Five Takeaways from the 2025/26 Public Accounts

From: Marc Desormeaux

To: Ontario budget watchers

Date: October 5, 2026

Re: Five Takeaways from the 2025/26 Public Accounts

Last month’s annual public accounts release provides much insight into the future, as it officially closed Ontario’s books for 2025/26.

A close look at the numbers reveals a mixed picture about the state of provincial finances. There is positive news in the form of strong fiscal metrics and better-than-expected corporate tax revenue. But going forward, the spectre of fiscal deterioration remains, and not just because of US tariffs. Provinces must also navigate new federal tax measures, uncertainty related to tax administration, equity market volatility, and structural demographic pressures – none of which is within their control.

Here are five things to know from Ontario’s 2025/26 Public Accounts.

1. The important fiscal numbers were better than the headline deficit

Ontario’s $13 billion shortfall was just 1 percent of GDP last year, better than all but three other provinces. Its net debt-to-GDP and net debt-to-revenue ratios were at some of their lowest levels in 15 years. Interest costs ate up just 6 percent of revenues, the third-smallest share in Ontario since the 1980s.

These numbers matter because investors watch them to assess governments’ fiscal health and credibility. Stronger metrics ultimately translate into lower borrowing costs and more room to finance healthcare, education and economic priorities. The province also received a ninth consecutive unqualified audit opinion, which the C.D. Howe Institute’s fiscal transparency work assesses as key to governance accountability.

2. Most of the recent increase in provincial debt is capital spending-related

Some public commentary in recent years has focused on the dollar amount of debt accumulated in Ontario, but this, too, misses important context. In the five years since the pandemic, about three quarters of the increase in net debt stems from capital investments. That means most of Ontario’s net debt rise reflects investment in long-term productive assets, not an inability to absorb spending increases.

3. Last year’s personal income tax underperformance could hurt this year’s bottom line

The accounts also revealed that personal income taxes fell nearly $5 billion short of the projections published six months ago. That lower-than-expected base could carry forward, weakening later revenues as we saw after the 2022/23 Public Accounts.

This reflects an often-overlooked quirk of provincial finances, not simply a forecast miss. Apart from Quebec, provinces rely on the federal government to collect personal income tax and estimate what they are owed. Those estimates are periodically updated throughout the year as tax returns are assessed. Reassessments from previous years can also affect the revenue base in the current year. That means even a sound economic forecast can produce a revenue miss when the underlying tax assessment changes.

Ontario also isn’t alone in this experience. British Columbia and Alberta have both reported sizeable reassessments since 2020. Such swings make provincial revenues considerably harder to predict, particularly when economic and equity market conditions are volatile.

4. Strength in other revenue may provide a partial offset

The good news is that corporate income taxes beat expectations. The $640 million improvement versus Budget 2026 should provide a boost to the base in 2026/27, contributing to gains alongside strong profits in the financial sector this year. That said, corporate taxes are volatile and rising as a share of revenue. Moreover, if Ontario mirrors Ottawa’s new Productivity Mega Deduction, it will forego some corporate tax receipts.

The strength of equity markets since the end of the last fiscal year could also support capital gains tax receipts, though reliance on market movements makes the overall revenue base more unpredictable.

5. Healthcare will underpin spending trends for the foreseeable future

The health sector made up more than 44 percent of Ontario program expenditures in 2025/26, just shy of the COVID-19 peak. It also accounted for most of the year-over-year increase in spending, and more than half the rise since the pandemic.

Healthcare costs borne by the provinces will only grow over time. The Financial Accountability Office of Ontario and Parliamentary Budget Officer both estimate annual healthcare spending pressures of 4–5 percent as population aging continues, above outer-year targets in most provinces.

Just as these structural spending pressures are becoming more acute, federal financial support for the sector is also set to ease. The current agreement guaranteeing 5-percent annual increases in the Canada Health Transfer will end next year.

Public accounts may be backward looking, but they can tell us a lot about the future. A deeper look into last year’s numbers suggests bottom lines in Ontario and other provinces could be hurt by several factors outside their control this year.

For provincial governments, that means acknowledging a more volatile revenue base and budgeting prudently. And with many provinces’ finances already stretched, the federal government may need to finance a larger share of its ambitious economic growth agenda going forward.

Marc Desormeaux is vice president of policy and economist at the Business Council of Canada. He previously served as chief economic advisor to Ontario’s Minister of Finance.

To send a comment or leave feedback, email us at blog@cdhowe.org.  

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.