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Second lockdown could slow Ontario’s economic recovery as it faces $37B deficit

FAO predicts GDP will decline by 6.8 per cent this year


October 16, 2020
By Paola Loriggio/The Canadian Press

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Premier Doug Ford no longer plans to balance the books by 2023-24 in light of the pandemic. (Premier of Ontario YouTube/Screengrab)

TORONTO — Ontario’s fiscal watchdog says the reopening of businesses over the summer improved its financial outlook for the province, but warns a second lockdown due to the COVID-19 pandemic could slow the province’s economic recovery next year.

The Financial Accountability Office said Thursday the economic reopening was earlier and broader than it expected, and as a result, the agency now projects Ontario’s real gross domestic product will decline by 6.8 per cent this year, rather than the nine per cent it forecast in the spring.

That nonetheless represents the largest annual decline on record, the FAO said.

Assuming the pandemic remains relatively contained, the province’s economic growth is expected to “rebound strongly” next year, with real GDP expected to go up by 5.1 per cent, the agency said. But the reintroduction of significant COVID-19 restrictions could hamper that, it said.

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Major deficit predicted

In a new report, the watchdog also predicts Ontario will face a $37.2 billion deficit for 2020-21, but notes the province has yet to allocate more than $9 billion in program spending, and any unused contingency funds would “substantially reduce” the deficit.

Premier Doug Ford said the province plans on spending the unallocated money and intends to tackle the deficit by spurring the economy and finding efficiencies, citing government procurement as an example.

The premier said his government no longer plans to balance the books by 2023-24 in light of the pandemic, saying it will instead “do it over a number of years and be thoughtful about it.”

“We’re going to make sure the No. 1 priority is to get companies back on their feet, get families back on their feet,” Ford said in a news conference Thursday afternoon.

Peter Bethlenfalvy, the president of the Treasury Board, said the government will ensure the health and safety of Ontarians is at the forefront in any fiscal planning.

“There will be a time to look at the books in more detail, but now is not that time, and we’ll make sure that we spend the money in the most efficient way,” he said.

Budget due by Nov. 15

The Progressive Conservative government has until Nov. 15 to introduce its budget for 2020-21, after postponing it earlier this year in favour of a fiscal update.

The government said in March the deficit would reach $20.5 billion by the end of 2020-2021, but later adjusted its projection to $38.5 billion, citing billions more in spending due to the ongoing pandemic.

Prior to the pandemic, the province had been projecting a $9-billion deficit for 2020-2021 and Ford had promised to balance the province’s books by 2023-2024.

Critics suggested the government is holding back funding earmarked for pandemic relief, which they said could undermine the province’s economic recovery.

“Penny-pinching during a pandemic will cost our economy, businesses and families much more. (Ford) has put Ontario on the brink of another health and economic disaster,” New Democrat Sandy Shaw said in a statement, noting the unallocated funds could be spent to boost testing or support seniors in long-term care homes.

Liberal finance critic Mitzie Hunter said the province has had the means to act since receiving transfers from the federal government months ago.

“Without action now to ensure that no one — women and BIPOC included — are left behind, we are facing a bleak economic recovery and further recessions in the years to come unless action is taken to bridge the gap,” she said in a statement.

Mayors push for funding

The mayors of Ontario’s 29 largest cities met with federal and provincial ministers via videoconference Thursday to push for additional funding for municipal infrastructure as a means to stimulate economic recovery. They also requested more emergency operating support for municipalities in 2021.

“Cities are well into 2021 budget planning. We are forecasting continued steep revenue losses, especially for services like transit and recreation, as well as property tax revenue impacts due to rising vacancy rates for commercial buildings and office towers,” the organization’s chair, Guelph Mayor Cam Guthrie, said in a statement.

“Safe restart funding was vital to enable municipalities to respond to the pandemic, maintain critical services, and meet our responsibility to balance our budgets. Further funding will be just as important in 2021, when the full impact of the pandemic will be felt.”

Meanwhile, Ontario reported 783 new cases of COVID-19 and five new deaths related to the virus on Thursday, as well as 779 newly resolved cases.

Health Minister Christine Elliott said 239 of the new cases are in Toronto, 136 are in Peel Region, 127 are in York Region and 89 are in Ottawa.

Ontario has a total of 62,196 confirmed cases of COVID-19, including 53,291 resolved cases and 3,022 deaths.

The province said it is has hired 100 new contact tracers to help track and isolate new cases of COVID-19. It plans to hire up to 500 more by mid-November.