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Canada Wynne relying on low-interest rates and cost savings to eliminate the deficit

Ontario Finance Minister Charles Sousa and Premier Kathleen Wynne before tabling the provincial budget at Queen's Park in Toronto on Thursday, April 23, 2015.

Nathan Denette/THE CANADIAN PRESS

Premier Kathleen Wynne's road to a balanced budget is paved with an abundance of hope. She is relying heavily on low interest rates and difficult initiatives such as holding the line on public service wage increases to wipe out an $8.5-billion deficit in two years.

The 372-page budget released on Thursday does not contain dramatic cuts to programs, ministries or the public service, leaving opposition critics and others perplexed as to how the government will keep its promise.

"How you are going to do $8.5-billion in two years is not clear in this budget," says Mike Moffatt, an economist at the Ivey Business School at Western University. He said he was surprised the government was not more aggressive in cutting, thinking it might want to get the bad news over with now, because the next election is not due until October, 2018.

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The small improvements in the government's projections over last year, he said, are "all interest-rate related."

"Basically, what happened is the provincial government made a bunch of interest-rate projections in Budget 2014, and then this year said, 'Well, we kind of overestimated things a little and we're going to rachet those projections down' – and in doing so saved themselves $600- to $800-million per year," Mr. Moffatt said.

Still, Progressive Conservative interim leader Jim Wilson noted the amount the government is spending in interest on the debt is increasing at an annual rate of 5.7 per cent – "the highest growth area in this budget, higher than education, higher than health and even more, there is no plan to deal with the debt. It's just going up and up," he said.

PC finance critic Vic Fedeli called the deficit numbers "fluffed up" and "fake."

The Liberal government's plan identifies some savings. For example, it estimates it will save $3-billion from the completion of the PanAm Games; lower pension expenses, including the Teachers' Pension Plan; and the end of the Ontario Clean Energy Benefit, a $1.1-billion program that gave rebates to electricity consumers.

In addition, Premier Wynne and her team recently launched an exercise called Program Review, Renewal and Transformation (PRRT), which is to identify annual savings of $500-million.

One finance official described this program as a "journey" rather than slashing and burning. The Wynne government is being careful to show taxpayers it is not simply hacking away at programs.

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In fact, Finance Minister Charles Sousa tried to avoid uttering the word "cut" in a news conference on Thursday. At one point, he even corrected himself when asked to explain how his government would balance the budget: "Ontario has now been able to cut its spending – I should say to improve its savings targets, throughout, and that has enabled us to find greater success."

So far, officials have found $250-million of savings from the start of the program review. It identified $150-million by restricting some travel, being more careful in ordering office supplies and reducing the government's "office footprint."

As of March, it has reduced the footprint by more than 675,000 rental square feet, and is promising by 2022 to have reduced it by 1.3 million square feet.

It also hopes to find more savings through managing public service employees' wages and benefits – there are 787,000 unionized employees. More than half of government spending goes to salaries and benefits, according to the budget document. It says, too, that "any modest wage increases must be offset by other measures to create a net zero agreement. …"

So far, the government has been successful in keeping to this. It says it saved $45-million through changes to benefits and entitlements in its agreement with the Association of Management, Administrative and Professional Crown Employees of Ontario, although the group received "modest" salary increases.

Mr. Moffatt, however, says the approach will be tough to sustain. Even now, some high school teachers are on strike and others are threatening to walk out.

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"The wage pressures build up in the public sector. It's like holding down a pressure cooker that eventually spills over," he says. "The [negotiations are] going to be an uphill battle, particularly if the unions believe the government may be able to get that money elsewhere, from say, an improved interest-rate situation. That might change the bargaining dynamics a bit."

Mr.Wilson, meanwhile, predicted the government's position with its employees will lead to a "great deal of labour unrest. I think the interesting question is going to be in holding the line, how many people are going to lose their jobs," he said.

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