things built faster.”

Few details have been provided as to how this new infrastructure bank will operate, but the fall economic statement said the board will “develop a detailed process to ensure there is appropriate qualification and selection of projects and partners in priority areas.”

Bethlenvalvy said that investors would receive a return on their investment, although did not explain what limitations, if any, there would be on revenue streams.

These priority areas will be based on financial and public benefit criteria. At the outset, the government says it will focus on long-term care homes, affordable housing, and infrastructure within the municipal, energy, and transportation sectors.

As an example, the government said the funding could be used to expand nuclear power storage needs and support the building of new long-term care beds.

• Highlights from the 2023 fall economic statement

Most of the other investments within the 158-page document have already been announced. This includes an extension of the temporary gas and fuel tax rate cut to June 30, 2024 at a pricetag of $320 million for 2023-24 and $325 million for 2024-25.

The tax rate cut, which first went into effect on July 1, 2022, would continue to cut prices at the pump by 5.7 cents per litre.

The province will also be removing the provincial portion of the Harmonized Sales Tax (HST) on new purpose-built rental housing. The rebate would be available to projects constructed between Sept. 14 2023 and Dec. 31, 2030.

The government projects this will cost about $1 million in 2023-2024, followed by $35 million in 2024-25 and $150 million in 2025-26.

The idea is to help spur more housing construction in an effort to meet the province’s goal of building 1.5 million homes over a decade.

Housing starts, which measure new residential construction, appears to be slowly increasing but remain below 100,000, according to the fall economic statement. The government is now projecting, based on private-sector averages as of Sept. 29, that housing starts will stand at about 89,500 in 2023-24, up from its projection in March of just over 80,000.

The housing starts are anticipated to drop to about 84,500 in 2024 before rising to just over 89,00 in 2025.

Bethlenfalvy said that he’s not willing to give up on the goal of 1.5 million homes, indicating “you’ve got to keep going.”

But opposition parties say that it’s not enough to stay the status quo, with the NDP alleging there is nothing new or meaningful in the fall economic statement.

“There was nothing to meaningful build the new homes and Ontario so desperately needs. It's like they don't understand the scale of the problem or they're unwilling, or they will not address the need for non-market housing,” NDP Finance Critic Catherine Fife said.

Liberal Finance Critic Stephanie Bowman said it was “unbelievable” that the statement didn’t include more affordability pledges.

“It is unbelievable, that at a time when families are struggling to keep up with the soaring cost of living, and a record number of Ontarians are relying on food banks, this Conservative government would choose to include zero new measures to provide families with immediate pocketbook relief in their Fall Economic Statement,” she said.

OTHER HIGHLIGHTS

• The province has entered into a new tax agreement with the federal government on vaping products. By joining, the federal excise duty on products intended for sale in Ontario will double, with half of the revenue being given to the provincial government. The rates are dependent on the quantity of product.

• Ontario will lower the age for breast cancer screenings to 40. No costs have been tied to this announcement.

• The province will add $100 million in new funding for Invest Ontario.

• The government will add $12 million per year in tax credit support to the critical minerals mining industry.

• While the province has said they will spend $28.1 billion over 10 years to support highway construction, no project breakdown has been provided.