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Abandoning the big-spending approach that characterized his first two terms of government, Ontario Premier Dalton McGuinty has taken a sharp rightward turn with the toughest budget his province has seen in a generation.

The fiscal plan, delivered on Tuesday by Finance Minister Dwight Duncan, is a last-ditch effort to show serious progress toward returning to budgetary balance, as the governing Liberals try to appease nervous markets and credit-rating agencies amid concerns about the long-term economic prospects of the country's largest province.

The budget includes a range of short-term cost-cutting measures, such as a freeze to base funding of hospitals and the cancellation of billions of dollars worth of infrastructure projects, supplemented by revenue measures that include the cancellation of planned corporate tax cuts.

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But it mostly pins its hopes for eliminating a $15-billion deficit on the government's ability to push through an austerity agenda over the next several years – most notably through a protracted battle with the Liberals' erstwhile allies in organized labour, as contracts expire in the months and years ahead.

Union leaders reacted with anger to the government's vow to legislate wage freezes for doctors, teachers and other members of the broader public sector if they cannot be achieved through collective bargaining.

Warren (Smokey) Thomas, president of the Ontario Public Service Employees Union, said Mr. Duncan should "keep his bloody nose" out of labour negotiations.

"If he wants a fight, we'll give him a fight the likes of which he's never seen and he won't forget for a long, long time because unions are good at fighting," Mr. Thomas said. "But we're also good at finding creative solutions."

No less contentious are Mr. Duncan's warnings on public-sector pensions, with the Finance Minister indicating that funds facing deficits will be forced to cut benefits rather than count on government assistance.

Many of the budget's other measures could similarly be described as long-term projects, and will require a sustained willingness to stand up to more than just organized labour. Savings in postsecondary education are contingent on a new plan that, while only due this summer, has already been causing friction among university administrators. Closing underutilized schools, beginning in 2013-14, is sure to cause protests in affected communities. And means-testing seniors for prescription drug coverage is an idea that has been bandied about for many years, but rejected by successive governments because of the difficulty in implementing it.

Perhaps the budget's most tenuous promise, but also one of the most important to its projections, is a flattening of health spending increases at 2.1 per cent annually – below the previous target of 3.0 per cent, which itself was considered highly ambitious.

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In the short term, the government will limit health costs with a freeze on hospitals' global budgets, and expected concessions in its current contract negotiations with doctors. But while re-emphasizing the need for increased integration and "evidence-based" medicine, the budget is vague about how it will continue to contain spending while addressing the needs of an aging population.

Despite his new focus on austerity, Mr. McGuinty has refused to backtrack on some of his signature promises – rejecting the advice of Don Drummond, the economist he hired to study the province's books, to scrap full-day kindergarten and smaller class sizes.

But while picking and choosing from Mr. Drummond's high-profile report, the government has adopted his recommendation that increases to overall program spending be capped at 1 per cent annually. And it has embraced his assessment that it won't be able to achieve sustainability just by cutting quickly and deeply.

Mr. McGuinty has shifted significantly from his usual branding as the "education premier" – particularly with the aim he's taken at postsecondary funding. And campaign commitments that he was making as recently as last fall – including expansions to several hospitals – have been scrapped as he's abruptly changed focus.

Still, questions are already being raised about how long the Liberals will be able to maintain their will and continue aggressively pushing through restraint measures, particularly given the dynamics of the province's minority legislature.

Despite much of the budget looking as though it could have been written by his party, Progressive Conservative Leader Tim Hudak immediately signalled that he and his caucus will vote against it – giving Andrea Horwath's third-party New Democrats the option to help bring down the government just months after it was elected.

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While most provincial insiders still expect one of the two opposition parties to blink, allowing the budget to pass, opposition co-operation will be even more difficult for Mr. McGuinty to achieve as is mandate wears on. And as the prospect of an election grows, he will likely face pressure from some of his fellow Liberals to avoid further alienating of supporters in the labour movement and elsewhere.

Ambiguity over the government's long-term commitments appears to have left some lingering concerns among its target audience. While encouraged by the broad targets, credit rating agencies appear to be adopting a wait-and-see attitude.

"It seems a lot of the savings that they're targeting are coming at the back end, which, in a minority-government situation, you may not even get to that point," said Mario Angastiniotis, a Toronto-based credit analyst at Standard & Poor's. "I don't see a lot of details on how they're going to achieve this. So we need to dig in and see where the meat is at."

With files from Karen Howlett and Tavia Grant

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