Ontario to reduce deficit spending by $4.7 billion

Ontario will reduce its deficit spending by $4.7 billion over three years due to an improving economy and expense trimming.

The figures will be revealed in Tuesday's budget, which is expected to set the stage for the fall provincial election.

There are no plans to speed up the timeline for rebalancing the books in 2017-2018, but Finance Minister Dwight Duncan hasn't ruled it out entirely, a senior source said.

The deficit for the year ending March 31 will come in at $16.7 billion, about $2 billion less than predicted in the fall economic forecast and $3 billion less than projected in last year's red-ink budget.

The province spent $2.6 billion less on programs than expected in 2010-11 and paid about $400 million less interest on its debt than anticipated, the source said. That's largely because interest rates remained low, Ontario bonds sold well and the province borrowed less than expected.

That allowed total spending to shrink to $123 billion last year from an expected $126 billion.

Over the next two years, the province is expected to borrow $1.7 billion less than expected, the source said.

But it will still sink further in debt before it finally eliminates the deficit seven years from now.

"Only Dwight Duncan and Dalton McGuinty could celebrate a $17-billion deficit," said Conservative Peter Shurman.

"These people have managed to double Ontario's deficit in less than eight years."

Duncan hinted at a sunnier fiscal forecast last week, when he promised to lay out more "positive numbers" for Ontario's future growth.

Tuesday's budget will also identify $1.5 billion in savings over three years that will help the province get back in the black, he said.

But Duncan ruled out any deep cuts to education and health care, which together consume 70 cents on every dollar the government spends.

He also warned that Progressive Conservative Leader Tim Hudak, who is currently leading public opinion polls, would jeopardize Ontario's fragile economic recovery by slashing government programs if he wins the October 6 vote.

"What they are very clearly setting up to do is put us in a deeper deficit hole," Duncan said Thursday.

"Seventy per cent of your budget is spent on health care and education," he added. "You're going to have a situation like you did when Mr. Hudak was part of the Harris government, where you wind up closing hospitals, closing schools."

Economists are looking for a stay-the-course budget without any big new spending or tax cuts.

Tuesday's spending plan won't contain any new tax hikes or cuts, although Duncan wouldn't rule out tax credits.

Ontario's economy is improving, and any wiggle room that could be gained from that should be used to accelerate the province's war on the deficit, said Sonya Gulati, an economist with TD Bank.

But Duncan said he plans to take some of the $1.5 billion in savings over three years and redeploy it elsewhere.

For example, moving prisoners into new, bigger jails will save the province money, which would be reinvested into police and victims' services, he said.

Duncan's austerity measures are moving Ontario in the right direction, but the government must freeze program spending over seven years to rebalance the books, said Gulati.

"That will be very difficult to do without underlying structural reforms," she said. "It's a good first step to find these types of administrative savings, but they're not going to help in terms of the medium-term deficit profile."

Duncan said he won't sell off Crown jewels, such as the Liquor Control Board of Ontario, to drum up more cash. But he may end up shutting down more agencies, boards and commissions that are no longer needed.

He also suggested last week that some non-essential programs may get the axe if the government finds someone else who can do it better and more efficiently.

That's code for cuts, said NDP Leader Andrea Horwath.

People are already paying more through the HST and the health premium and getting less in return, she said. Now the government's hinting that services will suffer and possibly be contracted out to the private sector.

"Over time, costs and provision of those services goes up, access to those services is often restricted and reduced, and the accountability and transparency of decisions that are made is lost," she said.

Horwath said she's also disappointed that the government isn't backing off its corporate tax cuts when families are still struggling to make ends meet.

"I think people need to be getting a break in this budget," she said. "I think people need to see a relief from the HST on things like home heating and hydro."