Ontario Posts $13B Deficit After Program Spending Rises $10B as U.S. Tariff Risks Persist

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Ontario’s latest audited books show how quickly the province’s fiscal picture can shift when higher public-service spending collides with a more uncertain economy. The 2025–26 Public Accounts report a $13.0-billion deficit for the year ended March 31, 2026, while total program spending climbed to $220.9 billion — $10.0 billion, or 4.7 per cent, above the previous year on the province’s comparable basis. The result was better than the $14.6-billion deficit originally projected in the 2025 Budget, although it came in slightly weaker than the $12.3-billion interim estimate published in the 2026 Budget. Behind those headline numbers are rising health and education costs, lower-than-expected debt-service charges, unusual revenue comparisons and a trade outlook still clouded by U.S. tariffs and the 2026 CUSMA review.

A $13-Billion Deficit That Beat the Original Budget

Ontario’s final $13.0-billion deficit is significant, but it needs to be read against the forecasts that came before it. The 2025 Budget initially expected a $14.6-billion shortfall. By the 2025 Fall Economic Statement, that estimate had improved to $13.5 billion, and the third-quarter update moved it to $13.4 billion. The 2026 Budget, released before the accounts were finalized, then put the interim estimate at $12.3 billion. The audited result therefore beat the original budget by $1.6 billion, while landing about $700 million above the final interim estimate.

That sequence shows why year-end public accounts matter. Budgets are plans built on assumptions about taxes, economic growth, program demand and borrowing costs; public accounts show what actually happened. The province attributes the better-than-original result partly to stronger-than-anticipated tax revenue, higher income from government business enterprises and other non-tax sources. At the same time, the final figure confirms that Ontario still spent materially more than it collected once program costs and debt servicing were combined.

Program Spending Rose by $10 Billion

The largest change on the expense side was the scale of program spending. Ontario says it spent $220.9 billion across programs in 2025–26, an increase of $10.0 billion, or 4.7 per cent, from the previous fiscal year on a comparable basis. That means the province was not dealing with a deficit created by one narrow line item. It was carrying a broad spending base that includes hospitals, schools, social programs, justice services and other day-to-day government operations.

For households, the number becomes easier to understand when tied to services people see directly. Higher hospital operating costs, home-care demand, long-term-care needs, school funding and other public services can all push provincial expenses upward even without a new headline program. Ontario’s population growth and aging demographics have also created persistent pressure on major service systems. The accounts show that spending growth was concentrated in several core areas rather than being evenly distributed, with health and education accounting for some of the largest increases during the year.

Health and Education Drove Much of the Increase

Health care was the biggest standout in the province’s summary of the accounts. Ontario reported that health-sector investment increased by $6.6 billion, or 7.2 per cent, compared with 2024–25. The province said that additional funding supported hospitals, home care, long-term care and other health services. Education-sector investment increased by another $2.3 billion, or 6.1 per cent, including spending connected with child care, school renewal, new schools and expansions.

Infrastructure spending also rose by $1.9 billion, supporting projects such as hospitals, public transit, highways, broadband and housing-enabling infrastructure. That infrastructure figure should not simply be added to the program-expense increase, because capital investment and annual program expenses are reported differently in provincial finances. Still, the broader picture is clear: Ontario was spending more simultaneously on operating services and long-lived public assets. For a province managing fast-growing communities, the fiscal challenge is that many of those costs are recurring or multi-year rather than one-time bills that disappear the next budget cycle.

Revenue Fell Even as Some Tax Results Improved

Ontario recorded $223.3 billion in total revenue for 2025–26, down $1.6 billion, or 0.7 per cent, from the previous fiscal year. That decline can look surprising beside the government’s statement that tax revenues were stronger than originally expected. The explanation is partly about unusual comparisons. The prior year included non-recurring revenue from the tobacco legal settlement, while the 2025–26 accounts also reflected lower revenue from broader public-sector organizations.

