TORONTO – Cash-strapped Ontario is putting off business tax cuts,
taking aim at pensions, and vowing to legislate pay freezes for public
sector workers if need be in an austerity budget designed to lift
Canada’s former economic powerhouse out of the red ink in five years.

The
minority Liberals are walking a political and fiscal tightrope with a
massive 304-page budget plan, which must appease credit agencies, the
wider business community and at least one of the opposition parties to
avoid triggering an election.

“This is a strong plan that gets us
back to balance in (five years) and, I’m quite confident, meets the
needs of markets and meets the needs of all Ontarians,” Finance Minister
Dwight Duncan said Tuesday.

Saddled with a $15.3-billion deficit
this year, the Liberals plan to make cuts and reduce spending to save
$17.7 billion over three years while increasing revenue by $4.4 billion -
without hiking taxes.

After two years of tough talk, the
government is brandishing a big stick, warning it will use legislation
to force a pay freeze on teachers, doctors and civil servants if all
other attempts at the bargaining table fail. Public sector workers will
also have to pay more into their pensions, pool their plans or reduce
benefits.

That sets the stage for possible strikes or labour
disruptions, but the Liberals say they’re also ready to legislate them
back to work. Executives at hospitals, universities, colleges, school
boards and agencies will also see their salaries frozen for another two
years, but the government won’t touch the bonuses that push up their
pay.

Wages and pensions must be addressed because it’s the province’s “single greatest cost,” Duncan said.

The
status quo is no longer an option, as the province pays about $10
billion a year – more than it spends on colleges and universities – to
make interest payments on its $237.6-billion debt, which is expected to
reach $260 billion next year. That will bring Ontario’s net debt-to-GDP
ratio to 39.5 per cent from 37.2 per cent this year, second only to
Quebec.

Those interest payments could cost hundreds of millions
more if the province is hit with a credit downgrade or interest rates go
up, prospects Duncan admits keep him up at night.

To tame its
debt monster, the Liberals plan to cap average annual growth in program
spending to one per cent a year. But much of the $127-billion spending
blueprint, which includes $1 billion in reserves, rests on freezing
wages and squeezing more value out of the broader public sector, saving
nearly $13 billion over three years.

But some economists remain skeptical about the three-year plan.

This
budget was supposed to be the “Big One,” but it didn’t offer a complete
answer about how Ontario would re-balance the books, RBC economists
wrote in a note to clients.

The measures needed to completely
close the deficit gap “are still largely unknown.” Serious challenges
remain, including the “political reality of managing a minority
government,” BMO economists wrote in their note.

“Last year, we
said the province was on a ‘A Slow Boat to Balance.’ Today, it’s clear
that they’re still on the same slow boat, but they now have charts and a
compass.”

Union leaders called the pay freeze plan a “slap
across the face” to public-sector workers who are paying the price for a
global recession triggered by big business.

“There is no respect
in this budget,” said Sid Ryan, president of the Ontario Federation of
Labour. “This is just an assault – an outright assault – playing pure
politics with public sector workers.”

The Liberals also risk
alienating the very supporters who’ve kept them in office for eight
years if they end up going back to the polls, he added.

“It’s
clear what they’re trying to do is play on public sentiment,” said Fred
Hahn, Ontario president of the Canadian Union of Public Employees.

“It’s
like this budget is about the Liberals giving up hope for the future,
instead trading on some kind of mean-spirited sense.”

Duncan said
the government won’t impose an immediate wage freeze – as the
Opposition Conservatives have demanded – because it would just be
overturned in court.

It wasn’t enough for the Opposition Tories,
who said they won’t support a budget that doesn’t grasp the severity of
Ontario’s dire fiscal situation.

“Unsustainable deficits and debt
- to which this province remains hostage with today’s budget -
undermine business confidence,” said Tory Leader Tim Hudak. “And that,
in turn, undermines job creation.”

The Liberals’ best hope for
survival, the New Democrats, are balking at the threat of a legislated
wage freeze. But they will see one of their chief demands met – freezing
corporate taxes at 11.5 per cent – until the budget is balanced.

NDP
Leader Andrea Horwath wouldn’t say whether her party will vote for the
budget, leaving the Liberals’ fate in limbo just six months after being
re-elected.

“For people who are worried about jobs, about wages
that aren’t keeping up with the cost of living, about a health system
that leaves them waiting longer and longer for services that they need,
this budget has very little to offer,” she said.

While Ontario
has recovered from the recession, its economy is only projected to grow
1.7 per cent in 2012, 2.2 per cent in 2013 and 2.4 per cent in 2014.

Faced
with a sluggish economy that can no longer fuel government spending and
an aging population that’s putting more pressure on its services,
Duncan is forging ahead with dozens of new measures designed to rein in
expenses.

The cuts, set out in a 50-page document that civil servants have dubbed the “Book of Doom,” also include:

-
reining in increases in health-care spending to 2.1 per cent annually,
further than the 2.5 per cent recommended by economist Don Drummond.

-
shaving $30 million from the public drug plan by having seniors with
incomes over $100,000 and couples with a combined income of $160,000 pay
higher deductibles, which would affect about 75,000 people.

- amalgamating school boards in sparsely populated areas and consolidating “underutilized” schools.

-
effectively ending the high school “victory lap” by capping credits at
34 – four more than needed to graduate – to save $36 million over three
years.

- saving $470 million over three years by capping the 10
per cent rebate on hydro bills to 3,000 kilowatt hours per month, which
targets businesses rather than households.

- delaying high-occupancy road lane projects designed to unclog traffic jams near densely-populated cities.

- closing seven tourism centres.

-
closing two more jails in Brantford and Chatham – on top of four others
- and reducing overtime for jail guards and Ontario Provincial Police.

That’s
on top of a slew of other measures announced in recent weeks, including
freezing welfare and delaying increases to the Ontario Child Benefit,
increasing driver licence fees, expanding gambling and selling off
government buildings and the Ontario Northland rail service.

Duncan
claims the budget will create and protect about 170,000 jobs, but
critics warned it will spark major cuts in the province’s schools and
hospitals.

“Cuts to vital public services built with our tax
dollars are being used to pay for a deficit that working people did not
create,” Sam Hammond, president of the Elementary Teachers’ Federation
of Ontario, said in a release.

The Liberals are also rejecting
nine cost-saving ideas – and putting off dozens more – from economist
Don Drummond, who provided a blueprint for austerity that paved the way
for Duncan’s kinder, gentler approach to deficit slaying.

Drummond
warned that unless all of his 362 recommendations are implemented,
Ontario will wind up with a $30-billion deficit by 2017-18 and increase
its debt to a staggering $411 billion. And if the government rejects one
recommendation, it must find another place to cut or increase revenue.

Against
Drummond’s wishes, the Liberals are keeping costly programs like
full-day kindergarten, smaller class sizes in early grades and a new 30
per cent tuition rebate for some college and university students
promised during last fall’s election.

At the same time, they’ll
trim in other areas such as discontinuing some grants and bursaries to
post-secondary students and cutting capital funding for college and
university projects.

But Duncan said the budget is consistent
with Drummond’s targets for curbing growth in spending and uses his
assumptions on revenues.