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Ontario walks political, fiscal tightrope with budget to slay deficit in 5 years


Ontario Finance Minister Premier Dwight Duncan, right, delivers his 2012 Ontario budget as Ontario Premiere Dalton McGuinty listens at Queen's Park in Toronto on Tuesday, March 27, 2012. THE CANADIAN PRESS/Nathan Denette

TORONTO - Cash-strapped Ontario is putting off business tax cuts, taking aim at pensions, and vowing to legislate pay freezes for public sector workers if need be in an austerity budget designed to lift Canada's former economic powerhouse out of the red ink in five years.

The minority Liberals are walking a political and fiscal tightrope with a massive 304-page budget plan, which must appease credit agencies, the wider business community and at least one of the opposition parties to avoid triggering an election.

"This is a strong plan that gets us back to balance in (five years) and, I'm quite confident, meets the needs of markets and meets the needs of all Ontarians," Finance Minister Dwight Duncan said Tuesday.

Saddled with a $15.3-billion deficit this year, the Liberals plan to make cuts and reduce spending to save $17.7 billion over three years while increasing revenue by $4.4 billion without hiking taxes.

After two years of tough talk, the government is brandishing a big stick, warning it will use legislation to force a pay freeze on teachers, doctors and civil servants if all other attempts at the bargaining table fail. Public sector workers will also have to pay more into their pensions, pool their plans or reduce benefits.

That sets the stage for possible strikes or labour disruptions, but the Liberals say they're also ready to legislate them back to work. Executives at hospitals, universities, colleges, school boards and agencies will also see their salaries frozen for another two years, but the government won't touch the bonuses that push up their pay.

Wages and pensions must be addressed because it's the province's "single greatest cost," Duncan said.

The status quo is no longer an option, as the province pays about $10 billion a year more than it spends on colleges and universities to make interest payments on its $237.6-billion debt, which is expected to reach $260 billion next year. That will bring Ontario's net debt-to-GDP ratio to 39.5 per cent from 37.2 per cent this year, second only to Quebec.

Those interest payments could cost hundreds of millions more if the province is hit with a credit downgrade or interest rates go up, prospects Duncan admits keep him up at night.

To tame its debt monster, the Liberals plan to cap average annual growth in program spending to one per cent a year. But much of the $127-billion spending blueprint, which includes $1 billion in reserves, rests on freezing wages and squeezing more value out of the broader public sector, saving nearly $13 billion over three years.

But some economists remain skeptical about the three-year plan.

This budget was supposed to be the "Big One," but it didn't offer a complete answer about how Ontario would re-balance the books, RBC economists wrote in a note to clients.

The measures needed to completely close the deficit gap "are still largely unknown." Serious challenges remain, including the "political reality of managing a minority government," BMO economists wrote in their note.

"Last year, we said the province was on a 'A Slow Boat to Balance.' Today, it's clear that they're still on the same slow boat, but they now have charts and a compass."

Union leaders called the pay freeze plan a "slap across the face" to public-sector workers who are paying the price for a global recession triggered by big business.

"There is no respect in this budget," said Sid Ryan, president of the Ontario Federation of Labour. "This is just an assault an outright assault playing pure politics with public sector workers."

The Liberals also risk alienating the very supporters who've kept them in office for eight years if they end up going back to the polls, he added.

"It's clear what they're trying to do is play on public sentiment," said Fred Hahn, Ontario president of the Canadian Union of Public Employees.

"It's like this budget is about the Liberals giving up hope for the future, instead trading on some kind of mean-spirited sense."

Duncan said the government won't impose an immediate wage freeze as the Opposition Conservatives have demanded because it would just be overturned in court.

It wasn't enough for the Opposition Tories, who said they won't support a budget that doesn't grasp the severity of Ontario's dire fiscal situation.

"Unsustainable deficits and debt to which this province remains hostage with today's budget undermine business confidence," said Tory Leader Tim Hudak. "And that, in turn, undermines job creation."

The Liberals' best hope for survival, the New Democrats, are balking at the threat of a legislated wage freeze. But they will see one of their chief demands met freezing corporate taxes at 11.5 per cent until the budget is balanced.

NDP Leader Andrea Horwath wouldn't say whether her party will vote for the budget, leaving the Liberals' fate in limbo just six months after being re-elected.

"For people who are worried about jobs, about wages that aren't keeping up with the cost of living, about a health system that leaves them waiting longer and longer for services that they need, this budget has very little to offer," she said.

While Ontario has recovered from the recession, its economy is only projected to grow 1.7 per cent in 2012, 2.2 per cent in 2013 and 2.4 per cent in 2014.

Faced with a sluggish economy that can no longer fuel government spending and an aging population that's putting more pressure on its services, Duncan is forging ahead with dozens of new measures designed to rein in expenses.

The cuts, set out in a 50-page document that civil servants have dubbed the "Book of Doom," also include:

reining in increases in health-care spending to 2.1 per cent annually, further than the 2.5 per cent recommended by economist Don Drummond.

shaving $30 million from the public drug plan by having seniors with incomes over $100,000 and couples with a combined income of $160,000 pay higher deductibles, which would affect about 75,000 people.

amalgamating school boards in sparsely populated areas and consolidating "underutilized" schools.

effectively ending the high school "victory lap" by capping credits at 34 four more than needed to graduate to save $36 million over three years.

saving $470 million over three years by capping the 10 per cent rebate on hydro bills to 3,000 kilowatt hours per month, which targets businesses rather than households.

delaying high-occupancy road lane projects designed to unclog traffic jams near densely-populated cities.

closing seven tourism centres.

closing two more jails in Brantford and Chatham on top of four others and reducing overtime for jail guards and Ontario Provincial Police.

That's on top of a slew of other measures announced in recent weeks, including freezing welfare and delaying increases to the Ontario Child Benefit, increasing driver licence fees, expanding gambling and selling off government buildings and the Ontario Northland rail service.

Duncan claims the budget will create and protect about 170,000 jobs, but critics warned it will spark major cuts in the province's schools and hospitals.

"Cuts to vital public services built with our tax dollars are being used to pay for a deficit that working people did not create," Sam Hammond, president of the Elementary Teachers' Federation of Ontario, said in a release.

The Liberals are also rejecting nine cost-saving ideas and putting off dozens more from economist Don Drummond, who provided a blueprint for austerity that paved the way for Duncan's kinder, gentler approach to deficit slaying.

Drummond warned that unless all of his 362 recommendations are implemented, Ontario will wind up with a $30-billion deficit by 2017-18 and increase its debt to a staggering $411 billion. And if the government rejects one recommendation, it must find another place to cut or increase revenue.

Against Drummond's wishes, the Liberals are keeping costly programs like full-day kindergarten, smaller class sizes in early grades and a new 30 per cent tuition rebate for some college and university students promised during last fall's election.

At the same time, they'll trim in other areas such as discontinuing some grants and bursaries to post-secondary students and cutting capital funding for college and university projects.

But Duncan said the budget is consistent with Drummond's targets for curbing growth in spending and uses his assumptions on revenues.


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