Financial Accountability Office Fall Economic Outlook

On December 10, the Financial Accountability Office (FAO) released its semi-annual economic and budget outlook report. Ontario’s economy has performed strongly since 2014, growing at the fastest pace since the mid-2000s.

However, most economic forecasters, including the FAO, expect that economic growth will begin to slow down over the next few years, as rising interest rates combined with high levels of household debt slow the growth of household spending and residential investment.

Protectionist US trade policies, and an unsettled global political environment will also contribute to slower growth over the next few years.

Beginning in June, the Ontario government has cancelled the cap and trade program, and cancelled many new spending initiatives from the 2018 Budget, reversing several tax increases included in the 2018 Budget and paralleling business tax changes introduced by the federal government. These policy changes, combined with a moderately weaker economic forecast, have contributed to a larger budget deficit since the FAO’s Spring outlook. In order for the Government to keep its commitment of a balanced budget in 4 years without raising taxes, they would need to mandate severe spending restraints. The Ontario government would need to limit the growth in total program spending to 1.2 per cent per year on average from 2019-20 to 2022-23. This would be the slowest average growth in program spending since the mid-1990s.