Ontario’s 2025 Budget has landed — and with it, confirmation of what had been widely hinted at in the lead-up: the province’s brief flirtation with fiscal balance is being postponed by a few years.
The government now projects a $6 billion deficit for the 2024–25 fiscal year. That’s $3.8 billion better than forecast in Budget 2024, and $0.6 billion stronger than the pre-Trump Fall Economic Statement. What changed? A lot of noise in the numbers — but the main story is a $4.5 billion windfall from a court settlement with tobacco companies and their creditors, and other higher-than-expected revenues from colleges. While that’s good news for Ontario taxpayers in the short term, it’s a one-time gain that masks a much weaker underlying fiscal position. And while the fiscal year technically ended on March 31, key data are still trickling in, so don’t be surprised if the final figure shifts again when the Public Accounts are released later this year.
Looking ahead, the fiscal outlook for 2025–26 is decidedly dim, with a projected deficit of $14.6 billion. While that shortfall is significant, it’s far from unprecedented — larger deficits followed both the 2008–09 global financial crisis and the COVID-19 pandemic. Relative to other provinces, Ontario’s position is somewhat favourable: the projected deficit is slightly higher than Alberta’s and considerably smaller than those in British Columbia and Quebec, once adjusted for economic size.
Even with a relatively large deficit in 2025-26, the government anticipates a rapid improvement, returning to balance by 2027–28, one year later than planned in last spring’s budget. Getting there depends on holding program spending growth to under one per cent per year on average, well below the expected pace of population growth and inflation. It looks tidy on a spreadsheet, but in the real world — where demand for and the cost of public services are both rising — it points to a hard fiscal grind ahead.
Regarding expenditures, the largest line item — health spending — has been rising sharply in recent years. Going forward, the fiscal plan now projects only modest growth, averaging just 1.6 per cent annually over the next three years. That’s well below what would typically be expected given rising cost pressures and a growing, aging population, particularly in an environment where significant service gaps persist. The overall health budget does continue to increase, but the restrained pace, while pragmatic and fiscally prudent, is unlikely to move the needle far or fast for those in need of care.
Net debt is projected to rise from $408 billion in 2023–24 — the most recent year with finalized figures — to $501 billion by 2027–28. As a share of the economy, that remains below the government’s 40 per cent sustainability target, but higher than it was pre-Trump. More debt also means higher borrowing costs: interest expenses are now expected to be higher than previously projected.
Storm clouds ahead
There are risks aplenty. To their credit, the government has built in a bit more budgetary prudence than usual, though still well below the levels applied during the COVID-19 pandemic. The budget also includes alternative scenarios that illustrate how the outlook could improve or worsen depending on economic conditions. In today’s climate of deep uncertainty — and with a plan that leans heavily on spending restraint — a sizable fiscal cushion is warranted. Ontario may need this flexibility to respond quickly as the global picture evolves. Time will tell whether the province has built in enough.
The economic backdrop is unsettled. After a middling 2023 and 2024, Ontario’s economy had shown signs of life: easing inflation, falling interest rates, and fourth-quarter GDP data hinting at a rebound. Then came a fresh round of U.S. tariffs and protectionist rhetoric, turning a tentative recovery into a scramble to shield Ontario from external shocks. Private-sector forecasts have since been revised sharply downward. Compared to the Fall Economic Statement, growth projections for 2025 and 2026 are materially weaker, and the range of views is striking, reflecting deep uncertainty around global trade rules and their implications for Canada. For instance, Scotiabank projects 1.6 per cent real GDP growth for Ontario in 2025, while BMO is forecasting a 0.2 per cent decline. That’s the difference between an economy shuffling along and one sliding into a modest-sized recession.
With many big-ticket items announced before budget day, the budget still managed to roll out a wide range of new initiatives. While most are modest in scope and cost, they span a broad set of economic priorities. Some are aimed at buffering Ontario through the current trade turbulence, while others are designed to support longer-term economic recalibration in a world where the province is less reliant on trade with the United States. Most notable was the announcement of a $5-billion Protect Ontario Account, which, in coordination with the federal government, will provide liquidity relief to support businesses and workers facing significant tariff-related disruption.
Among the other economic measures unveiled on budget day were a new $500 million Critical Minerals Processing Fund, a Life Sciences Innovation Fund, and a new Ontario Together Trade Fund. The budget also included enhanced programs to support economic partnerships with Indigenous communities, new funding for the wine and grape-growing sectors, a Shipbuilding Grant Program, a renewed round of the Hydrogen Innovation Fund, continued support for the auto sector program and the launch of a Trade-Impacted Communities Program. Taken together, these initiatives reflect an activist approach to economic development — more centrist pragmatism than market-driven ideology. It’s a long list of targeted policies, and as always, the real test will lie in the details and execution.
Even with all the new measures, the government remains largely consistent with its past playbook. Infrastructure investment, skilled trades, and cost relief for employers continue to serve as the central pillars. Regarding infrastructure, the government remains committed to its massive infrastructure program, with a record-high $33 billion in planned spending this year and a 10-year total exceeding $200 billion. The Building Ontario Fund — essentially the province’s newish infrastructure bank — has been topped up with additional funds. That said, there’s still no word on whether any private-sector investment has been leveraged through it. While the new infrastructure money is notable, it won’t solve the persistent labour and equipment constraints in a construction industry already operating near full capacity with a very full order book.
Will more be needed? At this point, it’s hard to say. But the message is clear: the province is committed to responding to the crisis at hand with a wide range of programs and spending — and is prepared to go further if necessary. As with the pandemic, the scale of Ontario’s full response will likely depend on federal leadership. One can only hope that the absence of a federal budget on the horizon won’t be an impediment to timely action from Ottawa.
What’s missing?
As in past budgets, post-secondary education, climate change, and poverty reduction receive minimal attention.
Post-secondary education — a sector already under significant financial pressure — is projected to receive significantly less funding over the 2025–26 to 2027–28 period than it did last year. Given the growing importance of this sector in training the workforce needed in a fast-changing, tech-driven economy, there is a real risk that one of Ontario’s key long-term economic strengths is being eroded.
Climate change is mentioned only in passing, through a reference to the province’s sustainable bond financing program. Poverty? Not a word. With affordability pressures mounting and climate-related costs rising, these omissions are becoming harder and harder to ignore.
And what of the larger deficit and slightly slower path back to balance? It’s manageable. In the face of a fragile recovery and global trade shocks, trying to slash spending to reach balance quickly would risk doing more harm than good. Nobody serious — or sane — is advocating that path. Like during COVID-19, the government’s job is to help households and businesses navigate the turbulence while laying the groundwork for a more resilient future. Yes, borrowing today increases debt service costs tomorrow. But Ontario can comfortably borrow at reasonable rates for now — supported by a couple of recent credit rating upgrades — and the greater risk would be underreacting.
In conclusion
Budget 2025 was always going to be a balancing act: delivering on campaign promises, navigating economic risk, and maintaining some semblance of fiscal discipline.
In the end, this is a budget mostly of pragmatic response and cautious continuity, not bold reinvention. It keeps the ship steady for now, but with the U.S. trade picture unresolved and Ottawa still weighing its next steps, the biggest challenges and larger responses may still lie ahead.
Brian Lewis is a senior fellow with the C.D. Howe Institute and Munk School of Global Affairs and Public Policy
This story was updated to clarify that the higher-than-expected revenues came from just colleges, not colleges and universities.
