Ontario spending ticks up by $2.6 billion amid ongoing pressure from pandemic

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The Ontario government says the COVID-19 pandemic is further driving up its already record levels of spending, prompting the province to take new steps to ensure it has emergency funding at the ready.

Ontario’s finances for the quarter ended Dec. 31 show that expenses are now expected to rise an additional $2.6 billion compared to what was forecast in its November budget, bringing total costs to $189.7 billion for the year ending March 31. The hike is attributed mostly to spending on hospitals, long-term care homes and support for lockdown-affected businesses.

Those added expenses are to be offset primarily with contingency funds, and the province says it has now “fully allocated” the $13.3-billion in pandemic-related response and contingency funds it had set aside in its fall spending plan.

An additional $2.1 billion is being put into the province’s standard contingency fund in case it’s needed, increasing it to approximately $4 billion. Finance Minister Peter Bethlenfalvy said these funds were essentially being freed up by drawing on the province’s fiscal reserve, which has been reduced to $500 million for the relatively short time left in 2020-21 from the $2.5 billion allocated there in the fall budget.

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“All of us know this level of spending is not sustainable in the long term,” Bethlenfalvy told reporters on Wednesday. “But defeating this virus, together, that is what’s most important right now.”

The finance minister’s comments come after the Ontario government took fire from opposition politicians claiming Progressive Conservative Premier Doug Ford was being stingy with spending during the pandemic. The Financial Accountability Office of Ontario had also said in December that, as of September’s end, the province had $12 billion in unallocated contingency funds.

But Bethlenfalvy said Wednesday that the provincial government is putting its contingencies to use.

Since the fall budget, $1.4 billion has been earmarked for a small-business support grant that would provide firms that have been locked down or face significant public-health restrictions with between $10,000 to $20,000 in financial help. Another $869 million has been set aside for hospitals, $609 million to help with the purchase of personal protective equipment and $398 million for the long-term care sector.

Ontario is still projecting it will run a record-setting $38.5-billion deficit for 2020-21, which is unchanged from its November budget forecast.

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However, the province’s long-term borrowing program for the 2020-21 fiscal year is now expected to be about $2.9 billion bigger, which includes $1.5 billion in “pre-borrowing” for next year. Total long-term borrowing for 2020-21 is forecast to be $55.2 billion, although interest on debt is anticipated to be unchanged from last year’s budget, at $12.5 billion.

Net debt is forecast to be approximately $399.5 billion, equal to 47.1 per cent of the province’s economic output, up only slightly from the fall budget.

Even so, Bethlenfalvy noted that much has happened since the province released its budget in November, including record-high numbers of new COVID-19 cases, a provincewide shutdown and the declaration of a second state of emergency.

Ontario’s third-quarter finances said that private-sector forecasters, on average, are now projecting the province’s real gross domestic product to have contracted by 5.9 per cent in 2020, better than the 6.5 per cent forecast in the fall budget. Yet for 2021, Ontario’s economy is now expected to expand by 4.5 per cent, weaker than the 4.9 per cent foreseen in the budget.

Another fiscal update is expected next month, when the province’s 2021 budget is set to be tabled.

“Stopping the spread of COVID-19 is not only necessary to protect our health, it is also the most sensible economic policy,” Bethlenfalvy said. “We will keep doing whatever it takes to protect the people of Ontario, using all our fiscal firepower to take us through this unprecedented crisis.”