March 24, 2005
Deficit tops $6 billion
Economists say Ontario government faces challenges in balancing budget
TORONTO
With a deficit topping $6 billion this year, the Ontario Liberals have difficult decisions ahead if they’re going to balance the province’s budget by the end of their mandate as promised.
“They have some tough choices to make,’’ said Peter Dungan, an economics expert at the University of Toronto’s Rotman School of Management.
The Liberals can go the route of many governments before them and choose to live with a deficit, they could try to cut spending to already underfunded programs, or they could opt to raise taxes, he said.
Each option comes at the risk of angering part of the electorate.
“If we’re still in a deficit situation of $1 or $2 billion at the end of the term, will that be sufficient reason for the electorate to evict the Liberals from Queen’s Park?’’ asked Nelson Wiseman, a political science professor at the University of Toronto.
“That awaits to be seen.’’
The Liberals won’t yet say whether they’ll keep to their balanced-budget promise.
Finance Minister Greg Sorbara “will update that situation at budget time,’’ his spokeswoman Diane Flanagan said Monday.
But analysts weren’t optimistic that there would be good news when Sorbara presents the budget, expected in April or May.
“Overall, it’s going to be tough to get towards balance,’’ said Craig Wright, chief economist with Royal Bank.
“It’s going to be tough unless you get a surprisingly strong bounce in growth, which we’re not seeing.’’
In addition to spending pressures from social programs, health and education, the government will have to deal with the effect a sluggish economy and a high Canadian dollar will have on its finances, he said.
Sorbara told a news conference last week that the government plans to provide for the right controls and the elimination of the deficit “over the course of a number of years.’’
In last year’s budget, the government pledged to eliminate the deficit by the end of its mandate and blamed a $5.6-billion deficit on the previous Conservative government.
Under the plan, the deficit was to fall to $2.1 billion, then decline to $1.5 billion in 2006-07 and be eliminated by 2007-2008.
But last week, Finance Minister Greg Sorbara projected a $6 billion deficit for 2004-2005, up from an earlier estimate of $2.2 billion.
That’s due to an accounting change in the way the government will record a $3.9-billion revenue gain from changes in long-term electricity pricing, he said.
That is a non-cash item on the books and has no effect on the government’s deficit reduction plan, said Flanagan.
“Our ability to bring down the deficit and eventually balance (the budget) is all about managing responsibly and about maintaining very tight controls on spending in years two, three and four,’’ he said.
Flanagan said there is no plan to deviate from last May’s budget papers.
The last budget held spending increases to two per cent a year, with 15 government ministries seeing no rise — or even cuts — to their budgets.
“The minister of finance has been very clear, especially since early fall, that we continue to face a number of difficult decisions, that managing responsibly and tight controls on spending is going to be part of the reality of Ontario going forward,’’ Flanagan said.
Late last year Sorbara also said the government had reached half its overall goal in operational savings, cutting $350 million.
Dungan said the government may have to reassess its approach to the deficit in order to come up with a realistic plan to gradually bring it down without a huge cut in spending or big jump in revenues.
“If giving a convincing plan means that you have to push the deadline forward a year or two, then I would say that’s probably better to do at this point than try and put forward an unconvincing plan that says: ‘Yeah, we’ll get there somehow,’” Dungan said.
The Canadian Press
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