Ontario deficit jumps to $24.7B amid massive revenue drop and increased expenses

TORONTO - The beating Ontario has suffered at the hands of the global recession has taken a staggering economic toll, with the province announcing Thursday it expects to be almost $25 billion in the red this fiscal year.

TORONTO - The beating Ontario has suffered at the hands of the global recession has taken a staggering economic toll, with the province announcing Thursday it expects to be almost $25 billion in the red this fiscal year.

That historic deficit figure is some 50 times larger than the half-billion-dollar shortfall laid out just 12 months ago when the McGuinty government threw in the towel on its balanced budget plan and dourly warned of dark clouds on the economic horizon.

The figures in Thursday's fall economic statement also represent a dramatic leap in deficit projections for 2009-10, from the $14.1-billion forecast in the March budget and the revised June prediction of $18.5 billion.

On Thursday, Finance Minister Dwight Duncan warned Ontario residents not to expect a reprieve any time soon.

"Although there are signs of stabilization in the economy, growth in government revenues and employment will lag behind growth in the economy," Duncan said.

The $24.7-billion deficit figure was blamed on a 48.1 per cent drop in corporate tax revenues - which amounted to a $5.8-billion loss in provincial revenue. At the same time, the government is increasing its expenditures by $4.8 billion to $113.7 billion amid further investments in skills training, the auto sector, and health care.

That will mean belt-tightening in other areas, said Duncan, although he's not ready to specify what cuts, if any, are planned.

"We want to have a long, hard look at how we deliver programs and services," Duncan said.

"We will call on our partners in the public and the broader public sector to help us sustain public services in the long term."

Last October, Duncan signalled an end to the days of balanced books when he said a $500-million shortfall was expected for fiscal 2008-09 - a figure that actually came in at $6.4 billion.

One year later, the government is no longer saying it can return to balanced budgets by 2015, and Duncan has announced what he calls a "rigorous strategic spending review" to save money, that will include all agencies, board and commissions.

Ontario is now projecting ongoing deficits of $21.1 billion in 2010-11 and $19.4 billion the following year. Gross domestic product is expected to decline 3.5 per cent this year, followed by modest gains of two per cent next year and three per cent in 2011.

"Our task in these times are clear: create jobs, help families and establish the conditions for future economic growth," Duncan said.

TD Bank's Don Drummond, the economist most cited by the government when it comes to economic policy, called the deficit figure "alarming."

"I think they'll now have to go into an extended period in which they don't let their program spending grow any faster than two per cent, and preferably keep it even below that growth rate," Drummond said.

"If they did that I think we'd be at least into 2015, and quite possibly later than, before they were able to balance their budget again."

Employment in the province has declined by 205,200 jobs, or three per cent, from a year ago, the statement said, with jobs in the auto sector down by 25.5 per cent over the first nine months of 2009 compared to the same period in 2008.

Details of any possible cuts won't come until the March budget. For now, Premier Dalton McGuinty isn't ruling anything in or out - even when asked Wednesday if he'd introduce austerity measures similar to those imposed by Bob Rae's government in the early '90s.

The so-called Social Contract included a wage freeze and mandatory unpaid days of leave for civil servants, which became known as "Rae Days."

However, Both McGuinty and Duncan have promised to ensure the key priorities of health care, education and job creation remain sustainable, and said they will go ahead with a plan for full-day kindergarten for four and five year olds, to be announced later this month.

"This is not going to be a repeat of the late '90s, it's not going to be a repeat of the early '90s," said Duncan.

"We're in a very different set of circumstances."

The government will also set aside $650 million in the fight against swine flu, and increase spending on skills training and welfare costs.

Ontario is also moving ahead with a plan to merge sales taxes that will provide tax cuts for corporations as well as a reduction for low-wage families - a move that will reduce tax revenue for the province by $2.3 billion over four years.

The Opposition charged that the government has taken a path of "unsustainable spending based on phoney expectations of the economy."

"Nobody should be surprised that Dalton McGuinty's house of cards has finally come tumbling down," said Progressive Conservative Leader Tim Hudak.

"This deficit is not the McGuinty government's problem. It is proof that the McGuinty government is the problem."

NDP Leader Andrea Horwath said she was worried about what the cuts will look like, raising the possibility of what the New Democrats have termed "Dalton Days."

"It's very clear in the documents that they provided that they are going to cut program expenditures," Horwath said.

"I get concerned about what that looks like, especially at a time when families are hurting so badly."

The global recession has led to a near 12 per cent contraction in world trade this year, and reduced Ontario's economy to the same size it was in 2005, the government said.

The Liberals originally predicted their books would be balanced when they tabled their 2008 budget, which included an $800-million contingency fund and boasted that "there was no danger" of falling into deficit.

The previous record for a shortfall in the province was held by the New Democrats, who tabled a $12.4-billion deficit in their 1992 budget.