McGuinty muddies waters on plan to get Ontario out of deficit

McGuinty quickly amended the eyebrow-raising remark, saying he planned to slow government spending, not make cuts in crucial areas like education and health care.

"How is this going to be interpreted by folks on the front lines? They're going to call it a cut. You might end up calling it a cut," he said ahead of a two-week trade mission to China.

"The truth is, we're not going to grow our expenditures as quickly as we have in the past. I call that restraint. Some other folks might say, you call it a cut."

The governing Liberals have insisted they won't chop program spending despite Ontario's troubled economy and dwindling coffers. For weeks, they've dropped hints that they'd rather break their own election promise to balance the books than gut Ontario schools and hospitals.

The government finally took the plunge Wednesday in its fall economic statement, announcing it would run a $500-million deficit this year following three consecutive balanced budgets.

McGuinty refused to speculate Thursday whether the province will face an even bigger deficit next year, but warned that 2009 will be a "tough" one for the province.

"We're doing what we can for the back end of this year," he said.

"But for the coming year - with the new budget that we'll put out in March of next year - we want to put our transfer partners, in particular, on notice that we're not going to be able to increase our investments at the same rate that we have in the past."

Ontario residents "understand" why he's breaking his promise, given the unexpected "train wreck" that hit the U.S. economy, he said.

"I'm the first premier in Canada to talk about a deficit. I expect that more will," McGuinty said.

"I just think it's really important to be up front with the folks about that. I expect that the federal government will talk about that more and more."

Two western provinces are bucking that trend. Saskatchewan recently announced the biggest single-year tax cut in its history on the back of an economic boom.

B.C. Premier Gordon Campbell has said he will recall the provincial legislature to implement accelerated tax cuts and other measures in response to the global economic crisis.

There's nothing "inherently wrong" with running a temporary deficit during an economic slump, said TD economist Craig Alexander.

"You certainly don't want the government to make things worse by hiking taxes or really significantly cutting spending in order to avoid going into a deficit position," he said.

"Because ultimately, it would just make the economy even weaker."

To help offset its revenue shortfall this year, the Ontario government drew about $550 million from its reserve fund, leaving $200 million to guard against "continued global uncertainty."

It also outlined a plan to save $108 million this fiscal year, which includes delaying some new projects - such as hiring 9,000 nurses - and slowing promised funding increases for existing programs.

But that's just a tiny fraction of the province's $96-billion annual budget, critics say, and the government should do more to tighten its own belt.

McGuinty knew that tough times were ahead, but made no effort when the sun was shining to rein in spending or lower business taxes - measures that would have attracted new investment and kept the province's economy afloat, said Progressive Conservative Leader John Tory.

"He's going to China with an empty suitcase," he said.

There may also be labour strife ahead with public sector workers, who will likely see government negotiators taking a harder line in bargaining talks, said NDP critic Peter Tabuns.

"They will try to hold the line on any improvements in wages and benefits," he predicted.

Cabinet ministers have consistently toed the party line that they're committed to collective bargaining. But McGuinty admitted Thursday he wished he could take back a 12.25 per cent raise for doctors under a new four-year deal that was ratified earlier this week.

"I tell you, when it comes to docs and everybody else, you gotta compete," he said during a radio call-in show in Toronto.

"You gotta compete with Alberta, you gotta compete with B.C., you gotta compete with Quebec."