The FAO constructed a hypothetical scenario in which the Ontario economy experiences a moderate recession to stress test the vulnerability of the government’s budget plan to an economic downturn.
Under this recession scenario, government revenues would decline while spending on some programs, such as employment training and social services, would be expected to increase. Taken together, the FAO estimates the deficit would increase to $16.5 billion in 2021-22. While the budget deficit would be expected to improve steadily as the economy recovers, a budget deficit of over $4 billion would still be projected in 2023-24, the year the government intends to achieve balance.
Due to the weaker economic activity, Ontario would be expected to accumulate almost $31 billion in additional debt by 2023-24. The combination of higher debt and slower economic growth would increase Ontario’s net debt-to-GDP ratio from 41 per cent this year to nearly 45 per cent by 2021-22.
Based on the FAO’s analysis, the government’s fiscal plan is vulnerable to an economic downturn. Government commitments to balance the budget and limit increases in the debt-to-GDP ratio would be put at risk in the event of a moderate recession.