It looks like the federal and provincial COVID relief plans kept the economy moving at a higher rate than expected. That, coupled with lower than forecast pandemic spending resulted in a much smaller deficit than was forecast. The Province’s Public Accounts reports a 2020-21 deficit of $16.4 billion —a whopping $22.1 billion lower than the 2020 Budget projection. This variance was driven in part by higher-than-anticipated tax revenues, something the province says is unprecedented compared to other major downturns. The province credited the tax windfall to the cash that was distributed by the federal government and the province. In addition, the variance was also driven by lower-than-projected expenses resulting from the unprecedented forecasting challenges faced by the government.
Ontario’s total revenues in 2020-21 were $164.9 billion, which is $8.8 billion or 5.6 per cent higher than the previous year. Taxation revenue was 13.7 per cent higher than projected in the 2020 Budget and increased over the previous year despite real GDP decreasing by 5.1 per cent in 2020. This is unprecedented. In past major economic downturns, a significant decrease in real GDP resulted in a large decline in taxation revenues. During 2020-21, historic financial support from all levels of government was provided to people and businesses in response to the COVID-19 pandemic, which contributed to growth in tax revenues.
Ontario’s total program expenses in 2020-21 were $169 billion — a $16.7 billion increase compared to 2019-20. This is the single largest year-over-year dollar increase in program spending on record. Given the uncertainty associated with the course of the pandemic, expenses were $5.6 billion below the 2020 Budget forecast for 2020-21. Broadly, this is because the third wave of COVID-19 in Ontario peaked later than anticipated and there was lower use and resulting expenses for some services and programs during the pandemic, including physician visits, non-emergency procedures, social assistance, and college programs.