Ontario will need a $41B deficit to recover from COVID-19: budget watchdog
TORONTO -- Ontario's budget deficit could double to $41 billion this year, according to the province's Financial Accountability Officer (FAO), as the Ford government grapples with how to revive an economy stalled by COVID-19.
The province's financial watchdog projects the pandemic will have a "massive negative impact" on Ontario's economy and deep deficits combined with containment measures will define how quickly the province can recover and be reopened.
Peter Weltman estimates the province's economic output would experience the "largest annual decline on record" contracting by nine per cent in 2020 and would only recover in 2021 when the province is expected to largely return to normal.
In the meantime, the provincial bank account is expected to see a "dramatic" $21.7 billion drop in revenue this year -- a 14 per cent decline -- as "all major sources of taxation" from personal income taxes to the harmonized sales tax take a significant hit.
In an effort to maintain services at the current levels, while at the same time introduce new COVID-19 measures, the government will have to burrow deep into multi-year deficits including $41 billion in 2020-21 and another $25 billion in 2021-22, which is expected to add $78 billion to the provincial debt.
While the FAO's estimates are based on a gradual economic reopening beginning in the Summer, Weltman also warns the province's fiscal position could "deteriorate" if the economic recovery is delayed.
Under that scenario the province would need to run a $45 billion deficit this year and a $37 billion deficit in 2021-22.
Weltman's projections, which are based on the government's own figures, are far more detailed than the March Economic and Fiscal Update tabled by Finance Minister Rod Phillips.
The government's update, which replaced a traditional Spring budget, ran a $20.5 billion deficit and projected a tiny $0.5 billion drop in revenue due to COVID-19.
Since then, however, the impact of the pandemic-induced closures proved to be far greater than initially estimated -- with more than one million people losing their jobs in Ontario as a result of COVID-19.
Phillips said he would table a full budget in November to account for the economic damage leveled by the forced shutdown of the economy.