Economist predicts Ont. deficit could reach $18B
The Canadian Press
Published Thursday, February 26, 2009 6:21PM EST
TORONTO - There are new predictions that Ontario's deficit could climb as high as $18 billion over two years, leading a tide of red ink that's expected to wash over Canada as the provinces hunker down for a recession.
TD chief economist Don Drummond said Thursday he's expecting Ontario to run a deficit of about $5 billion in the current fiscal year and another $13 billion in the next.
Previous estimates had pegged the province's deficit between $5 billion and $10 billion, taking into account its promises to bail out struggling automakers and match federal dollars for infrastructure projects meant to stimulate the economy.
Plunging tax revenues coupled with increased spending on health care and infrastructure will put a big squeeze on the province's finances, Drummond said.
"You have a dramatically weakening Ontario economy which is hitting their revenues, and at the same time, their spending continues to go up -- again, largely driven by health care but certainly some contribution from infrastructure," Drummond said.
Red ink is expected to rain down on most of the provinces this spring as they grapple with a recession that's draining their coffers of tax dollars needed to fund hospitals, schools and other basic services.
Quebec, British Columbia, Nova Scotia, New Brunswick, and Newfoundland and Labrador have all signalled they are on the brink of falling into deficit, forcing some to break their own rules and election promises to balance the books.
Even oil-rich Alberta is expecting a deficit of more than $1 billion, as years of economic growth come to a crashing halt.
"The fact that even Alberta has slid into a deficit for the current year just gives you an idea of how quickly policy-makers across the country were overwhelmed by the sudden turn of events last fall," said Douglas Porter, deputy chief economist at the Bank of Montreal.
"I do suspect that the vast majority of provinces will be looking at deficits in the coming year. I think surpluses or balanced budgets will be the exception, not the rule, which is a complete turnaround from recent years."
Ontario is expected to have the largest deficit of all the provinces, said Porter, who is predicting a shortfall of more than $10 billion.
It likely won't be known how deeply Ontario will sink into debt until the Liberal government unveils its budget on March 26.
Ontario Finance Minister Dwight Duncan predicted a $500-million deficit last fall, but the government has since left the door open to a much larger sum.
Premier Dalton McGuinty has warned of a "significant" shortfall in the upcoming budget, adding that it will take several years to turn the province's fortunes around.