TORONTO – Cash-strapped Ontario is putting off tax cuts to businesses and zeroing in on public sector wages and pensions 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.
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.
Ontario may wind up shelling out hundreds of millions more in interest if it gets hit with a credit downgrade or interest rates go up, which Duncan admits keeps 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, which would save nearly $13 billion over three years.
After two years of tough talk, the government is brandishing a big stick, warning that they’re prepared to use legislation to force a pay freeze on teachers, doctors and civil servants if all other attempts at the bargaining table fail. Those groups will also have to pay more into their pensions, pool the plans or reduce benefits.
That sets the stage for possible strikes or labour disruptions this year, but the government said it’s 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 pushes up their pay.
“We choose to take a fair approach to public sector salaries and pensions because compensation is our greatest single cost and we can’t carry out our plan to strengthen our economy and create jobs without addressing it,” Duncan said. “And we need everyone to do their part to balance the budget.”
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The province can’t impose an immediate wage freeze – as the Opposition Conservatives have demanded – because it would just be overturned in court, Duncan argued.
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 – will get the corporate tax freeze they’ve been demanding. The Liberals will keep the rate at 11.5 per cent, but only until the budget is balanced. But the NDP is balking at the threat of a legislated wage freeze.
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 health-care spending to 2.1 per cent annually.
– 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, which would affect about 75,000 seniors, pay higher deductables.
– amalgamating school boards in areas of low populations and consolidating “underutilized” schools by reducing the amount of money boards receive to keep them open.
– effectively ending the high school “victory lap” by capping credits at 34 to save $36 million over three years.
– shaving $34.3 million from student transportation.
– capping the 10 per cent rebate on hydro bills to 3,000 kilowatt hours per month – targeting small businesses rather than households – to save $470 million over three years.
– delay high-occupancy vehicle lane projects designed to unclog traffic jams in densely-populated cities.
– close seven tourism centres.
– close two more jails in Brantford and Chatham – on top of four others – and reduce 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.
But they’re also rejecting nine of the cost-saving ideas, and ignoring others, from economist Don Drummond, who provided a blueprint for austerity in February that paved the way for Duncan’s kinder, gentler approach to deficit slaying.
Drummond warned that unless all of his 362 recommendations were implemented, Ontario will wind up with a $30-billion deficit by 2017-18 and increase its debt to a staggering $411 billion. If the government rejects one recommendation, it must find another place to cut or increase revenue, he said.
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 that they 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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