Analysis: Ontario deficit targets at risk as outlook dims

Sun Nov 20, 2011 10:37am EST
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By Claire Sibonney

TORONTO (Reuters) - A worsening economy will hurt Ontario's chances of meeting already long-term plans to balance its budget as it prepares for a fiscal update on Wednesday.

The government has said its fall economic statement will show a C$16 billion ($15.5 billion) deficit for 2011-12, but warned that revenue projections and growth targets will fall to reflect recent private sector downgrades.

Ontario plans to balance the budget by 2017-18, later than any other Canadian province.

But reaching that goal means cutting costs, a daunting challenge for a minority Liberal government committed to protecting healthcare and education, and not raising taxes.

"Unfortunately you may see larger deficits than what was expected in the budget of 2011," said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities in Montreal.

Ontario, which relies heavily on the manufacturing and export of autos and parts to the United States, accounts for about 40 percent of Canada's gross domestic product.

The risk of slowing U.S. and global growth was highlighted by Canadian Finance Minister Jim Flaherty's decision earlier this month to push back Ottawa's promised date to balance the federal budget.

Don Drummond, a former Toronto-Dominion Bank chief economist now advising Ontario on spending, has already said the province will not meet its deficit targets unless it cuts program expense growth to 1 percent a year for the next six years.   Continued...