Ontario report urges austerity to tame deficit

Wed Feb 15, 2012 5:47pm EST
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By Claire Sibonney

TORONTO (Reuters) - Ontario must clamp down on education and health care spending and scrap some popular programs to keep a C$16 billion ($16 billion) deficit from spiraling out of control, a report commissioned by the provincial government said on Wednesday.

The long-awaited report on public service reform gave the Liberal minority government of Canada's most populous province a range of potentially controversial austerity measures it could introduce.

They include scrapping the Liberals' signature all-day kindergarten program and increasing school class sizes; eliminating electricity bill rebates and a resource tax credit. The report also said the mining tax system should be reviewed to make sure the government was being adequately paid for its natural resources.

Report author Don Drummond, a former federal finance official who played a key role in wrestling down Canada's large federal deficit in the 1990s, warned Ontarians should learn from the debt crisis ravaging Europe.

"The challenge and the solution will have to be pretty much unprecedented in Canadian postwar history ... It won't work if you just have a mindset of 'I'm just going to take some money out of here and there'," the former Toronto-Dominion Bank chief economist told reporters.

"You can't really pick up a newspaper without reading about Greece and Spain and Italy. We're nowhere near there, although keep in mind that Ontario's debt to GDP ratio is 35 percent and Greece's was 35 percent in 1984."

Among the report's more than 360 recommendations, Drummond proposed overhauling how health care services are delivered, axing some of the government's education policies, cracking down on the underground economy to chase lost tax revenue, and reduce incentives offered to companies under the province's green energy program.

He recommended total program spending rise just 0.8 percent a year while the province proceeds to a balanced budget, compared with a recent growth rate of around 7 percent. On a real per capita basis, he said spending will have to fall 2.5 percent a year.   Continued...