September 13, 2012 / 3:38 PM / 5 years ago

Ontario budget deficit comes in lower than forecast

3 Min Read

TORONTO (Reuters) - Ontario's Liberal government said on Thursday it is reducing its budget deficit faster than projected, crediting spending restraint as it continues to move to freeze wages and benefits for public sector workers.

The province's deficit for the 2011-12 fiscal year, ended March 31, was C$13 billion ($13.3 billion), the finance ministry of Canada's most populous province said. That's down from the C$15.3 billion shortfall the government forecast in its March budget, and well below the nearly C$25 billion deficit it forecast in the fall of 2009 during the global recession.

Finance Minister Dwight Duncan told reporters the government is two years ahead of where it thought it would be on deficit reduction, but that it is not changing its 2017-18 target for balancing the budget as a result.

Last month, it reiterated its C$14.8 billion forecast for the deficit for the current financial year.

The province - which accounts for about 40 percent of the country's economy - is facing heavy resistance to its cost-cutting plans from teachers' unions and other public sector workers, including doctors.

With the help of the opposition Conservatives, the Liberals passed legislation this week that imposes a controversial contract on teachers, freezing their compensation for two years and banning them from going on strike.

"Government actions in the education sector, along with more recent calls for a broader public-sector wage freeze, suggest that spending restraint has indeed become a major priority," Robert Kavcic, economist at BMO Capital Markets, said in a note to clients.

Kavcic cautioned, however, that last year's better than expected deficit numbers will not necessarily flow through to future years.

The Liberals have a minority of seats in the Ontario legislature and must rely on support from other parties to pass legislation. By-elections held last week still kept the Liberals one seat short of a majority.

For 2011-12, the government said program spending was up 0.9 percent from the year before, the second-lowest increase in 10 years.

Spending on programs such as health care and interest on debt was C$122.7 billion, C$2.2 billion lower than forecast last year. Revenue came in at C$109.8 billion, C$500 million more than the government forecast in its 2011-12 budget.

The government said it used C$700 million in reserve funds to help cut the deficit.

In its 2012-13 budget this spring, the government vowed to rein in public sector labor costs, halt corporate tax cuts and introduce a new tax on the wealthiest earners.

Editing by Peter Galloway

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