UPDATE 2-Ontario unveils budget but opposition support uncertain

Thu May 1, 2014 6:03pm EDT

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(Adds budget details, economist's quote)

By Leah Schnurr

TORONTO May 1 (Reuters) - Ontario's minority Liberal government unveiled a budget on Thursday that projected a larger-than-forecast deficit for fiscal year 2014-15, but it was not clear whether the budget would get enough opposition support to pass and stave off a summer election.

Canada's most populous province, which accounts for about 40 percent of the country's economy, will run a budget shortfall of C$12.5 billion ($11.39 billion)in 2014-15 under the C$130.4 billion budget plan unveiled by Finance Minister Charles Sousa.

The deficit is above the government's year-ago forecast of C$10.1 billion, and more than its 2013-14 shortfall of C$11.3 billion. The province reiterated it plans to return to a balanced budget by 2017-18.

The budget included a proposal for a mandatory provincial pension plan and a tax increase for high-income workers as well as spending for transportation and public infrastructure.

With just 48 seats in the 107-seat Ontario legislature, Premier Kathleen Wynne's Liberals need the support of at least one opposition party to pass the budget and avert an automatic election.

The right-leaning Progressive Conservatives, who hold the second-largest number of seats, denounced the budget as a "charade" and called it a tax-and-spend budget.

New Democrat leader Andrea Horwath, whose party propped up the Liberals and helped pass the government's budget last year, will not comment on the new budget until Friday.

"This is a budget that's long term in scope," Sousa told reporters. "It's not about election cycle decisions, nor should it ever be."

"The premier has made it very clear that we will ask the opposition to come clean as to what they want to do and to move on with it. If the opposition wants to go to the polls, then we'll take this to the people of Ontario."

After expanding in 2014-15, the deficit is seen shrinking to C$8.9 billion the following year and to C$5.3 billion in 2016-17. The projection relies on average annual revenue increases of 3.8 percent to the 2016-17 period and expense growth of just 1.7 percent.

Ontario's deficits spiraled higher in the wake of the 2008 financial crisis, when automakers shed jobs, sending tremors through the province's industrial base.

"Despite some good results on the spending side, on the deficit number, Ontario is still missing the target, where in the previous five years, they beat the target," said S├ębastien Lavoie, assistant chief economist at Laurentian Bank Securities.

"Finance Minister Sousa made the right choice to get to fiscal sustainability through some bolder actions."

In addition to the tax changes, the province said it is also looking at its options for selling assets, including government enterprises.

PENSION PLANNED

The proposed pension plan would be similar to the well-regarded Canada Pension Plan (CPP), an arm's length government program that provides pensions to all employees in Canada.

Called the Ontario Retirement Pension Plan (ORPP), it would see employers and employees each contribute an amount that would not exceed 1.9 percent of an employee's earnings up to a maximum annual earnings threshold of C$90,000.

Lower income workers would be exempt from contributions, while those already enrolled in a comparable workplace plan would not be required to participate. The government said coverage would apply to about 3 million workers. Under the proposal, the ORPP would be introduced in 2017.

The proposal was likely to heat up the political rhetoric over the best way to ensure a financially secure retirement for an aging population as pensions struggle with poor returns after the financial crisis and employers try to rid themselves of the burden of pension liabilities.

The Canadian government reiterated its position last week that this is not the time to increase contributions to the CPP, a proposition that has been on the agenda of Canada's provinces for several years.

Ontario said it will make nearly C$29 billion available for investment over the next 10 years in public transit and transportation infrastructure. Total infrastructure spending will be C$130 billion over the next decade.

The budget proposes to add a new tax rate of 12.16 percent on income between C$150,000 and C$220,000. It will also lower the threshold at which the 13.16 percent tax rate bracket kicks in to annual income of C$220,000, down from C$514,090. The province said the tax increases will affect just 2 percent of Ontarians.

Public long-term borrowing in 2014-15 should total C$35 billion, down C$1 billion from 2013-14 and C$2.6 billion below forecasts, the government said.

($1=$1.097 Canadian) (Additional reporting by Cameron French; Editing by James Dalgleish and Peter Galloway)

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