UPDATE 3-Ontario to hold June election after opposition rejects budget

Fri May 2, 2014 4:16pm EDT

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(Adds June 12 election date, quotes from Wynne)

By Leah Schnurr and Cameron French

TORONTO May 2 (Reuters) - Ontario will head to the polls in June after the budget presented by the Canadian province's minority Liberal government was speedily rejected by opposition parties.

Kathleen Wynne, premier of Canada's most populous province, moved to dissolve the provincial legislature on Friday after Andrea Horwath, leader of the left-of-center New Democratic Party (NDP), said she would no longer back the government.

The NDP had propped up the Liberals and helped pass the government's budget last year.

Tim Hudak, leader of right-leaning Progressive Conservatives, which have the second-largest number of seats in Ontario's legislature, had already said his party would not support the budget.

With just 48 seats in the 107-seat Ontario legislature, Wynne's Liberals needed the backing of at least one opposition party to pass the government's budget for the 2014-15 fiscal year and avert an election.

Wynne said the election would be held June 12.

"Andrea Horwath and Tim Hudak have made the decision to go into an election," Wynne said. "I was, and am, fully prepared to implement our budget, implement our plan, and they have made a decision that we're going into an election."

In rejecting the budget on Friday, the NDP's Horwath accused the Liberals of failing to live up to promises to cut auto insurance rates, create a provincial financial accountability officer and improve home healthcare services.

"We do not support this government any longer, so we will not be voting in favor of any confidence motion coming forward, including the budget," she told reporters.

In an Ekos poll of 1,576 residents taken in the week before the budget was presented on Thursday, the Liberals had 35 percent support among voters. That compared with 32 percent for the Progressive Conservatives. Horwath's NDP was third in the poll with 22 percent support.

It will be the Liberals' first election with Wynne as leader. She has led the province since former Liberal Premier Dalton McGuinty stepped down in late 2012, hurt by a scandal over the controversial and costly cancellation of gas-fired power plants that still dogs the Liberals.

Investors will play close attention to the election as Ontario has the largest nominal debt load of any Canadian province. The provincial capital, Toronto, is the country's largest city and headquarters of Canada's financial industry. The province is also Canada's manufacturing heartland.

"Ontario's fiscal plan will now be put to the voters, leaving investors waiting for the outcome of that vote to judge the fiscal direction of the province, although rating agencies may decide not to wait," economists at CIBC World Markets wrote in a note.

Ontario is currently rated AA- with a negative outlook by Standard & Poor's. Moody's rates the province as Aa2 stable, though the agency said the increase in deficits outlined in Thursday's budget "represents a credit negative for the province".

The yield on Ontario's 10-year government bond was 86 basis points above its Canadian government counterpart on Friday, its widest level this year.

Thursday's budget projected a larger-than-forecast C$12.5 billion ($11.4 billion) deficit for Ontario in the 2014-15 fiscal year. The budget included a proposal for a mandatory provincial pension plan and a tax increase for high-income workers, as well as more spending on transit, infrastructure and social services.

The budget projected publicly held debt would increase to more than C$298 billion in 2014-15.

($1=$1.10 Canadian) (Editing by Jeffrey Hodgson and Peter Galloway)

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