11/01/2011 12:05 EDT | Updated 01/01/2012 05:12 EST

Ontario must slay deficit, avoid stalemates that gripped U.S.: Duncan

TORONTO - A billion dollars disappeared from Ontario's projected deficit during the election campaign — only to reappear after the Oct. 6 vote — due to economic volatility, not because the governing Liberals were trying to get re-elected, Finance Minister Dwight Duncan said Tuesday.

During the September campaign, the Liberals said the deficit for 2011-12 would be $15 billion, down from a previous estimate of $16 billion.

Then last week — 20 days after the election that returned them to power — they revised the deficit figure again, pegging it at $16 billion.

The campaign number was based on growth figures during the spring and summer, when economists' forecasts were rosier than they are now, Duncan said.

"Projections continued to go up from March through to September," he said after a speech to the Toronto Board of Trade.

"They didn't come down until October. Now they're dropping rapidly because of changing circumstances."

A billion dollars is also just a fraction of Ontario's $124-billion annual budget, he added.

"That's one one-hundred-and-twenty-fifth of our budget," Duncan said.

"A variance of one one-hundred-and-twenty-fifth in a month isn't unusual."

But NDP Leader Andrea Horwath isn't buying Duncan's explanation.

Both the Liberals and Progressive Conservatives had more optimistic economic projections in their platforms than the New Democrats, who suspected that "things weren't going to be very rosy," she said.

"You paint the pretty picture before an election and then crash people down to earth after the campaign is over," Horwath added.

"I think that's a pretty cynical way of dealing with the public, and this is the way they've been doing it for years now."

Despite the global economic turbulence, Duncan said Ontario must stay on target to slay its deficit by 2017 while protecting schools and hospitals.

But he's dismissing any delays in planned corporate tax cuts or taking a hard line with the province's powerful public sector unions, despite lower growth projections for this year and next.

Figures released last week showed Ontario's economy shrank slightly in the second quarter. The 0.3 per cent drop in gross domestic product followed seven consecutive gains, and was blamed on a weakened U.S. economy and an auto parts shortage caused by the tsunami in Japan.

However, the province is expected to return to positive growth in the third quarter.

Duncan promised he'd have more to say about Ontario's deficit when he delivers his economic update this month, but wouldn't set a date for its release.

A separate review on the province's public sector is being prepared by former TD Bank economist Don Drummond. Part of his report is expected to be delivered in January, Duncan said.

Drummond will talk to the opposition leaders about the work he's done to date and brief Premier Dalton McGuinty on Thursday, Duncan said.

The former economist is looking to reform how the province delivers services, rather than just cut costs, he added.

"This is not about blanket cost-cutting. This is about sustainability," Duncan said.

"This is about dealing with the real challenges in the economy. Obviously there will be areas that we will look to save money on, in order that we can focus on the real priorities and we can deliver priorities more efficiently and more effectively."

The Liberals were reduced to just 53 seats in the legislature after the election — one short of a majority government — while the opposition parties have 54 seats combined.

It will be up to all three parties to make sure the deficit reduction targets are met or the province could face a downgrade in its credit rating, especially if they get caught up in a political stalemate, Duncan warned.

"We're all going to have to work together in order to ensure that Ontario deals with the very real circumstances in front of us, but are well poised when this is over to lead," he said.

Ontario's economy is in big trouble, but it's not only due to factors beyond Duncan's control, said Christine Elliott, deputy leader of the Progressive Conservatives.

Increased borrowing and government spending under the Liberals has also damaged Ontario's ability to get through bad times, she said. The Tories will try to use their clout to get spending under control, ideally by shaving two per cent off in all areas except health care and education.

"I think he needs to look in his own backyard to see why we're in the shape that we're in, right now, here," Elliott said.