Ontario, Alberta find difficulty navigating post-recession economy

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Ontario government revenue is down more than half a billion dollars, and the economy is projected to grow more slowly than previously thought.

That one-two punch of fiscal bad news – delivered by Finance Minister Charles Sousa in his fall economic update Monday afternoon – means the province will either have to redouble its efforts to control spending or hike taxes as it struggles to erase a $12.5-billion deficit in three years.

"Our government is working to meet our fiscal targets," Mr. Sousa said, insisting he will still erase the red ink by 2017-18. "Should revenues fall further, the government must consider other tools to balance the budget."

The gloomy outlook comes the same day Alberta Premier Jim Prentice pledged to keep the books balanced despite fluctuating revenue figures caused by falling oil prices. Taken together, the parallel financial struggles facing the nation's two economic powerhouses show the difficulty of maintaining fiscal discipline while navigating the tough post-recession economy.

In Ontario's case, corporate, income and sales taxes are expected to pull in $508-million less than anticipated in last spring's budget for the 2014-15 fiscal year. This will be partly offset by a drop in interest expenses for government debt of $208-million, leaving Mr. Sousa to pull $300-million out of reserves to keep the budget on track.

Economic growth, meanwhile, is now forecast to hit only 1.9 per cent this year, rising to 2.4 per cent annually from 2015 to 2017. That's a substantial increase from last year's 1.3 per cent, but it is less rosy than the 2.1 per cent projected for this year in the budget, rising to 2.6 per cent by 2017.

The province has repeatedly overestimated revenue in the past two years. Mr. Sousa defended the government's methods, arguing they were not overly bullish.

"We have independent economists around Canada, all of whom meet with me," he told reporters.

"They all estimated that [revenue and economic growth] would have been stronger than it is."

Mr. Sousa's fiscal plan is a difficult balancing act.

On one hand, it funnels more money into infrastructure – particularly public transit lines and roads – while slashing spending on nearly everything else to kill the deficit.

The economic update also appeared to leave the door open to raising taxes, saying Mr. Sousa would look at unspecified "other tools" to balance the books if low revenue numbers persist.

Alberta is grappling with similar fiscal problems – albeit for different reasons. Its projected $1.1-billion surplus has been threatened by the fluctuating price of oil.

Despite this, Mr. Prentice's government committed Monday to maintaining balanced budgets, in the first Throne Speech of his premiership. He also signalled the province will press ahead with mass infrastructure building, even as he looks to control costs.

Alberta plans to add 78,000 new school spaces to deal with a rapidly growing population, and committed new funds to construct flood mitigation reservoirs and diversion systems. The address also ruled out the introduction of a provincial sales tax, even as Mr. Prentice has hinted he will look for new revenue sources.

"A budget tied to volatile energy prices imperils our fiscal resilience over the long term," read Lieutenant-Governor Don Ethell in the speech. "At the same time, Alberta's tremendous population and economic growth have shown us the perils of failing to maintain what we have, and the importance of investing in what we need."

Mr. Prentice has also committed to table "straightforward" budgets after former premier Alison Redford was criticized for hiving off capital expenses into a different sets of books.