Ontario’s Liberal government is pushing ahead with a plan to boost the economy of Canada’s largest province with increased spending through a higher deficit after voters returned it to power in last month’s election.
The Liberals under Premier Kathleen Wynne reintroduced their budget today, pledging to spend over C$130 billion ($121 billion) on new infrastructure over ten years, create a provincial pension plan, and balance the books in three years after letting the deficit grow by C$1.2 billion this year.
“Ontarians saw the potential of this plan, they’ve asked us to implement it and that’s exactly what we’re going to do,” Finance Minister Charles Sousa told reporters before presenting the budget in the legislature. “We will cut expenses where we can. We will make investments where we must.”
The budget comes amid speculation that the higher short-term deficit will lead to Ontario’s credit rating being downgraded, which could cause the province’s borrowing costs to rise. Moody’s Investors Service lowered its outlook on Ontario to negative from stable July 2 while Standard & Poor’s already had a negative outlook on its AA- rating, which is one level lower than Moody’s.
The borrowing cost advantage Ontario enjoys over lower-rated Quebec fell to less than five basis points this month, the smallest difference between the yields on the two province’s latest 10-year notes since they were issued last year.
S&P rates Quebec A+, one grade lower than Ontario.
Sousa said his government could meet its goal for balancing the books by the 2017-18 fiscal year by holding the line on spending for the three years after this one, which will see the deficit expand to C$12.5 billion.
While the budget promises higher taxes on tobacco, airline fuel and high-income earners, Sousa said there would be no more tax increases and he’d be able to balance the budget without cutting the public service.
“We recognize there are tough decisions to be made,” said Sousa. “We’ve made tough decisions already. We’ve seen the global economy is still soft and it’s affecting Ontario’s economy.”