During a fiscal update from the provincial government at Queen’s Park Toronto today, the Ontario government announced its revised budget projections which outlined an increase in the budget deficit due to the ongoing COVID-19 pandemic.
Earlier in March of this year, Premier Doug Ford’s government announced that the province projected the deficit would reach $20.5 billion in the 2020-2021 year as a result of loss in revenue and increased spending on pandemic related financial assistance programs.
In the latest fiscal update, it was announced that the budget deficit is projected to increase to $38.5 billion as businesses struggle to reopen and recover from the losses in revenue due to lockdowns and business closures.
The Ontario government pinpointed factors such as higher spending in the health-care sector, boosts in economic stimulus measures, and billions in revenue loss as reasons for why the budget deficit is expected to grow in the coming years.
Other factors such as higher levels of unemployment and measures such as dropping tax revenues are other reasons that will push Ontario’s budget deficit to historic highs.
How did Ontario’s budget deficit grow to record highs of almost $40 billion?
During the height of the pandemic, more than a million people were out of work and or faced reduced hours of work in Ontario as non-essential businesses were closed in efforts to slow down the spread of COVID-19.
Consequently, provincial tax revenues saw the impact as the province lost $10.8 billion in tax revenues as the province saw declines in personal income, corporate tax revenue, and lower-income from gasoline and fuel taxes.
According to Ontario Finance Minister Rodd Phillips, Ontario saw a drop of $5.2 billion in corporations tax and $4.2 billion in personal income taxes, contributing to the province’s losses of taxation revenues.
Additionally, as businesses closed and people either working from home or have lost their jobs, people and businesses were buying less gasoline and fuel which the Ontario Finance Minister listed an additional $448 million deficit in revenues.
With the financial support from the federal government of $6.2 billion in transfers, Ontario was able to reduce the net decline in revenue to only $5.7 billion.
However, at the same time, the province’s program spending saw a dramatic $13.1 billion increase which ballooned the budget deficit to over $30 billion.
The increased $13.1 billion included spending for programs such as:
- $2.4 billion for municipalities and transit (paired with $1.7 billion from the federal government as part of the Safe Restart agreement)
- $1.5 billion for the temporary pandemic pay program ($1.1 billion from the federal government, $424 million from the province)
- $610 million to purchase personal protective equipment for healthcare workers
- $218 million for Long-Term Care, to increase capacity in the sector during the pandemic, and protection for staff
- $176 million for to provide hydro users around-the-clock off-peak electricity prices
- $241 million contribution for the Canada Emergency Commercial Rent Assistance program for small businesses
Will Ontario recover from the budget deficits and effects of the COVID-19 pandemic?
While the provincial economy is rebounding faster than after a typical recession, forecasters believe the province’s economy is expected to face a significant hit in 2020 with the Gross Domestic Product (GDP) expected to decline by 6.6 percent, which was said to the “largest annual real GDP decline on record”.
The Ontario government also mentioned that the pace of the economic recovery “cannot be predicted with certainty” even as the pandemic related restrictions have been eased or lifted.
According to Ontario Finance Minister Rodd Philips, one of the reasons for the slower-than-expected recovery is due to the high infection rate of COVID-19 in the United States, which could impact importing and exporting trades, supply chains, and consumer confidence.
To help businesses as they deal with the aftermath of extended closures, the Ontario government announced it will be extending the tax deferral policy for another month.
The new deadline for businesses to pay their taxes will be set for October 1, 2020.
The Ontario government also noted that several exemptions would apply for the tax deferral policy which includes:
- Employer Health Taxes, Fuel Tax, Gas Tax, Beer, Wine, Spirits Tax, Mining Tax, Insurance Premium Tax, International Fuel Tax, Race Tracks Tax
The economic update on Wednesday is the first look at the impact of COVID-19 on Ontario’s finances and how the government’s initial pandemic spending plan assisted businesses and residents during the past five months.
The government’s next fiscal update will come in November during a multi-year budget to be delivered by Finance Minister Rod Phillips.
Ontario’s COVID-19 Update as of Wednesday, August 12, 2020:
Following Tuesday’s record lows for new cases of COVID-19 across the province, Ontario reported an additional 95 new cases of COVID-19 as of Wednesday afternoon.
According to the Ministry of Health, most of the newly confirmed cases occur in Toronto, Peel, and the Ottawa regions.
The Windsor-Essex region, which was the last region to enter Stage 3 of Ontario’s economic recovery and reopening plan, reported 8 additional cases of the virus.
To date, Ontario has now seen a total of 40,289 lab-confirmed cases of COVID-19 since the outbreak first began in late January.
Of the 40,289 cases, more than 91 percent have been considered resolved by public health officials, meaning that it ended in recoveries from the deadly virus.
Despite the uptick in cases compared to Tuesday’s report of only 33 new cases, Premier Ford shared some good news to residents across Ontario during his daily update today.
“All of Ontario is now in Stage 3. My friends, this is good news. It’s proof that we’re making progress,” Premier Doug Ford said at his daily news conference Wednesday.
Premier Ford also announced today that the province will be providing up to $1.6 billion in funding to municipalities as they continue to weather out the COVID-19 pandemic and reopen businesses.
Of the $1.6 billion in funding announced today, Premier Ford mentioned that $660 million will be used to keep public transit running and up to $212 million in funding will be used to help vulnerable people affected by the pandemic through food banks and shelters.
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