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(Adds details, background, comment from opposition leader)
By Andrea Hopkins
TORONTO, April 23 (Reuters) - Ontario's Liberal government trimmed its budget deficit forecasts for the next two years on Thursday as it unveiled a budget that seeks cost cuts in education and healthcare, a move toward austerity that could spark labor unrest across the province.
Ontario, Canada's most populous province, which accounts for about 40 percent of the country's economy, will run a deficit of C$8.5 billion ($7 billion) in the 2015-2016 fiscal year as it aims to return to balanced books by 2017-2018, Finance Minister Charles Sousa's budget said.
This year's shortfall had been projected at C$8.9 billion, with lower tax revenues offset by asset sales, including the planned sale of 60 percent of Hydro One, the province's electricity transmission utility. The deficit for last year is estimated at C$10.9 billion.
Ontario's net debt, the largest subsovereign debt in the world, was pegged at C$298.9 billion this fiscal year. Credit rating agencies have warned Ontario to get its fiscal house in order or risk further downgrades to its debt rating, which would increase the cost of debt servicing.
Analysts have been skeptical that Premier Kathleen Wynne's Liberals, elected to a majority in the legislature in 2014 after several years of precarious minority government, will be able to balance the books in two years.
Sousa pledged to hold the line against wage increases for public-sector workers, risking standoffs with organized labor, including teachers, who are set for regional strikes if new collective agreements cannot be reached.
In outlining the government's plan to build C$130 billion in infrastructure over 10 years, Sousa said transportation gridlock has cost revenue and growth.
"Government after government has delayed investing in infrastructure. We can't afford any more delays. We must build," Sousa said in his prepared budget speech.
The budget includes C$16 billion for transit in the Toronto-Hamilton region and C$15 billion for transport and other infrastructure in the rest of Ontario.
The opposition Conservatives accused the Liberals of playing a shell game to artificially trim the deficit with asset sales, and warned public-sector jobs will be cut.
"The layoffs are coming massively, particularly in health care and education," said Jim Wilson, interim leader of the Conservatives. "You're going to have a great deal of labor unrest."
After ballooning in the wake of the 2008 financial crisis and auto-sector layoffs, the deficit is seen shrinking to C$4.8 billion in 2016-17 before reaching balance in 2017-2018. The projection relies on provincial economic growth of 2.7 percent in 2015, up from 2.2 percent growth last year.
$1=$1.215 Canadian Reporting by Andrea Hopkins and Solarina Ho; editing by Bernard Orr; and Peter Galloway