Ontario's austerity budget sets up public-sector showdown

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The Ontario government is threatening to impose a mandatory wage freeze on public-sector workers, marking a sharp policy reversal as it seeks to erase its multibillion-dollar deficit over six years while preserving social programs.

The provincial budget tabled Tuesday asks everyone from affluent seniors to corporations to do their part during tough economic times to help the government tackle the deficit. But the budget reserves its harshest measures for public-sector employees, whose compensation accounts for just over 50 cents of every $1 in program spending.

Whether the measures aimed at addressing the province's deep fiscal challenges are enough for the minority Liberal government to survive, however, remains uncertain. Progressive Conservative Leader Tim Hudak outright rejected the budget and vowed to have every member of his caucus vote against it. New Democratic Party Leader Andrea Horwath was non-committal.

The government is asking the province's doctors, teachers and other public-sector employees whose collective bargaining contracts expire this year to voluntarily agree to freeze their wages for two years.

This is the second time the government has called for a wage freeze.

This time, however, it is threatening to use legislation to impose wage freezes and force striking employees back to work.

"Where agreements cannot be reached that are consistent with the government's plan to balance the budget ... we are prepared to propose necessary administrative and legislative measures to protect the public from service disruptions and also to protect jobs for teachers, education staff and health-care workers," Finance Minister Dwight Duncan said in the legislature. "That is not a choice we would make lightly."

The tough talk leaves a government that campaigned during the 2007 election on its track record for restoring labour harmony bracing for a round of unrest with the province's public-sector workers.

But amid growing uncertainty in the global economy and anemic growth at home, the government's options are limited. It can no longer count on economic growth to restore the province's fortunes, and it must persuade credit-rating agencies that it has a credible plan to balance the books.

The deficit is now projected to reach $15.3-billion for the fiscal year ending March 31, 2012, about $700-million lower than previously forecast. Without austerity measures, the budget warns, the deficit would top $25-billion in three years.

The budget largely follows the blueprint laid out by economist Don Drummond in his landmark report in February, recommending that the province rein in program spending increases to just below 1 per cent a year. The budget says spending will rise 1 per cent in each of the next three years, reaching $115.8-billion in fiscal 2013. Revenue is forecast to grow an average of 1.5 per cent a year over the same period.

The document incorporates billions of dollars in savings from wage freezes. The government plans to reduce program spending by $17.7-billion over three years while increasing revenues by $4.4-billion. One-third of the spending cuts will come from savings on the wage front.

The government is also freezing for another two years the salaries of executives at the province's hospitals, universities and other agencies.

Mr. Hudak said he cannot support a budget that leaves the province "hostage" to a mountain of debt.

"This budget is a surprisingly weak and disappointing response to multiple warnings that we need to change course," Mr. Hudak said.

Mr. Hudak said all the Conservative MPPs will turn out to vote against it, which leaves the fate of the minority Liberal government in the hands of the NDP.

For her part, Ms. Horwath criticized the government for threatening public-sector workers with legislated wage freezes.

"You don't have a respectful conversation with someone while you're holding a gun to their head," Ms. Horwath said.

As widely expected, the government will freeze the corporate income-tax rate at 11.5 per cent until the deficit is erased. But that move did not appear to be enough to initially win over Ms. Horwath's support. She said she will not be rushed into a decision.

"It is not something that should be done in a kneejerk way," she said.

Ms. Horwath says the NDP has a serious decision to make and will consult voters before deciding whether to support the budget.

Mr. Duncan said the Liberals are more than prepared to go to the polls and campaign on the budget if the opposition parties force another election.

The budget says the government's proposal to the province's teachers will set the template for its negotiations with other labour groups.

The government wants to impose a two-year wage freeze, no incremental increases to the salary grid and end a sick leave plan that allows some teachers to get partial pay for up to 200 unused sick days when they retire.

The budget also contains measures to make public-sector pensions more affordable for taxpayers and sustainable for their members. If a pension is in deficit, employees would be asked to reduce future benefits before seeking additional pension contributions from their employers or the government. Current retirees would not be affected.

The government will also ask employees to share pension costs equally with their employer. And they plan to cap spending increases on health care at 2.1 per cent over the next three years. Historically, health-care costs have climbed 6 per cent a year and account for about 42 per cent of program spending.

About 5 per cent of seniors, those with incomes of more than $100,000, will pay a larger share of their prescription-drug costs.

If no action is taken to balance the budget, Mr. Duncan said, Ontario would pay almost as much to service its debt in fiscal 2018 as it spends on education today.

"We need everyone to do their part to balance the budget," he said.

"This is the most sweeping budget this province has seen."

With a report from The Canadian Press