Tax revenue was affected by another technical change. The province said federal legislation enacted in March 2026 accelerated capital cost allowance measures, which reduced taxable income sooner for qualifying businesses and therefore moderated provincial tax receipts. The result is a reminder that government revenue can fall year over year even when parts of the underlying tax base perform better than budgeted. Ontario’s fiscal balance depends on many streams — personal and corporate taxes, sales taxes, federal transfers, government business enterprises and other non-tax sources — so a large one-time item can distort the comparison between two adjacent years.

Lower Debt-Service Costs Helped Contain the Deficit

One of the quieter improvements came from borrowing costs. Ontario says interest and other debt-servicing charges were $747 million below the level forecast in the 2025 Budget. The province attributed the difference to lower borrowing costs and higher-than-forecast revenue from its holdings of its own bonds. The 2025 Budget had expected $16.2 billion in gross interest and other debt-servicing charges for 2025–26, so the year-end saving was large enough to make a visible difference to the final deficit.

Debt costs matter because they compete with program spending for the same revenue. The province’s 2026 Budget estimated an average 2025–26 borrowing rate of 3.85 per cent, 15 basis points below the 4.0 per cent assumption in the 2025 Budget. Ontario also estimated that a one-percentage-point change in interest rates could change borrowing costs by roughly $0.9 billion in the first full year. That sensitivity explains why even modest changes in market rates can materially affect a government with a large debt and borrowing program.

Tariff Risk Still Hangs Over the Economic Outlook

The fiscal year covered by the accounts ended on March 31, 2026, but the trade risks surrounding Ontario did not end with it. In the 2026 Budget, the Ministry of Finance identified global trade tensions and uncertainty as the main risks to the province’s economic outlook. It projected real GDP growth of 1.0 per cent in 2026 after estimated growth of 1.2 per cent in 2025. In a slower-growth scenario built around a U.S. withdrawal from CUSMA and additional tariffs, 2026 growth was modelled at just 0.3 per cent.

Trade pressure matters to Ontario because the province has a heavy concentration of manufacturing and cross-border supply chains. Statistics Canada estimated that 1.9 million Canadian workers, or 9.3 per cent of national employment, were in industries dependent on U.S. demand for Canadian exports in 2024. Transportation equipment manufacturing was especially exposed. Ontario’s own budget noted that trade disruptions have hit manufacturing-heavy regions near the U.S. border particularly hard, making tariffs a direct risk to employment, investment and the tax revenues that ultimately support provincial finances.

Spending Pressure Is Not Expected to Disappear

The latest accounts capture a year of rapid spending growth, but independent analysis suggests the next phase may be more difficult to manage. The Financial Accountability Office of Ontario says the ministries responsible for health, long-term care, education, postsecondary education, and children and social services account for about 73 per cent of the province’s 2026–27 spending plan. Those are also areas where demand is closely connected to population growth, aging, enrolment, wages and service levels.

The FAO’s September 2026 reviews show that the government’s future spending plans assume slower growth in some major sectors than Ontario experienced recently. Health-sector spending is projected to rise at an average annual rate of 3.2 per cent from 2025–26 to 2028–29, compared with 7.4 per cent over the previous three years. Education spending is projected to grow by an average of 0.6 per cent annually over that same forward period, compared with 5.6 per cent over the prior three years. Those comparisons do not by themselves establish whether future funding will be sufficient, but they highlight how much the fiscal path depends on the relationship between spending growth, service demand and government revenue.

The Next Test Comes in Ontario’s Fall Fiscal Update

The public accounts close the books on 2025–26; they do not settle the outlook for the current fiscal year. The 2026 Budget projects a $13.8-billion deficit in 2026–27, followed by a $6.1-billion deficit in 2027–28 and a $0.6-billion surplus in 2028–29. Those figures remain forecasts and can move with economic growth, tax receipts, program costs, interest rates and the direction of Canada–U.S. trade policy.

Ontario has said it will release its 2026 Fall Economic Statement on or before November 15, 2026. That update will show whether the government’s fiscal projections have shifted after several more months of economic data and trade developments. For now, the $13.0-billion audited deficit offers a mixed set of fiscal indicators: the result was better than the original budget forecast, but it came alongside a $10.0-billion increase in program spending and a revenue base still exposed to economic volatility. The next update will provide a clearer view of whether those pressures are easing or carrying deeper into 2026–27.

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