TORONTO – Ontario won’t be following Ottawa in raising its deficit projections because of worsening economic conditions and an aid package to General Motors and Chrysler, Premier Dalton McGuinty said Wednesday.
Federal Finance Minister Jim Flaherty shocked many Tuesday by announcing Canada’s deficit will soar to more than $50 billion this fiscal year – a $16-billion increase from the amount forecast that prompted the federal Liberals to demand his dismissal Wednesday.
One of the factors cited for the change was billions of dollars in aid to the struggling auto sector.
McGuinty said Ontario, which is on the hook for a third of the aid, has no reason to believe the province will have to update its own projections.
“I have no reason to believe at this point in time, based on the updates I’ve received from the minister of finance, that we aren’t able to manage this,” McGuinty said.
“There was an allocation in the contingency fund. We put our budget out a little bit later than they did, so I think we have a better sense, in fairness to the feds, a better understanding of the landscape that was to come.”
The Ontario budget promised $3.4 billion in contingency and an additional $1.2 billion in reserve.
The government refused to specify how much of that money was meant for the auto loans, and Ontario Finance Minister Dwight Duncan again declined to provide specifics after the budget passed Wednesday in the legislature.
“We have built considerable contingency into our budget and have a lot of flexibility to move in-year to address line-by-line differentials,” Duncan said.
“It’s an ongoing process but, overall, I believe we have adequate reserves and contingencies.”
A General Motors Corp. bankruptcy filing appeared inevitable Wednesday after its bondholders forced it to withdraw a plan to swap bond debt for company stock.
GM has until Monday to complete a government-ordered restructuring that includes debt reduction, labour cost cuts and plant closures.
Flaherty hasn’t said how much Ottawa will contribute to rescue struggling General Motors (NYSE:GM) and Chrysler, but estimates put the figure in the $10-billion range.
McGuinty said earlier this month that a GM aid package will likely involve bigger-than-expected sacrifices from taxpayers, unions and the company if the recent concessions required to bail out Chrysler are any indication.
The federal and provincial governments had to provide more money than anticipated in a $3.8-billion deal in April to help Chrysler survive – an amount almost as high as the $4 billion initially promised to cover both automakers.
McGuinty reiterated Wednesday that the aid remains on the table, whether the restructuring happens under bankruptcy protection or not.
“Everything’s in flux right now, and it appears everything will remain in flux until we get down to the deadline on Monday,” McGuinty said.
Chrysler filed for bankruptcy protection April 30 after the government ended talks with a group of holdout debtholders.
