06:37 AM EDT, 05/16/2025 (MT Newswires) -- The Province of Ontario is projecting a $14.6 billion deficit for FY25/26, or 1.2% of gross domestic product, a significant deterioration from $1.5 billion last forecasted in the fall fiscal update, and following a $6.0 billion shortfall, or 0.5% of GDP, now estimated for FY24/25, said Bank of Montreal (BMO).

While last fiscal year is tracking somewhat better than expected, the near-term fiscal outlook has deteriorated as trade uncertainty with the United States clouds the outlook for economic activity and, as such, tax revenues, noted the bank.

The deficit is expected to narrow to $7.8 billion in FY26/27 before the province in Canada barely returns to surplus of $200 million in FY27/28 -- a year later than previously forecast, pointed out BMO. Meanwhile, the net debt-to-GDP ratio is expected to jump 1.6 percentage points to 37.9% this fiscal year.

Although Ontario isn't alone in publishing a weaker fiscal outlook this budget season, it's worth highlighting that the bank views the province as the most vulnerable to tariffs.

On that note, the budget builds tariffs into the forecast through the economic outlook -- real GDP growth expected to slow to 0.8% in 2025 -- and also includes two alternative trade scenarios. The faster growth scenario assumes most tariffs/countertariffs are removed in the near term, though confidence takes a hit with growth at 1.6% this year.

The slower growth scenario includes 25%/10% tariffs on Canada with 25% countertariffs on $30 billion of U.S. imports -- but no global reciprocal tariffs nor triple-digit tariffs on China. This results in zero growth for this year.

Most of the measures announced in the budget relate to tariff relief and broader economic support, according to BMO:

-- A $5 billion Protecting Ontario Account that will provide up to $1 billion in immediate liquidity relief to tariff-affected businesses and workers.

-- A new $500 million Critical Minerals Processing Fund to accelerate the province's critical minerals processing capacity.

-- Various cuts to the basic tax rate on spirits (sold onsite at distilleries), microbreweries, ciders, and other alcoholic beverages, with a total price tag of $100 million in FY25/26.

-- Previously announced measures including: expanding and enhancing the manufacturing investment tax credit (cost $1.3 billion over the next three years); making the cuts to the gasoline tax and fuel tax permanent; and, a six-month deferral of provincial taxes for 800,000 businesses.

-- Borrowing program set at $42.8 billion for FY25/26.