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adam radwanski

The temptation is to breathe a sigh of relief.

With a kinder, gentler premier in office, the conflict that characterized Dalton McGuinty's final months in power is starting to seem like a distant memory. Amid Kathleen Wynne's promises to rebuild the collective bargaining process, teachers are ending their protests and restoring extracurriculars. Other unions have gone relatively quiet. Even the horse racing industry has stopped screaming about the death of rural communities, now that more funding is coming its way.

When Finance Minister Charles Sousa (who also happens to be much kinder and gentler than his predecessor) delivers his budget this spring, there may be even more inclination to believe the worst of Ontario's battle to get its finances in order is over. Sources say the provincial deficit for 2012-13 will likely wind up under $11-billion, roughly half what it was at its peak three years earlier. If so, it will continue a pattern of red ink disappearing faster than projected.

But if all this seems a little too good to be true, after the doom and gloom about Ontario's fiscal future, that's because it is. Much as it might not have felt like it, what happened to date was the easy part.

From the outset, government insiders acknowledged that labour battles with teachers and other workers were mostly a

stopgap. Freezing the wage envelope for a couple of years would help limit the amount of debt accrued, keep credit-rating agencies happy – and buy time while the government figured out the structural changes needed to get back to balance by its 2017-18 target.

In fairness, it's not as though nothing has happened on the structural front. The governing Liberals have taken some significant steps toward long-term health-care sustainability, including reducing drug costs and changing some of the ways doctors practise. While there's more to be done on public-sector pension plans, tinkering has at least slightly lowered the risk posed by funding shortfalls. By ending the banking of sick days, the teachers' contracts got some lasting savings.

It's telling, though, that the budget's deficit projections for the next year or two will be higher than whatever number the past one comes in at. Those familiar with the province's books tend to circle 2015 as the point at which all the low-hanging fruit has been picked – and more "transformational" changes are required.

Other than relying on an improved internal auditing system to point the way to efficiencies – which shouldn't be laughed off, given the amount of duplication within the public sector – the government has thus far offered little indication of what exactly it plans to do at that point. And much of that time it bought with the wage restraint has been used up with a Liberal leadership campaign and a new premier taking the lay of the land.

It's possible that measures toward which Ms. Wynne might be more inclined than Mr. McGuinty was – creating more revenue streams, income-testing for more services – will help. And it may be that her more collaborative approach to governing will get the public sector more engaged in finding solutions.

But there are also murmurs about the current peacemaking adding to the challenges in a couple of years. The rapprochement with teachers, for instance, owes largely to Ms. Wynne's commitment to get down to work on the next round of contracts. The teachers are undoubtedly hoping it also involves more money, to make up for what they gave up this time. And if that were the case, other public-sector unions would take notice and demand the same.

That pattern is precisely what Don Drummond, the economist chosen by the government to help it navigate back to balance, warned about in his report last year. Wage freezes, he noted, do little to address long-term financial challenges, because future deals tend to make up for lost time.

Perhaps Mr. Drummond was wrong; what the Liberals have done so far might have been better than nothing. But those who have looked at what still lies ahead are less inclined to sigh in relief than to take a deep breath.

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