March 24, 2011 / 7:29 PM / in 7 years

Ontario finds $1.5 billion in budget savings

TORONTO (Reuters) - Ontario has found C$1.5 billion in savings to help tame its budget deficit in coming years, but it won’t resort to major spending cuts for fear of stalling the recovery, the province’s finance minister said on Thursday.

The savings over three years include efficiencies that come from using newer jails, said Finance Minister Dwight Duncan, who is due to deliver the budget for Canada’s most populous province on Tuesday.

“Thoughtless, across-the-board cuts would stop the economic recovery in its tracks,” he said in a speech to a Toronto business audience.

“There will have to be more to build on what we’ve done already and it will also show people what our approach will be in the coming years as we move to balance,” Duncan later told reporters.

Duncan’s budget will be the last before a provincial election scheduled for October 6. Polls have shown the governing Liberals, led by Premier Dalton McGuinty, trailing the main opposition Progressive Conservatives, who have said they will eliminate government waste and bloat.

Duncan said the province will examine other ways to save, which could include selling some public assets, though he seemed to rule out the sale of major government-owned corporations such as the Liquor Control Board of Ontario, which has more than 600 retail outlets across the province.

Ontario gave its last fiscal update in November, when it said it would aim to eliminate its C$18.7 billion deficit by 2017-18.

“There should rightly be a focus on ensuring the economy gets back to a solid footing before exerting too much fiscal restraint, and I think that’s a message we’ve heard from the minister pretty clearly,” Warren Lovely, a government strategist at Canadian Imperial Bank of Commerce, told Reuters.

“But it’s also clear that deficit reduction may not be the top priority for Ontarians and as a result I wouldn’t anticipate a significantly more aggressive stance on deficit reduction,” he added, noting the political element to the budget.

Two years ago, Lovely said, budgets were about stimulating the economy, last year they transitioned from stimulus to restraint, and this year it will be about keeping on track to fiscal restoration, particularly after Ontario’s credit ratings were bruised.

Duncan recently said there would be no new taxes or tax increases in the budget. He said on Thursday there would be no tax cuts, but he did not rule out additional tax credits.

A report by TD Economics warned that that the province should focus on cutting its deficit rather than reducing taxes. It said the future is rife with risks and the province’s sizable deficit and debtload would give it less room to maneuver if there were a crisis.

CIBC’s Lovely noted that Ontario, Canada’s manufacturing heartland, will have more leeway in the near term from a stronger U.S. economy.

But the longer term hurdles remain a strong Canadian dollar, high energy prices and the prospect of a slower U.S. recovery -- which will need to be balanced against maintaining services.

Health care and education for example, Ontario’s biggest priorities, make up 70 percent of the province’s spending.

Additional writing by Jeffrey Hodgson; editing by Rob Wilson

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