TORONTO (Reuters) - Ontario’s Conservative government, presenting its first budget on Thursday, forecast a smaller deficit for the Canadian province in the current fiscal year and a return to balance by 2023-24 as it disclosed plans to reverse the growth in spending.
The Progressive Conservative Party, led by populist Doug Ford, won a majority of seats in last June’s provincial election, promising greater fiscal prudence than the Liberal Party, which had held power for 15 years.
The budget “sends a message to the world that we are serious about fiscal sustainability,” Finance Minister Vic Fedeli told a media briefing.
Canada’s most populous province and industrial powerhouse is projected to run a deficit of C$10.3 billion ($7.7 billion) in fiscal 2019-20, which began on April 1, including a C$1 billion reserve. That compares with an estimated deficit of C$11.7 billion in 2018-19.
The 2018-19 deficit was much more than the C$6.7 billion deficit projected by the Liberals in last year’s budget, due mostly to accounting adjustments and the cancellation of a cap- and-trade carbon tax by the Conservatives.
But it was smaller than the C$13.5 billion deficit projected in February in a third-quarter update, while the 2023-24 projected timeline to eliminate the deficit was one year ahead of the Liberals’ target.
That could soothe bond investors, who had been looking for evidence the Conservatives would tackle the province’s heavy debt load. At about C$368 billion, estimated in 2018-19, Ontario has one of the largest sub-sovereign debts in the world.
The province, which has run deficits every year since 2008-09, pays more to borrow than some other major Canadian provinces, such as Quebec and British Columbia, that are running balanced budgets.
“I think it is positive from a market perspective,” said Derek Burleton, deputy chief economist at Toronto-Dominion Bank. “The deficit implementation plan is reasonable, provided it can meet its targets. They are clearly ambitious on spending.”
The budget, which looked to expand the sale of alcohol and allow tailgating for sporting events, limited overall spending growth to an average annual rate of 1 percent between 2018-19 and 2023-24, much less than inflation.
It included lower spending on children’s and social services even as the Conservatives proposed a new dental program for low-income seniors and a new refundable tax credit for childcare costs that would provide up to C$6,000 per child under the age of 7, and a lesser amount for older children.
Like the federal government, Ontario has favored faster write-offs of capital investments rather than corporate tax cuts to bolster competitiveness with the United States.
But a slowdown in the once red-hot housing market and global economic headwinds could increase the fiscal challenges for the province, which accounts for about 40 percent of Canada’s economy and is a major exporter of cars and other manufactured products.
The budget projected growth to slow to 1.4 percent in 2019 from 2.2 percent in 2018, while net debt-to-GDP, a key measure of fiscal health, was estimated at 40.2 percent in 2018-19, the second highest among Canada’s 10 provinces. It is projected to rise to 40.7 percent in 2019-20, before dipping to 38.6 percent in 2023-24.
Reporting by Fergal Smith; Editing by Peter Cooney