(Bloomberg) — Canada’s largest province says its fiscal deficit will be much smaller than it expected just over six months ago, as inflation provides a boost to individual and corporate tax revenue.
Ontario’s budget shortfall is now expected to be C$12.9 billion ($9.7 billion) in the fiscal year ending March 31, 2023, compared to C$19.9 billion projected in the April budget, the government said in its fall economic update.
Total revenue is expected to reach C$186.8 billion, up from C$179.8 billion previously expected, while the forecast for total expenses is little changed at C$198.8 billion. The government had already projected a rising trajectory for expenses, including health and education.
Those costs will help push the world’s largest sub-sovereign debt issuer back into a pattern of yearly deficits, despite the tax windfall. Ontario surprised markets with its first surplus in 14 years in fiscal 2021-2022.
The report highlighted several revisions to its economic outlook since the April budget. While nominal GDP growth is expected to be faster in 2022, it will slow in 2023 and 2024. Job creation is expected to be strong this year but that pace will check in 2023 and 2024. Inflation will stay high from this year into 2024, and home sales are expected to remain weak next year.
Read more: Toronto Faces Day of Disruption With Transit, School Strikes
Ontario now sees nominal gross domestic product growth of 9.2% this year, 2.5 percentage points higher than it expected in April. Salaries are forecast to rise 8.9%, up from 5.6% previously while companies’ operating earnings are expected to grow 4.8%. The The province doesn’t see significant changes to programs or financial expenses for the current fiscal year, despite speculation that labor negotiations will lead to robust salary increases.
The province is reducing its long-term borrowing program for current fiscal year by C$9.3 billion to C$32.2 billion, of which C$13.6 billion has still to be raised. The annual borrowing rate is now expected to be 4.2%, up from 3.4% previously projected.