Ontario's minority Liberal government said on Tuesday the province's budget deficit has fallen more quickly than projected, helped by higher corporate tax revenues and one-time savings from the elimination of banked sick days for teachers.
The Canadian province's 2012-13 deficit is now expected to be C$11.9 billion ($11.98 billion), down from C$14.4 billion seen in the fall economic update.
The government credited a one-off C$1.1 billion jump in corporate tax revenues related to tax assessments. It also booked savings of C$1.1 billion by eliminating bankable sick-day payouts to the province's teachers.
The Liberals have been locked in battle with unions representing most of the province's teachers over controversial legislation that ended the practice of banking unused sick days for payouts at retirement. It also cut sick days, limited teachers' right to strike and imposed a two-year wage freeze.
"We have taken the difficult decisions that we had to take," Finance Minister Dwight Duncan told a business audience in Toronto, where he announced he will step down as finance minister following the election of a new Liberal leader this weekend.
"Beating fiscal targets is a direct result of managing spending prudently and steady but modest growth in the economy,"
Duncan predicted that the deficit could come in even lower than the revised target.
The 2012-13 deficit could fall to C$11.4 billion "barring any catastrophe" by using C$500 million of a C$1 billion reserve built into budget, he said.
Even so, the government said its plan to balance the budget by 2017-18 is unchanged.
"The much-publicized battles over public-sector compensation haven't necessarily reduced the spending profile, but rather have allowed the province to hit the targets set out in the FY12/13 budget," Robert Kavcic, senior economist at BMO Capital Markets, said in a research note.
"Hitting these targets was an area of concern for some at the time of the budget, and the province deserves some credit on this front."
Duncan said overall in 2012 Ontario public sector wage increases are averaging under 1 percent.
For 2012-13, program expenses are expected to rise by only 1.8 percent, well below recent trends, though Duncan warned that in order to get back to balance, the province needs to bring it closer to 1 percent.
The finance minister also revealed Ontario's economy grew by 0.1 percent in the July to September period. He cautioned that private sector forecasters expect Ontario's economy to grow by just 1.8 percent in 2013, down from the 2.3 percent seen in March.
DEBT-TO-GDP, BORROWING SEEN EASING
Ontario's net debt-to-GDP is expected to be 37.8 percent at the end of 2012-13, below the 39.1 percent the government projected in the fall. It is expected to peak at 39.9 percent in 2014-15.
This year's borrowing program remains unchanged. But the province's borrowing requirements for 2013-14 fell by C$2.7 billion to a projected C$36.4 billion.
For the fiscal year ending on March 31, Ontario has completed C$30.1 billion, or 87 percent, of the C$34.5 billion requirement. More than 70 percent has been raised in Canadian dollars, while the rest has been issued in U.S. currency.
Gadi Mayman, head of the province's financing authority, said the absence of borrowing in other foreign currencies "has been unique for us. I don't recall a year where we've gone this far into the year without borrowing in anything other than Canadian or U.S. dollars."
Mayman said Ontario has also been able to extend the term of its debt, particularly in the 30-year area.
"Ontario is still seen as a safe-haven for investors. Our debt is still selling out, and again my worry in the short term is interest rates," Duncan told reporters following a speech in which he cautioned that the threat of rising interest rates is a "ticking time bomb."