Salary funding freeze in works to help slay Ont.’s $110B in deficits over 8 years

TORONTO, Ont. – More than one 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 2010 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 everyone wants to work together.

“I think most Ontarians will say these folks have got the right balance; they’re eliminating a deficit in a prudent and responsible fashion, they are continuing to make the investments that we value in education, health care,” he said.

“I’m sure there will be some groups not happy with this, that or the other thing, but this is about a brighter future and this budget builds a brighter future for this province.”

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 is 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.

Alberta posted a $4.7-billion deficit last month and laid out a plan under which 250 people could lose their jobs out of the 27,000-member civil service.

Saskatchewan is cutting civil service jobs by 15 per cent – about 1,800 positions – over four years and drawing from its savings account to keep the books in the black.

British Columbia forecast a $1.7-billion deficit for the coming fiscal year in its budget, tabled earlier this month.

In Ontario, compensation across the broader public sector accounts for more than half of the government’s spending, Duncan said. He hopes to save $750 million with a 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 310,000 non-unionized public sector employees.

Some 750,000 unionized workers won’t be forced to take unpaid days off or see their current agreements re-opened, but there won’t be any funding for salary increases for two years after their collective agreements expire.

Some union leaders shrugged it off as the government’s opening bargaining position, but warned that difficult days lay ahead at the negotiation table.

“They’ve used the biggest hammer short of legislation to constrain collective bargaining,” said Fred Hahn, Ontario president of the Canadian Union of Public Employees, which represents 180,000 workers in the province.

“At the end of the day, they’re paying for a corporate tax cut on the backs of quite low-paid workers, most of which are women.”

Warren “Smokey” Thomas, president of the Ontario Public Service Employees Union, which has 125,000 members, was more sanguine.

“It could have been a whole heck of a lot worse,” he said. “I’m not that upset about it.”

Hopefully, the government has learned to be more careful with their money after the scandals over consultants contracts that plagued its efforts to build electronic health records, he added.

“I wish they hadn’t blown a billion dollars or whatever on eHealth, you could have saved a lot of public services,” Thomas said. “I hope they learn lessons from that.”

The eHealth scandal rocked the governing Liberals this past summer after it was revealed that $1-billion was spent to develop electronic health records with very little to show for it.

Some 750 public-service 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 will see its equalization payments triple and its cherished public services threatened by reckless spending, Hudak said.

“(Premier) 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.

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 speed up the closing of beds and staff layoffs as they struggle to eliminate their deficits.

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 Pension Benefits Guarantee Fund also got $500-million to “cover claims in the near term” following Duncan’s recent byelection promise to help Nortel retirees. His spokeswoman said the money would also cover claims from smaller companies.

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

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 currently 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.

However, borrowing costs are on the rise, said Mary Webb, a senior economist with Scotia Economics.

“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.