Ontario to freeze salaries to help slay massive deficits

Ontario Finance Minister Dwight Duncan delivers his budget speech, Thursday, March 25, 2010.

TORONTO - More than a million Ontario public sector workers were put on salary freeze alert Thursday by a provincial government staring down a jaw-dropping $110 billion in deficit spending over eight years.

While Finance Minister Dwight Duncan presented his budget in the most conciliatory of tones, the message was clear: those drawing salaries from the taxpayers' purse need to share in the province's fiscal pain.

With the groundwork clearly laid for tensions with those million workers, including civil servants, teachers, and doctors, Duncan insisted that "all Ontarians want to work together."

"We have deliberately chosen a path that we think is fair and balanced," Duncan said.

"We'll get Ontario back to balance and we look forward to working with all of our partners in the broader public sector."

Despite an unprecedented $21.3-billion shortfall last year and nearly $20 billion in the next, the governing Liberals are pressing the snooze button on their plans to rebalance the books and putting off much of the agony until after the 2011 election.

Ontario won't return to balance until 2017-18, two years after Ottawa's expected to be back in the black.

While other provinces are slashing cabinet salaries and laying off civil servants, Duncan opted for a hedge-trimmer over the axe in his $126-billion budget aimed at staving off any major labour unrest until after the 2011 vote.

He hopes to save $750 million with a public-sector funding freeze on wages and benefits, with only municipal employees and their police forces spared.

A pay freeze on elected politicians will continue for another two years and expand to non-unionized public sector employees.

Unionized public workers won't be forced to take unpaid days off or see their current agreements reopened, but there won't be any funding for salary increases for two years after their collective agreements expire.

Some 750 agreements will come up for negotiation over the next year, including nurses and those working in universities and colleges. But contracts for teachers and civil servants won't expire until 2012.

The Liberals should re-open those agreements now to freeze wages and find other savings, said Opposition Leader Tim Hudak. But he stopped short of calling for cuts to pay or benefits -- a move that sparked strikes and widespread labour unrest when the Tories wielded the sword more than a decade ago.

Once the engine of Canada's economy, Ontario is now on the welfare rolls of Confederation with its cherished public services under threat, Hudak said.

"Dalton McGuinty will be mortgaging the future of our children and our grandchildren by doubling Ontario's debt, and this simply cannot be blamed on the recession," he said.

"While other provinces pull themselves into recovery, Ontario's plunge into have-not status has accelerated."

The subject of pay freezes tempered the budget wrath of NDP Leader Andrea Horwath, who pointed to the steady growth of six-figure government salaries as proof the Liberals have done little to control costs.

"There's a lot of people making quite high salaries in many of those sectors -- they should have been paying some attention to that," she said.

"When somebody's already walking away with a high six-figure salary, it's too little too late for that kind of action to take place."

To curb costs, Duncan is also freezing internal operating expenses and administration costs, slowing the flow of money to long-term capital projects and revamping Ontario's drug system to lower generic drug prices.

Cash-strapped hospitals will get a meagre 1.5 per cent boost to their base funding, a move that's bound to accelerate the closing of beds and staff layoffs in facilities across the province.

After years of multibillion-dollar investments in schools and health care, Canada's most populous province turned this year to small boosts in education and its resource-dependent north, ravaged by the loss of thousands of jobs.

The province will start rolling out its costly full-day kindergarten program for four- and five-year-old children and spend $310 million to add 20,000 new college and university spaces this fall.

Northern residents and businesses will get some relief in energy costs with a new industrial electricity rate program and an energy credit of up to $130 a year for single people and up to $200 for families.

The region will also get $45 million for economic development projects, including the Ring of Fire, which may be the world's largest deposit of chromite -- a key ingredient in the making of stainless steel.

Total spending in 2010-11, including debt charges, will hit $126 billion -- an increase of $8.2 billion over the fiscal year that ends March 31.

Program spending is projected to drop by $3 billion in 2011-12 before rebounding by $2 billion in 2012-13. After that, growth will be reined in to an average of 1.9 per cent except in health, which gobbles 46 cents of every dollar it spends.

Years of spending more than the province takes in will ratchet up its net debt-to-GDP ratio -- a key figure for lenders -- to a peak of 43 per cent from the current 26 per cent. But that's still shy of the 60-plus figure that forced Ottawa to declare war on the deficit in the 1990s.

Borrowing costs are also going up, said Mary Webb, a senior economist with Scotia Economics.

"All the provinces and Ottawa -- in fact, virtually all the governments around the world -- last year got a free ride," she said.

"The borrowing went up, but because rates were so low, interest rates barely changed. This is probably not going to last, and looking out over the next couple of years, Ontario is going to face higher interest costs for its borrowing."

Ontario's year-long recession killed nearly 300,000 jobs, mainly in manufacturing, and ate about $25 billion of its gross domestic product.

While employment has rebounded since last May, the province is still down 158,000 jobs from pre-recession levels.

Real GDP, a key indicator of economic health, is expected to grow by 2.7 per cent in 2010 but will remain below pre-recession levels until the first quarter of 2011.

Employment will lag behind that growth, but Ontario is expected to add 504,000 jobs by 2013, with employment increasing 1.1 per cent in 2010 and 2.3 per cent between 2011 to 2013.

Tax revenues that took a major hit during the recession have already started to pick up and will return to pre-recession levels in 2011-12, helped in part by the harmonized sales tax that takes effect July 1.

Duncan is also planning to amend Ontario's tax laws to preserve a rarely-used right to provide one-off remissions of the provincial portion of the HST when it's deemed to be "in the public interest."

A person would have to make an application to the Ministry of Finance, who would need cabinet approval to issue the refund.