Recession-ravaged Ontario is facing a fresh round of challenges with the Finance Minister's admission of a record deficit, an immediate downgrade of the province's debt and doubts about the McGuinty government's resolve to rein in spending.
DBRS, a leading Canadian credit rating agency, announced last night it is cutting Ontario's debt rating by one notch to double A (low), dealing a blow to a province whose rating has not been changed since 2001. The downgrade could increase its borrowing costs at the very time when the debt is mounting.
DBRS's move followed the warning by Premier Dalton McGuinty's government to Ontarians to brace themselves for a new era of restraint as a growing gap between revenue and expenses pushes the province deeper into the red. But it does not plan to begin cutting overall spending on provincial programs for another two years.
The government is launching a review of all spending to ensure that key priorities remain sustainable. While the results of the review will not be announced until the budget next March, Finance Minister Dwight Duncan said it won't be a slash-and-burn exercise reminiscent of the dramatic cuts to health care and education made by former Progressive Conservative premier Mike Harris.
"We have to look at restraint," Mr. Duncan told reporters yesterday after releasing his economic outlook showing the province will end this fiscal year with a deficit of $24.7-billion, the largest in the province's history.
"We want to get back to [balancing the books]in as short a time frame as we can without sacrificing those important public services."
After successive increases in the budget for health care, education and other social services during its six years in office, the McGuinty government will shift gears during the 2010-2011 fiscal year - the twilight of its second term - by making a small cut of 2.5 per cent to program spending.
The lack of a blueprint in the economic outlook for this initiative left the government under attack yesterday from both sides of the political spectrum.
New Democratic Leader Andrea Horwath accused the government of not protecting public services and of making life more difficult for struggling families.
Tory Leader Tim Hudak said any promise of spending restraint by the Liberals cannot be trusted.
The grim reality is that the government has limited options for digging Canada's largest province out of the worst recession in generations.
It needs to erase deficits on the horizon for years to come without compromising its priorities, including health care and education.
If the government cuts too deeply into spending on social programs, it risks being tarred with the same brush as the former Harris government.
And if the government cuts too deeply into the public service, it could be accused of introducing its own version of "Rae Days," named after former New Democratic premier Bob Rae who imposed mandatory unpaid work days for civil servants.
Mr. Duncan said he wants to look at the choices previous governments made and avoid making the same mistakes they did.
"This is not going to be a repeat of the late '90s, this is not going to be a repeat of the early '90s," he said.
Over the next while, the McGuinty government is spending its way out of the global recession.
The economic outlook forecasts that expenses will increase $4.8-billion from the projection in the budget, to $113.7-billion.
At the same time, revenue will decline by $5.8-billion.
Mr. Duncan said he is in good company with other governments that are also forecasting larger deficits for this year.
But DBRS said it could take the province more than a decade to reduce its debt burden, if it does not impose tax increases or cut spending.
By the numbers
A snapshot of Ontario's fiscal picture since 1993, when the New Democratic government rang in what was then a record deficit:
2010: $24.7-billion deficit (projection)
2009: $6.4-billion deficit
2008: $600-million surplus
2007: $2.3-billion surplus
2006: $298-million surplus
2005: $1.5-billion deficit
2004: $5.5-billion deficit
2003: $117-million surplus
2002: $375-million surplus
2001: $1.9-billion surplus
2000: $668-million surplus
1999: $2.0-billion deficit
1998: $4.0-billion deficit
1997: $6.9-billion deficit
1996: $8.8-billion deficit
1995: $10.1-billion deficit
1994: $11.2-billion deficit
1993: $12.4-billion deficit
All dates are for the fiscal year ending March 31.
Source: Ontario budget papers