Ontario sees balanced books, but pressures ahead

Thu Dec 13, 2007 4:58pm EST
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By Lynne Olver

TORONTO (Reuters) - The province of Ontario announced a C$3 billion ($2.9 billion) package of lower business taxes and higher infrastructure spending on Thursday, yet Canada's most populous province said it is on track to deliver balanced budgets.

Last spring, the government released a budget and spoke of "sustainable surpluses" ahead, but the latest mid-year economic outlook projects smaller surpluses in 2008-09 and 2009-10 than projected in March, and no surpluses at all if reserve funds are needed.

"There is some slack (reserve) that they are building into their balanced budget plan but the question is, is it going to be enough to mitigate any sharp slowdown that occurs next year," said Mario Angastiniotis, director of public finance ratings at Standard & Poor's in Toronto.

Ontario is caught between a rock and a hard place, Angastiniotis added.

"I think the tax cuts are probably necessary to keep Ontario competitive, but they may be coming at a time when the economy is least able to afford it."

The provincial government acknowledged risks to the Ontario economy, including a weaker U.S. outlook, higher oil prices and the strong Canadian dollar. In late September, the currency broke through parity with the U.S. dollar for the first time since 1976, but has since slipped back, and was around 98 U.S. cents on Thursday.

"The Ontario economy has proven resilient in an increasingly challenging global economic environment," said Finance Minister Dwight Duncan, who took over the key cabinet post on October 30 after the Liberal Party won the provincial election.

But the manufacturing, forestry, agriculture and tourism sectors face "serious challenges," Duncan said in a statement, so the government will help them adjust to the economic headwinds.   Continued...