November 26, 2015 / 9:25 PM / 2 years ago

Hydro IPO trims Ontario deficit, Quebec eyes balanced budget

3 Min Read

The Canadian flag flies on Parliament Hill in Ottawa August 2, 2015.Blair Gable

OTTAWA/QUEBEC CITY (Reuters) - Canada's two most populous provinces gave better than expected budget updates on Thursday, as Ontario got help from the initial public offering of utility Hydro One Ltd and Quebec clamped down on spending.

Ontario expects to run a smaller-than-anticipated deficit of C$7.52 billion ($5.66 billion) in the 2015-16 fiscal year, its Liberal government said, down from the C$8.5 billion deficit it estimated in its April budget.

Total revenues are now seen at C$1.2 billion more than previously anticipated, but the biggest change came from revenues related to the initial public offering of power distributor Hydro One.

Non-tax revenue for the current fiscal year, which includes higher projected net revenue from the Hydro One sale, is seen C$1.1 billion higher than forecast.

"Ontario's bottom line is running ahead of expectations again this year - excellent," Robert Kavcic, senior economist at BMO Capital Markets, wrote in a note. "But, the improvement comes on the back of one-time asset sales, not underlying revenue or (more importantly) spending performance."

Ontario, which accounts for about 40 percent of Canada's economy, also forecast a smaller-than-expected deficit for next year and reaffirmed its promise to balance the budget in 2017-18.

Meanwhile, Quebec reaffirmed that it is "on track" to return to a balanced budget this year, with Finance Minister Carlos Leitão crediting tight spending controls for the turnaround.

Leitão, former chief economist at Laurentian Bank, said spending controls have also reduced the deficit for the previous 2014-15 fiscal year by C$1.25 billion, with the final shortfall last year at C$1.1 billion.

Leitão said government revenues are slightly lower this year, but the decline has been offset by lower debt-service costs.

Spending growth is being held down to 2.7 percent for 2015-16, while revenues are seen rising by 4.1 percent.

Quebec is facing pressure to loosen its purse strings from labor unions representing about 500,000 public-sector workers. While he offered no additional money for employees, Leitão said he would add C$20 million to the education budget this year and an additional C$80 million a year starting in 2016-2017.

Quebec is also committed to investing C$88.4 billion in infrastructure projects under a 10-year 2016-2026 capital investment program.

"The high level of public investment planned for the coming years will provide powerful stimulus for economic activity and job creation in every region of Quebec," the finance minister said.

Reporting by Leah Schnurr in Ottawa and Kevin Dougherty in Quebec City; Editing by Eric Walsh

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