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Dwight Duncan, provincial Minister of Finance, is scrummed outside a cabinet meeting at Queens Park on Oct. 16 2012.

Fred Lum/The Globe and Mail

Ontario will shave nearly $3-billion off its deficit with the money saved from eliminating the banking of teachers' sick days and a one-time unexpected windfall in corporate taxes.

But outgoing Finance Minister Dwight Duncan warned Tuesday that his successor will have to make tough choices – including raising more money to pay for transit upgrades and cutting $2.5-billion a year – if they want to return the province to the black.

"Frankly, what we've had to do to date is the low-hanging fruit," he said in a speech at a Toronto hotel.

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In the unusual winter fiscal update, delivered mere days before Liberals meet to choose Premier Dalton McGuinty's successor, Mr. Duncan pegged the deficit at $11.9-billion, down from $14.4-billion estimated in October and $14.8-billion last spring.

Earlier this month, the province imposed new contracts on public-school teachers that did away with a provision that allowed them to save up unused sick days and cash them out. The extra corporate tax revenue was largely the result of federal assessments turning up more money owed to the province than had previously been estimated.

The opposition Progressive Conservatives charged the Liberals had not gone far enough in slashing costs and pointed to several areas, including more extensive wage freezes for public employees. "They can play with the numbers all they want, but there is no magic marker that will erase the deficit," said Tory MPP Victor Fedeli.

The NDP, meanwhile, was looking at the other side of the ledger. "There is money out there, and it is finding that money from those who can afford to pay it," said finance critic Michael Prue. "They've done this in some of the Scandinavian countries, where the tax rate is higher, but the quality of life is better." The update is the last public speech by Mr. Duncan, who is leaving his post as Finance Minister when Mr. McGuinty departs.

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