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Ontario Finance Minister Dwight Duncan delivers the budget in the Legislature at Queen's Park in Toronto on March 27, 2012.

Peter Power/The Globe and Mail

Don Drummond, a dour former bank economist, had set the stage brilliantly: Ontario is on a precipice, and its Liberal government needed to act against its nature (as demonstrated over eight years of majority government) to bring the province back from the brink. That meant taking on the schoolteachers and public servants and altering its pet programs such as small class sizes in primary grades, full-day kindergarten by 2014 and a 30-per-cent postsecondary tuition rebate for low- and middle-income families.

In the end, Mr. McGuinty and his Finance Minister, Dwight Duncan, chose to leave the pet programs alone and challenge the unions whose members helped put him in power again (this time, in a minority government). Their challenge appears to be in earnest. The Liberal fiscal plan calls for no increases for teachers (whose collective agreement expires this summer) and public servants for two years, not even to move up along their salary grids. It also hits teachers' beloved sick pay – no more banking unused sick days for partial payment at retirement.

And if the teachers and public servants don't agree, the budget documents declare, "The government will consider all options to meet its fiscal goals, including intervention through legislation or other means." Pension reforms are also needed to put the province on a more sustainable path, and the province says it will insist on them.

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It would be wrong to call the government brave in any of this.

Economically and politically, the Liberals had little manoeuvring room. They had waited as long as they could, but there is no roar of economic growth in the distance, only 2-per-cent growth as far as the eye can see. Ontario would have gone over the edge, if the Premier had continued making nice with the unions. And Progressive Conservative Leader Tim Hudak would have eaten him for breakfast.

Will the unions give the province some breathing space? Not likely.

They should keep in mind, though, that the government refused to cut 10,000 teacher jobs and also spared another 10,000 non-teaching jobs that Mr. Drummond deemed expendable. The government continued with a slow reduction of the public service begun in 2009 but did not take a cleaver to jobs. It cut $17.7-billion, not from overall spending but from projected spending – so it sounds a bit tougher than it is.

If not a stroke of genius to hire Mr. Drummond to read the Riot Act to everyone, it was close. Mr. Drummond said the province faced a $30-billion fiscal hole by 2017-18 without strong measures. Already, the $10-billion in annual interest is the province's third-largest area of program spending. There isn't an Ontarian by now unaware that an austerity budget was coming.

What the Liberals are promising comes close to what Mr. Drummond urged: 0.9-per-cent annual growth in program spending from 2012-13 to 2017-18, compared with his 0.8-per-cent-a-year growth. The changes in compensation would save $6-billion, or about one-third of the overall projected savings. The budget would still, the government says, be balanced by 2017-18 – but without harsh cuts. It's hard to see how without long-term wage concessions and restraint on health care.

The government would limit annual health-care increases to 2.1 per cent a year for the next three years (lower than the 2.5 per cent urged by Mr. Drummond). It would hold doctors to zero increases (doctors' overall compensation now constitutes an unholy 23 per cent of health spending in Ontario). It would limit hospitals to 2 per cent in total funding growth in 2012-13. It would allow community and home care to grow by 4 per cent; it would continue the patient-centred funding transformation of Ontario hospitals. Will it work? Many governments have promised to cut health-care spending; few have fulfilled those promises.

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Mr. Hudak immediately declared that his party would oppose the budget – though it was difficult to understand what it would have done differently. The New Democrats may appreciate the five-year freeze on planned corporate tax cuts, though they coyly averred that they wish to "go to the public" to find out whether to support the budget. At the end of the day, the opposition should support this plan, or a version close to it. With economic health so tenuous, this province doesn't need another election.

Politically, this was a smart budget, making everyone a little unhappy – and some, perhaps, very unhappy, after eight years of coddling. But the big test is ahead for a government whose handling of the eHealth and Ornge fiascos gives rise to questions about its diligence and oversight. Ontarians know in their hearts that they are no longer naturally favoured, in the grand scheme of things. The government will need the resolve to press on.

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