CTV News Ottawa

Updated: Thu Oct. 22 2009 6:03:13 PM

ctvtoronto.ca

Ontario's contracting economy and plunging corporate tax revenues, along with recession-driven demand for government services, has left Ontario with a $24.7 billion deficit, says Finance Minister Dwight Duncan.

When he tabled his 2009-10 budget on March 26, Duncan predicted a $14.1-billion deficit. Thursday's figure, delivered in the legislative chamber at Queen's Park, is more than 82 per cent higher than the original budget estimate.

A late June update had estimated the deficit to be $18.5 billion. However, the statement's fine print notes there is one-time spending in this fiscal year of $13.1 billion.

Since the recession began in the fall of 2008, Duncan said Ontario's economy has shrunk to the size it was in 2005. He estimated the GDP will shrink by 3.5 per cent in 2009, followed by  two per cent growth in 2010 and three per cent in 2011.

The recession has hammered revenues, he said. In 2008-09, corporate tax revenues fell by about $6 billion, or about 48 per cent.

"Ontario, along with many other jurisdictions around the world, is running a deficit in order to sustain its core priorities: job creation, health care, education and the establishment of a stronger economy after the recession," Duncan said.

He noted that virtually every provincial government in Canada is running a deficit, and the federal Conservative government is on track for a $56-billion deficit.

"Although there are signs of stabilization in the economy, growth in government revenues and employment will lag behind growth in the economy," Duncan said, noting that a high Canadian dollar poses a threat.

Overall employment is down three per cent, or 205,000 jobs, from a year ago. There were 25 per cent fewer auto jobs in the first nine months of 2009 compared to the same period in 2008. Duncan said there have been modest overall job gains in each of the past four months, but added: "Unemployment remains too high."

Duncan noted the government is spending $32.5 billion on infrastructure.

In the spring budget, Duncan said balanced budgets would return by the 2015-16 fiscal year. He didn't repeat that promise on Thursday. He projected deficits of $21.1 billion in 2010-11 and $19.4 billion the following year.

Government expenditures are running $4.8 billion above its March estimate. The reasons are more spending on skills training, help for the auto sector and health care.

Duncan said there will be belt-tightening, but he didn't give details other than to say the government will become a leaner, more efficient deliverer of public services.

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

"It is incumbent upon all of us to participate in this vital conversation -- to help us build consensus on how to manage through this challenge."

However, Duncan told reporters at a news conference that any cutbacks won't be repeats of those made under the NDP government of the early 1990s or the Progressive Conservative government of the late 1990s.

The government's priorities will be health care, education and job creation. It plans to push ahead on full-day kindergarten for four- and five-year-old children.

It has budgeted $650 million to fight swine flu.

Duncan also defended the government's plan to harmonize the eight per cent Retail Sales Tax with the five per cent federal GST on July 1, 2010. There will be accompanying income tax cuts.

"The single most important thing we can do to make Ontario's economy more competitive is to make our tax system more competitive," Duncan said.

Opposition reaction

NDP Leader Andrea Horwath said her first step would be to stop the tax harmonization, saying it will "whack" ordinary people when they can least afford it.

Cuts to government services are already occurring in the areas of employment programs and health services in rural and northern areas, she said, adding, "We're seeing cuts to the Children's Aid Societies -- $23 million."

Horwath also took aim at government spending on consultants. She has previously noted it totalled $389 million in 2007-08, but that figure would represent about 0.3 per cent of overall government spending in this year's budget.

Progressive Conservative Leader Tim Hudak used the huge deficit as a reason to pitch the message that his party should replace the tired McGuinty government.

He dodged questions of what his party would do itself to cut spending, but also pointed to the spending on consultants.

"I think public sector bargaining agreements should reflect the private sector's ability to pay," he said.

With a report from CTV Toronto's Paul Bliss and files from The Canadian Press