November 19, 2010 / 12:25 PM / 7 years ago

Ontario on track to balance budget by 2017-18

TORONTO (Reuters) - Ontario is on track to balance its budget in eight years as its export-oriented economy recovers from a deep recession and record-high deficits, despite persistent economic headwinds and new spending on energy tax relief.

The province’s Liberal government said in its fall economic update that its deficit targets for fiscal 2011-12 and 2012-13 were unchanged from the March budget. It had said on Tuesday that its 2010-11 deficit would come in C$1 billion ($980 million) lower than forecast, at C$18.7 billion.

Canada’s manufacturing hub and most populous province raised its growth forecast for 2010 to 3.2 percent from 2.7 percent in the March budget. But it cut its 2011 growth forecast to 2.2 percent from its earlier 3.2 percent projection, and estimates for 2012 and 2013 were also revised lower.

“The plan we’ve laid out sees us staying on track but we are exceeding targets up until now,” Finance Minister Dwight Duncan told reporters.

But Duncan said it was premature to assume the province could balance its books sooner than forecast for 2017-18 because of the slowing growth, due mainly to a still struggling economy in the United States, Canada’s largest trading partner by far.

“The U.S. economy has to be top. It is not performing as well as their analysts thought it would perform. We take that into account obviously in our projections, just given how closely tied to the U.S. economy Ontario is, and I think that’s a real concern.”

The budget update on Thursday included a renewal of a deal with land registry operator Teranet and its owner Borealis Infrastructure, which will generate a C$1 billion upfront payment to the province.

Ontario said it will use the funds to reduce its 2010-11 borrowing requirement.

It is now set to borrow C$38.7 billion in 2010-11, compared with C$39.7 billion forecast in the March budget, and is seen saving up to C$50 million in annual interest costs.

SOME RELIEF AS POWER RATES RISE

New energy tax-relief measures announced earlier this week were confirmed, including a 10 percent tax benefit to offset rising electricity prices over the next five years, starting January 1, which will cost the province C$1.1 billion next year.

“The cost of the electricity rebate is going to be fully absorbed by lower interest payments and other overall program spending ... which the province didn’t detail,” said Robert Kavcic, an economist at BMO Capital Markets.

“Overall if you look at the bigger picture, it doesn’t really change anything with respect to the province getting back to budget by 2018.”

Over the next five years, residential electricity prices are expected to rise by 46 percent, as the province shifts more to renewable energy sources, while annual increases in rates for the next 20 years are forecast to average 3.5 percent.

($1=$1.02 Canadian)

With additional reporting by Jennifer Kwan; editing by Rob Wilson

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