TORONTO (Reuters) - Ontario may eliminate its massive deficit before its 2017-18 target if the economy delivers solid growth and the budget is prudently managed, the Canadian province’s finance minister said on Thursday.
“There is more likelihood right now. But again I did not amend the plan or the times around the plan because of uncertainty, particularly in the U.S.,” Finance Minister Dwight Duncan he told Reuters in a phone interview from New York.
“We’ve laid out what we think is a very reasonable plan and my hope is that we will continue to exceed our deficit reduction targets on an annual basis.”
Canada’s most populous province last month maintained near-term deficit targets but lowered its 2010-11 deficit forecast by C$1 billion ($990 million) to C$18.7 billion.
Duncan, in New York to tout the province’s merits to international investors, also said the city of Toronto would be on the hook for financial penalties if new mayor Rob Ford breaks contracts by scrapping a multibillion dollar public transit plan.
“That would be the responsibility of Toronto. But hopefully the mayor seems confident that those penalties can be dealt with in the context of investments in subway versus the LRT (light rail transit),” Duncan said.
“We’ll continue to work with the municipality as we move forward.”
He rejected the idea that the city would have to repay investments already made by the province toward the plan.
Duncan said he will not raise taxes and will offer more details on expenditure plans before next year’s budget. But he stressed that the export-reliant province, still recovering from the recession caused by the global financial crisis, will keep health and education spending a priority.
The province’s Liberal government has sought to contain its budget deficit by including measures to freeze public sector wages in its March budget.
But recent arbitration decisions that have since awarded increases to thousands of unionized nurses and hospital workers have challenged that plan.
Duncan said he was pleased with progress on capping wage gains, noting of the 40 collective agreements since March, four were arbitrated and of the balance more than half contained no increases for two years. He said average settlements are still less than those in the federal, municipal and private sectors.
“Our target is zero and zero and we’ve had some success and some setbacks but overall we’re seeing some meaningful progress,” he said, dismissing the idea that Ontario would enforce a pay freeze though legislation.
The province is set to borrow C$38.4 billion in 2010-11, of which roughly 60 percent will be issued to the domestic market versus 40 percent internationally. That compares to a near 50/50 split last year, with the bias toward global investors.
Duncan said selling bonds domestically allows the province to avoid the issues that arise when borrowing in other currencies.
“Last year because of the stimulus package we borrowed ... very large sums. And as we move forward we can expect more of that can be taken up domestically and we’ll get back to a more normal ratio and we’re starting to see that this year,” he said.
On Wednesday, the province sold $1.25 billion in 3.5 percent 7-year global notes in an auction described by market watchers as a success.
Duncan said international investors are impressed by the stability of Canadian governments, relatively low deficits and debts compared to other sovereign and national states, and the soundest financial system in the world -- located in Toronto.
Editing by Jeffrey Hodgson