Ontario Liberals to reveal slimmer deficit and bid for NDP support

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Ontario Finance Minister Charles Sousa is set to announce that the province's deficit for 2012-13 was less than $10-billion – a dramatic reduction from the $14.8-billion projected in last year's budget.

The governing Liberals have frequently been accused by their opponents of setting overly pessimistic targets that they can subsequently beat, but government insiders insist they themselves were surprised by the relatively good news about Ontario's troubled books. They attribute the steep drop in the deficit to higher-than-expected revenues, and to new contracts imposed on teachers and negotiated with other public-sector workers.

Liberals have been quick recently to caution that the deficit could increase in the next couple of years because some savings, such as taking teachers' banked sick days off the books, were one-offs. Mr. Sousa will likely reiterate that point in a Monday speech to the Economic Club of Canada, while hinting at new cost-cutting policies.

But according to sources in and around the government, much of the focus of his first budget will be on making it difficult for the third-party New Democrats to justify helping the Progressive Conservatives bring down the government this spring.

In advance of the budget's tabling, expected to be next week, the Liberals will begin rolling out a series of policies aimed at showing they've listened to NDP Leader Andrea Horwath's demands.

Sources say that despite previously questioning the feasibility of lowering auto insurance premiums by 15 per cent, as Ms. Horwath has requested, the government will now embrace that target. However, Mr. Sousa may move more gradually on it than the New Democrats might prefer, pledging to implement a recent task force's recommendations to cut down on insurance fraud, and then ensure that the savings are passed down to consumers.

For the New Democrats, it could be more of a mixed bag when it comes to business taxes. Mr. Sousa has already granted an NDP request to try to improve corporate tax compliance, and the budget will likely include other attempts to try to raise more revenue. But the Liberals will not do as the NDP has asked by cancelling the phase-in of input tax credits for larger companies, justifying that decision in part based on the federal government's unwillingness to reverse an important component of the province's introduction of a harmonized sales tax.

The budget will also feature several other policies that should have left-of-centre appeal, including implementing social-assistance reforms recommended by a recent government commission co-chaired by former NDP minister Frances Lankin. But there will also be some effort to prove rookie Premier Kathleen Wynne's commitment to fiscal responsibility, including policies ostensibly aimed more at the Progressive Conservatives.

PC Leader Tim Hudak has already said his party will vote against the budget, and The Canadian Press reported on Sunday evening that his party will play off the controversy around the costly cancellation of power-plant projects by introducing a no-confidence motion before the fiscal plan is even tabled. The Tories have also questioned the Liberals' commitment to tackling a deficit that remains by far the biggest of any province, and accused the government of not doing enough to grow a provincial economy that has struggled to recover from the 2008 economic crash.

Liberals concede that their promise of getting back to balanced budgets by 2017-18 will meet its toughest tests in the next couple of years, when the savings from wage deals and other primarily short-term measures will need to give way to more structural reforms. But with Ms. Wynne and Mr. Sousa having been in their respective positions for less than three months, and with the government stepping carefully around the NDP, much of the heavy lifting on that front will likely come in future budgets.

For now, the Liberals will be counting on their success in reducing the deficit from $13-billion in 2011-12 to appease credit raters and a skeptical financial sector, while also muting the Tories' attacks and providing a little extra leeway to appease the NDP.

Mr. Sousa's office declined Sunday to comment on the deficit figure, or on which policies will be included in the budget.