ONTARIO DEFICIT

Return to deficit in Ontario possible: Flaherty
Move would be illegal under law Tories wrote themselves
From Canadian Press

The Ontario government could chose to run a deficit next year to avoid having to slash already pared-to-the bone programs and services, Finance Minister Jim Flaherty said today.

Flaherty made the comments after being treated to a double dose of bad news from economists and business leaders as he prepares for the economic statement he will deliver next Tuesday.

"The government could choose to deficit finance but I can tell you, that's not the intention," said Flaherty.

A testy Flaherty wouldn't give specifics about what he heard from the group of five economists during a closed-door meeting early Wednesday but he was clearly worried about what they said.

"There's no difference of opinion of course that we're in a time of economic slowdown and that there are at least some significant short-term effects of the tragedies of the 11th of September," he said.

Don Drummond, chief economist for the TD Bank, said he and the other economists who met with Flaherty presented him with forecasts ranging from about 0.8 per cent to 1.2 per cent growth for this fiscal year.

"That would definitely imply that output would be contracting in both the third and fourth quarter, so certainly a technical definition of a recession," Drummond said.

But with little or no growth expected for the first half of next year either, the provincial government could be facing a deficit of as much as $2 billion.

Because Ontario's Tories have promised not to cut health care spending, Drummond said balancing the province's books would mean drastic cuts in all other areas of government spending of about eight per cent.

"It's not business as usual in government even now because you can't stop or reduce spending in certain areas all of a sudden," said Flaherty.

Under a law introduced by the governing Conservatives, the provincial budget must balanced over a four-year average, which means the government could dip temporarily into a deficit position.

"If it was a small deficit and there was a reasonable assurance it would just be for one year, that wouldn't be the end of the world," said Drummond.

Liberal Leader Dalton McGuinty said there's an easy way to avoid a deficit: scrap the corporate tax cuts the government has promised.

After meeting the economists, Flaherty held a round-table chat with several business groups, including those in the manufacturing, hospitality and tourism sectors.

The economic news from those groups wasn't good either, he said.

"There are substantial concerns with respect to border issues, which affect the large businesses (and) the auto sector, but they also affect the smaller businesses, particularly in tourism," Flaherty said.

Even more troubling is that companies making decisions on where to locate their plants are increasingly viewing the border as a barrier to business.

"Those concerns are urgent concerns," said Flaherty.

The solution, he said, would be to encourage Ottawa and Washington to move quickly toward a common North American perimeter with respect to customs.

Flaherty snapped when asked whether the meetings would be helpful to his aspirations as a potential candidate to replace Mike Harris as party leader and premier.

"I don't know why you'd ask that. Honestly, we're in a time of economic slowdown, I'm meeting with people who are talking about job losses and you're asking me questions like that."