March 5, 2012 / 5:48 PM / 6 years ago

Ontario may halt corporate tax cuts until 2017-18

TORONTO (Reuters) - Ontario may cancel plans to cut corporate taxes until it balances its books in 2017-18, and will eliminate its C$16 billion ($16.1 billion) deficit by that date “come hell or high water”, the Canadian province’s finance minister said on Monday.

Ontario Provincial Minister of Finance Dwight Duncan is seen in his office adjacent to Queen's Park in Toronto March 5, 2012. REUTERS/Fred Thornhill

The government of the country’s most populous province, and its industrial hub, will likely announce small privatization efforts and slightly improved growth and revenue projections in its budget, Finance Minister Dwight Duncan said.

He said the Liberal minority government’s main focus will be on lowering the growth rate of spending on health, education and other issues, making it hard to justify a previous plan to cut the corporate tax rate of 11.5 percent to 10 percent by 2013.

“Everybody’s got to have skin in the game. I can’t go and ask the general public to go through this without the business community,” Duncan said in an interview from his office overlooking the provincial legislature.

“What I hear from thoughtful business people is that they want us to get back to balance and they get it ... nobody is talking about raising the corporate tax rate other than the (New Democratic Party). We’re talking about freezing it.”

Duncan said the government is sticking to its plan to freeze the compensation budgets for public sector workers, which would require either pay freezes or job cuts.

Wages and other compensation account for almost 60 percent of government spending and some big contracts for unionized workers such as teachers are to be negotiated later this year.

“(Non-unionized employees) have had a two-year wage freeze and now the unionized workers are going to have to do that,” he said, adding that Ontario’s public sector wage settlements are now below those of the private sector and federal government.

The province’s strategy has had mixed success, with some unions winning pay increases from sympathetic arbitrators.

MARKETS KEEP WARY EYE

Ontario’s finances are under scrutiny after a report commissioned by the government said last month that the province must make public services more efficient, control education and healthcare costs and scrap some popular programs to keep the deficit from spiraling out of control.

Canadian Finance Minister Jim Flaherty - who was finance minister of Ontario under its former Conservative government - also warned on Monday that the province will have to tighten spending.

“Ontario has fundamental budgeting problems. They have major spending problems that built up over eight years,” he said.

The recent report by Don Drummond, a former high-ranking federal finance official and bank economist, said Ontario must wrestle total program spending growth down to 0.8 percent, including 2.5 percent for health and 1 percent for education. This would be dramatically lower than in recent years.

The last budget targeted spending increases of just over 3 percent for health, 4 percent for education and 1.4 percent for program spending as a whole.

Duncan said government spending is on track and new targets in his next budget, likely later this month, are likely to be closer to what Drummond has recommended.

He said growth forecasts look slightly better than the government assumed last autumn.

Ontario’s auto and other manufacturers were pummeled in the recession and are still under pressure from the weak U.S. recovery and soaring Canadian dollar.

Still, Duncan suggested he’s not looking to near-term major asset sales to fill the gap. Government-owned power utilities such as Hydro One and Ontario Power Generation (OPG), as well as the Liquor Control Board of Ontario (LCBO) and Ontario Lottery and Gaming Corp would be worth billions on the open market.

“Everybody says ‘I want to buy the LCBO’, or ‘I want to buy Hydro One, or OPG’. Even if we really really wanted to do it, there’s a lot of reasons why we can‘t. And I‘m not ruling any of that out down the road,” he said.

“I would urge investors not to focus expressly on the big four, but to start thinking about other areas where private capital and private administration can do a better job than government. We’re very open to those.”

Duncan said there would be other opportunities for private investment, noting past efforts to privatize Teranet, which offers land registry services, and Service Ontario, which issues driver and vehicle licenses and marriage and death certificates.

The gaming sector, which includes the Caesars Entertainment-operated casino in Windsor, Ontario’s border city with Detroit, could also offer private sector opportunities.

“We simply have a management contract with them. In the future we may want to look at new models, where we look to the private sector to take on more risk,” Duncan added.

Editing by Rob Wilson

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