Soaring tax revenues will push Ontario back into black ahead of schedule, 2023 budget projects

Surging revenues will help Ontario get back to black years earlier than previously projected, the province said in its 2023 budget — a fiscal outlook that includes historically high spending and tax relief for businesses, but little in the way of new affordability measures for individuals.

Finance Minister Peter Bethlenfalvy tabled the government's $204.7-billion budget Thursday, saying it is "rooted in strong fundamentals" and features "real action ... to not only face the current turbulence we see in the global economy, but emerge from it stronger than ever."

It comes amid nearly unprecedented economic circumstances for Ontario: above-target inflation, high interest rates, a generational labour crunch and a possible recession. At the same time, the province is seeing record-high revenues and a historically low unemployment rate.

The 187-page document forecasts that Ontario could run a modest $200 million surplus in 2024-2025, getting back to balance three years earlier than estimated in last year's budget. That surplus could increase to $4.4 billion by the following year. In this upcoming fiscal year, the province expects a $1.3 billion deficit — a figure roughly 12 times lower than that cited last April.

Substantial revisions to the balance sheet were driven in part by skyrocketing revenue projections, an official with the Ministry of Finance said at a technical briefing for the media.

The ministry is forecasting roughly $200 billion in revenue this year, $20.6 billion more than was forecast in last year's budget and some $4.4 billion higher than was estimated in third-quarter finances released just last month. By 2025-2026, the last year covered by today's budget, total revenue is expected to reach $226 billion.

The official said the drastic increases over previous outlooks were due to inflation; higher taxation revenues, mostly via personal and corporate income tax; larger federal transfers; and jumps in other non-tax revenues, especially from colleges as more international students return to Canada.

Capital plan spending also jumped significantly, with $184.4 billion set aside for major infrastructure projects like building highways, hospitals and schools over the next decade. That's nearly $25 billion more than was earmarked in the last budget.

The Treasury Board expects to hold some $3.9 billion in a contingency fund this year, which could be used for any unexpected expenses. A possible example is the ongoing court battle over Bill 124, which capped public sector wage increases at one per cent for three years. If it loses an appeal to the Supreme Court, the province could be faced with covering years of back pay for some public employees.

Similarly, the province's reserve fund is expected to hold about $1 billion in 2023-2024, before increasing to $2 billion the following year and $4 billion after that.

Opposition parties have often criticized Premier Doug Ford for sitting on large reserve and contingency funds, given the health-care staffing crisis.

The government expects to spend $81 billion on the health-care sector this fiscal year, up from nearly $75 billion in 2022-2023. That expense is projected to grow at five per cent annual in the subsequent two years. 

In recent days, Bethlenfalvy said the budget would largely be a plan to foster business and create jobs in order to meet the government's lofty infrastructure goals, including building 1.5 million more homes by 2031.

That target would require roughly 150,000 new homes to be built each year since it was introduced. But housing start projections actually fell in this year's budget to a pace that, if continued, would see just over half of those homes actually completed.