The Financial Accountability Office of Ontario (FAO) released a report today stating that a look at province’s spending plan indicates there will be $22.6 billion in “excess funds” over the next few years.
From 2022-23 to 2025-26, the government’s spending plan is $5.6 billion higher on average in each year compared to the FAO’s projection, according to the report. This results in a cumulative $22.6 billion in excess funds that the FAO estimates are not required to support the cost of current programs and announced commitments.
The $22.6 billion in excess funds is an increase of $10.8 billion from the FAO’s Winter EBO and reflects new funding added by the province in the 2023 Ontario Budget.
The FAO report says the the $22.6 billion in excess funds could be used to introduce new programs, enhance existing programs or address spending pressures that could materialize. Alternatively, if the province decides not to use the $22.6 billion in excess funds, then these funds would be applied to improve the budget balance and reduce the Province’s net debt.
The report reveals significant differences in the FAO’s economic projections that of the Doug Ford government.
The FAO projects a budget surplus of $0.5 billion in 2022-23 compared to the government’s projected $2.2 billion deficit. With revenue gains expected to exceed program spending growth over the outlook, the FAO projects a $10.6 billion surplus by 2025-26, compared to the government’s $4.4 billion surplus.
The FAO further says that the budget surplus will reach $16.4 billion by 2027-28 and, if the projected surpluses are used to pay down public debt, Ontario’s debt burden (as measured by the net debt-to-GDP ratio) would decline for an unprecedented seven consecutive years to 31.8 per cent in 2027-28, the lowest ratio since 2008-09.
However after two years of very strong economic growth, elevated inflation, high interest rates and a weaker global environment are expected to slow Ontario’s economy in 2023 and 2024. As a result, revenue growth is projected to moderate from 6.5 per cent in 2022-23 to 2.0 per cent in 2023-24, before recovering over the rest of the outlook as the economy improves. Based on the FAO’s review of the cost of current programs and announced commitments, the FAO projects that program spending will increase by 7.7 per cent in 2022-23 and then average 3.6 per cent annual growth until 2027-28.
The FAO’s economic and budget outlook is subject to upside and downside risks. On the upside, resilience in consumer spending and the tight labour market could last longer than expected, improving Ontario’s economic and revenue outlook. On the downside, further interest rate increases from the Bank of Canada, a possible recession in the United States
Under the Financial Accountability Officer Act, 2013, the Officer provides independent analysis on the state of the province’s finances, trends in the provincial economy, and related matters important to the Legislative Assembly of Ontario.
