Ontario forecasts wider budget deficit as trade uncertainty slows economy

By Fergal Smith

TORONTO, March 26 (Reuters) - Ontario on Thursday forecast a wider budget deficit in the coming fiscal year as it provided support for the housing sector and businesses hit by trade uncertainty dragging down the Canadian province's manufacturing-based economy.

The country's most populous province sends more than 70% of its exports to the United States, including autos, steel and aluminum, which face duties imposed by U.S. President Donald Trump. The United States-Mexico-Canada Agreement, a continental trade pact that exempts many goods from levies, is set for review by a July 1 deadline.

Here are some details from the province's budget plan:

• Ontario projected a deficit of C$13.8 billion ($9.97 billion) for the 2026-27 fiscal year set to begin in April, up from an expected C$12.3 billion deficit for the current fiscal year.

• A deficit is also expected over the 2027-28 period - of C$6.1 billion - before a shift into surplus over the 2028-29 period, which is one year later than previously expected.

• A C$1.5 billion reserve is set aside in 2026-27, with higher reserves set aside for subsequent years.

• Economic growth was forecast to slow to 1% in 2026 from an estimated 1.2% last year, before picking up to 1.7% in 2027.

• "Ontario is navigating economic challenges with a pragmatic and prudent fiscal plan," Ontario Finance Minister Peter Bethlenfalvy said in a statement.

• "We are investing in strategic priorities such as energy, critical minerals, key infrastructure and critical technologies that will make our economy stronger, while cutting red tape and creating the conditions for businesses to grow, supporting workers and strengthening Ontario's economy," Bethlenfalvy said.

• Measures the province is planning include temporarily removing a sales tax for buyers of new homes valued up to C$1 million and cutting the small business corporate income tax rate to 2.2% from 3.2%.

• Ontario will also establish an investment fund, in which it will invest up to C$4 billion, to attract investment from private capital for its long-term economic and strategic priorities.

• The province, one of the world's largest sub-sovereign borrowers, projected a net debt-to-GDP ratio of 37.7% in 2026-27, rising from an estimated 36.8% in the current fiscal year.

• Total long-term borrowing was expected to decline to C$47.2 billion over the 2026-27 period from C$58.6 billion in 2025-26.

($1 = 1.3836 Canadian dollars)