Ontario's Budget Deficit to Fall to C$16.3 Billion in 2011-12 Fiscal Year

Ontario’s deficit will shrink by 2.4 percent next fiscal year as Canada’s most indebted province eliminates government jobs and lowers spending growth, Finance Minister Dwight Duncan said.

Ontario plans a budget shortfall of C$16.3 billion in the spending year that begins April 1, down from this year’s estimate of C$16.7 billion, Duncan said today in Toronto. The 2010-11 gap was C$3 billion less than forecast a year ago after revenue grew at its fastest pace in seven years.

“The Ontario economy is turning the corner,” Duncan told reporters. “Jobs are coming back. With consistent growth returning to the economy and with smaller growth in spending, we are eliminating the deficit.”

Duncan’s fiscal plan, his government’s last before a scheduled Oct. 6 election, is predicated on economic growth of 2.4 percent in calendar 2011, and 2.7 percent in 2012 and 2013, budget documents show. Growth last year in the C$614 billion economy was 2.8 percent.

Ontario, the economic engine that accounts for about 38 percent of Canada’s economic output, recovered 91 percent of the jobs lost during the last recession, according to Statistics Canada data. The province of 13.2 million people is the hub of Canada’s car industry, which generates about a third of Ontario’s international exports.

For fiscal 2012-13, Duncan’s forecast calls for a deficit of C$15.2 billion, less than the C$15.9 billion estimate of a year ago. The 2013-14 forecast of a C$13.3 billion deficit is unchanged. Ontario continues to target a return to balance by fiscal 2017-18, budget documents show.

Total Debt

“We are going to continue to overachieve on our numbers,” Duncan said. “We will continue to find that balance between deficit elimination and making sure that we don’t lose the gains we’ve made in education and health care.”

Ontario plans to borrow C$35 billion in fiscal 2011-12, C$3.8 billion less than the government forecast last year. Ontario raised C$39.9 billion this year on debt markets. Borrowing will rise to C$38.6 billion in 2012-13 and to C$42.2 billion the following year as maturities increase.

Net debt will probably climb to C$217.3 billion as of March 31 from C$193.6 billion a year earlier. By March 2012, Ontario expects debt to rise to C$241.5 billion, almost double the amount from nine years ago. The net debt to gross domestic product ratio will peak at almost 41 percent within three years, among the highest rates for Canadian provinces, after Quebec.

“Over the next few years, the increase in the debt is going to be quite significant,” Sebastien Lavoie, assistant chief economist at Montreal-based Laurentian Bank Securities, said in an interview in Toronto. “The longer you wait to cross the zero- deficit line, the more exposed to risk you are.”

A one percentage point increase in interest rates would cost the province about C$500 million in additional interest costs next year, budget documents show.

Expense Growth

Total expenses will climb about 1 percent next year to C$124.1 billion, budget documents show. The amount includes C$113.8 billion in program spending and C$10.3 billion in debt- servicing costs. Revenue will advance 2.2 percent to C$108.5 billion.

Expenses will probably increase by an average of 1.7 percent annually between this year and fiscal 2013-14, budget documents show. That’s about half the rate of revenue growth.

A rebound in sales and corporate taxes led to an 11 percent increase in revenue this fiscal year, the biggest gain since 2003-04, the 300-page budget shows. Payments from the federal government’s stimulus plan and one-time transfers for the harmonization of sales taxes contributed to the increase.

Duncan said today Ontario plans to trim expenses by about C$1.5 billion over three years, including C$200 million in “efficiencies” at government agencies. About 1,500 government positions will be cut between April 2012 and March 2014. The cutbacks follow the elimination of 3,400 positions announced two years ago.

Hires Drummond

The province hired Don Drummond, the former economist from Toronto-Dominion Bank, to lead a new commission to reform the public service to help accelerate plans to eliminate the deficit.

Among other measures, Ontario will close three underutilized prisons and transfer inmates to larger and “more efficient” facilities, budget documents show. The government will also save C$181 million by dropping plans to build a courthouse in Toronto.

Ontario has earmarked more than C$35 billion for infrastructure spending in the next three years, including C$12.8 billion next year.

In December, Duncan unveiled plans to eliminate or merge 14 provincial agencies that had overlapping functions. Other planned cutbacks included a reduction in travel expenses and savings from reduced usage of paper and office equipment.

To contact the reporter for this story: Frederic Tomesco in Toronto at tomesco@bloomberg.net.

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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