Ontario Finance Minister Dwight Duncan said the province’s deficit in the fiscal year that began in April will be C$11.9 billion ($12 billion), not including a C$500 million reserve, narrowing from the C$14.8 billion he previously forecast.
The improvement in Ontario’s fiscal outlook comes from higher corporate taxes after the province reassessed returns from 2011 and earlier, and savings of more than C$1 billion stemming from ending the practice of letting the province’s teachers save up sick days, Duncan said.
Duncan made the comments in a speech to the Canadian Club of Toronto. While he didn’t give deficit estimates for later years, Duncan said Canada’s most-populous province needs to cut spending by as much as C$2.5 billion over the coming years to meet its budget goals, without elaborating.
Spending reductions made so far represent “low-hanging fruit,” Duncan said, suggesting more difficult decisions lie ahead. Duncan’s Liberal Party is scheduled to elect a new premier at a convention this weekend to replace Dalton McGuinty.
Moody’s Investors Services downgraded Ontario’s credit rating in April, citing the province’s growing debt burden and slowing economic growth. Since the downgrade, the Ontario government has fought with public sector unions to institute a wage freeze and levied a 2 percent surtax on wage earners of C$500,000 or more.
“Ontario’s credit rating will not improve until the debt starts coming down,” Duncan said.
Private sector economists trimmed their 2013 growth forecasts this month to 1.8 percent from a March forecast of 2.3 percent, a survey by Ontario’s finance ministry shows.
Duncan cited a rise in the interest costs Ontario pays on its C$255 billion of debt as a danger to government finances. The province’s interest payments are expected to rise to C$10.5 billion in the current fiscal year from C$10.1 billion, according to government data.
Every one percentage point increase in interest rates will “hit Ontario to the tune of half a billion dollars in the first year, rising to close to two and a half billion over four years,” Duncan said. “That is a ticking time bomb for Ontario and one of the reasons we have to be wise about getting back to balance.”
Ontario has a stable Aa2 rating from Moody’s and a AA-rating from Standard & Poor’s and AA rating from Fitch Ratings, both with a negative outlook.