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Prime Minister Stephen Harper speaks in Truro, N.S. (PAUL DARROW)
Prime Minister Stephen Harper speaks in Truro, N.S. (PAUL DARROW)

Ottawa warns provinces will be cutting back, too Add to ...

Stephen Harper is warning Canadians to prepare for belt-tightening at two levels of government, noting the provinces are in the same financial straits as Ottawa and will likewise be forced to cut back spending.

"I suspect the provinces will have to make some of the same difficult decisions we are making, and to control their spending in the years in the future," the Prime Minister told reporters in Truro.

"And I think we'll all be in the same boat in that regard. I think that's just the reality."

The Harper government, projected to head $170-billion deeper into deficit over five years, is launching a review in the March 4 budget to identify where it can chop spending to slay the deficit within five years.

Restraint will begin immediately after the government's commitment to stimulus spending ends on March 31, 2011: cuts that could affect everything from the size of the public service to business grants to foreign aid.

The squeeze at both levels of government will come to a head in 2013 when Ottawa must renegotiate a new health transfer accord with the provinces, which face soaring medical care costs.

Toronto-Dominion Bank chief economist Don Drummond said Ottawa will face serious pressure to give more.

"If you're the federal government and in 2013 you're still going to be in this belt-tightening era, would you be happy extending the accord at 6 per cent [spending]growth, which is what it is at the present?"

Mr. Harper said yesterday Ottawa doesn't plan significant cuts to transfers, although he seemed to leave the door open to smaller trims. "We are not looking at the kind of deep cuts in program transfers we saw by the previous [Liberal]government."

Provinces that have access to significant oil, gas or mining royalties are largely in better shape than others. All must rein in health-care costs.

Ontario's deficit, caused largely by shrinking corporate revenue, is projected to be $24.7-billion this fiscal year. Finance Minister Dwight Duncan is preparing a plan to balance the books, although it could take more than five years.

Ontario appears to be seriously considering privatizing all or part of a provincial asset, such as a hydro utility or the Ontario Lottery and Gaming Corp. Health Minister Deb Matthews has signalled an intention to slow the growth of health-care spending, which will account for half the government's program expenditures by 2015.

Only Quebec disagreed with Mr. Harper's assessment. Premier Jean Charest said his province is emerging from the recession in far better shape than most.

Despite a debt estimated at $150-billion, Mr. Charest anticipates the province will generate enough additional revenue from hydroelectricity exports and attracting renewable resource industries to avoid massive cuts in programs.

"Over the last six years, Quebec has been well below the Canadian average, [spending]at 4.6 per cent on an annual basis compared to 7.6 per cent for other provinces," he said. "Actually, increases in our program spending have been below the average of the federal government over the last few years."British Columbia is preparing a post-Olympics budget for March 2 and warning of more fiscal pain.

A fall budget update forecast a $2.8-billion deficit this fiscal year, and a $1.7-billion shortfall in 2010-11 as the province aims to eliminate the deficit by 2013-14.

The budget balancing will be based on constraining increases in health spending, capping education outlays and reducing the cost of the civil service; the government has already announced hundreds of layoffs.

Newfoundland and Labrador's projected deficit this year stands at $442-million, and Finance Minister Tom Marshall, expected to table a budget in late March or early April, would not tip his hand on how he would eliminate the deficit. "Over the short to medium term we're going to have to control our rate of spending," he said.

A free-fall in potash prices has left Saskatchewan with a $1.8-billion hole in revenue as Finance Minister Rod Gantefoer puts together his March budget. Once considered "recession-proof," the province is running an operational deficit, buoyed into the black with cash from a rainy-day fund and Crown corporations. Mr. Gantefoer is deferring funding for a children's hospital in Saskatoon, freezing new hires and asking ministers to trim all spending proposals.

After touting a net income of $43-million early last year, Manitoba is facing a deficit of nearly $600-million. Cabinet ministers are passing on a raise, all departments have been told to cut spending and Finance Minister Rosann Wowchuck is mulling how much to carve out of the province's rainy-day fund. Ms. Wowchuck is holding public meetings to gauge the spending priorities of Manitobans.

Nova Scotia's rookie NDP government is grappling with a projected $525-million deficit after promising not to raise taxes or cut services.

A panel appointed by Premier Darrell Dexter warned radical action to balance the books would wreak havoc on Nova Scotia's economy. Still, Mr. Dexter warned residents to expect a painful budget.

"There are going to be some very, very tough decisions that are going to have to be made over the course of the next session of the legislature," Mr. Dexter said.

In December, New Brunswick forecast a record $754-million deficit in the current fiscal year. It projected a similarly sized deficit next year and warned that there would be no return to balanced books until 2014. Finance Minister Greg Byrne, citing public consultations, said in a December budget speech residents preferred deficits to funding cuts. He warned that the recovery will be "slow and gradual."

With reports from Rhéal Séguin, Adam Radwankski, Patrick Brethour, Patrick White and Karen Howlettt

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