TORONTO - Provinces across Canada will likely follow both Ontario and Ottawa in digging themselves a bigger financial hole than planned this year, experts predict.
Economic conditions are changing so quickly that budgets tabled just two months ago -- like Ontario's -- are already outdated, TD economist Derek Burleton said Tuesday.
"Just the speed at which economies have slowed down in recent months suggests that in many cases, they will be hard-pressed to meet budget targets," he said.
Both the federal and Ontario governments have shifted much of the blame for their ballooning deficits on the $14.3 billion they are spending to save troubled automakers General Motors and Chrysler.
Ottawa's projected deficit has shot up to over $50 billion from the $34 billion forecast in January, while Ontario's shortfall is now expected to come in at $18.5 billion instead of the $14.1 billion predicted at the end of March.
Just last week, Premier Dalton McGuinty assured Ontario residents there was no reason to believe his government would have to follow Ottawa in raising its deficit projections because of GM's aid package.
But the contingency funds set aside in the budget weren't sufficient to cover Ontario's one-third share of the bailouts and the final tally wasn't clear until a few days ago, he said Tuesday.
The move prompted the Dominion Bond Rating Service to revise its view of Ontario's long-term debt rating to "negative" from "stable" on Tuesday, but it left its AA long-term debt rating unchanged.
Aid to the auto sector was "likely essential," but the cost to the province is "substantial and considerably dampens the fiscal outlook revealed in the March 2009 budget, which was already a significant source of concern for Ontario's credit profile," the agency said in a release.
Taxpayers will understand why Ontario is diving further into debt, given that Canada finds itself in "uncharted" economic waters, McGuinty said.
"I'll let folks judge me as they always do," he said.
Other provinces aren't immune to larger-than-expected deficits either, said Burleton.
A stunning slowdown in the job market and plunging corporate tax revenues are affecting government coffers, which could force other provinces to follow suit.
"Since these budgets, there have been already some downgrades in forecasts," he said.
"So there is the risk of deficits coming in higher -- as is often the case."
Last fall, Ontario was forecasting a $500-million deficit. The latest adjustments mean the province is now expecting to run up deficits totalling $61.2 billion over seven years.
A new TD report predicts Ottawa will dig itself a $172-billion hole over the next five years -- nearly double the $85-billion figure projected in the Conservative government's January budget.
A surge in stimulus spending, the auto bailout, the rising costs of health care and other services, and a sharp decline in revenues are largely responsible for Ontario's rapidly inflating figure, experts say. But the province was more vulnerable when the economy started to tank.
"Ontario and other provinces that aren't driven as much by resources, we're coming into this downturn with a lot less wiggle room than that of the federal government," Burleton said.
"And so all it takes is a very dramatic downturn in revenues -- which we've seen -- and that's enough to send them into significant deficit territory."
This year's $18.5-billion shortfall will be the largest in Ontario's history. But relative to government spending, it still won't top a record deficit of $12.4 billion on expenses totalling $57.2 billion back in 1992, under the watch of former NDP premier Bob Rae.
The enlarged deficit accounts for about three per cent of gross domestic product, which puts Ontario in line with provinces like New Brunswick and Newfoundland and Labrador, Burleton said.
Ontario will have to do some major belt-tightening if it wants to keep to its timetable of re-balancing the books by 2015, said Pedro Antunes, director of national and provincial forecasts at the Conference Board of Canada.
"We know that there are expanding health-care demands on the province -- they've been that way since at least the mid-90s," he said.
"It will be difficult for the province to come out of the red without some clearer measures and implementing some other measures."
Finance Minister Dwight Duncan wouldn't say whether additional cost-cutting measures are planned, or if the province will meet its targets to climb out of deficit.
"The projections are less reliable the further away from now you get," he said.
"There could be changes over time in either direction."
McGuinty vowed that the province's public services -- including its schools and hospitals -- wouldn't suffer.
But he refused to put the brakes on a controversial plan to harmonize the provincial sales tax with the federal GST in 2010 -- an idea McGuinty himself had repeatedly dismissed while in office.
"Line up all past finance ministers from all parties and ask them, `What should you have done? What did you know all along needed doing, but you were afraid to do it? You resisted it because of the political challenges that it presents,"' he said.
"They'll all tell you the same thing. Everybody knows you've got to move to a single sales tax. Everybody has known that for a long, long time."
Kids' clothing and shoes, car booster seats, diapers, books and new homes under $400,000 are among the items to be exempt from Ontario's eight per cent portion of the 13 per cent harmonized sales tax.
But a score of other items won't escape the new levy, including gasoline, home heating fuel and real estate fees. Even haircuts and beauty treatments will be hit.
Quebec, Nova Scotia, New Brunswick and Newfoundland and Labrador have already harmonized their sales taxes with the GST, a move that became politically unpopular for some when consumers ended up paying more for goods that were previously exempt from the provincial tax.
Ottawa is kicking in $4.3 billion over two years to grease the harmonization wheels and the province is planning to offer government cheques of up to $1,000 to ease the pain.
