07/09/2013 01:38 EDT | Updated 09/08/2013 05:12 EDT

Confidential document warns Ontario Liberals to step up fight against deficit

TORONTO - The governing Liberals were warned in January that they'd have to step up deficit-fighting measures and possibly cut program spending to re-balance the books in 2017-18, according to a newly released confidential document to cabinet.

Even though the government is beating its deficit forecasts, it needs to ramp up the action required to meet its targets over the next few years, the document said.

Ministries have already started developing plans to curb spending over the next two years, but they have no direction out to 2017-18, the document states.

"Given the complexity and lead time necessary to reduce expenditures and transform public services, planning for changes to take affect (sic) two or three years out will need to start soon," it said.

The document was dated Jan. 25, the day before Premier Kathleen Wynne won the Liberal leadership race, replacing Dalton McGuinty.

It warns that if the province is to eliminate its deficit, program spending can't rise beyond one per cent because sluggish economic growth won't increase revenue beyond four per cent in the "foreseeable future."

"Major structural changes" are needed to reduce the growth rate in program spending, it said.

The Progressive Conservatives, who obtained the document through a legislative committee examining the cancellation of two gas plants, say it shows the Liberals have no plan to lift Ontario out of its fiscal hole.

But the Liberals defended their record, saying they are routinely provided with worst-case scenario advice from bureaucrats that helps them make decisions without compromising public services.

The PCs say other confidential documents tabled to the committee show the government was warned two years ago to address many of the same issues in its fiscal plan.

It included the reduction of non-health and education spending by at least four per cent a year, which was deemed "so far beyond administrative or efficiency savings it's not even funny," according to a document written by top finance bureaucrat Peter Wallace in November 2011, who took over as secretary of cabinet the following month.

It also offers some options, such as keeping education spending at one per cent annual growth by clamping down on teacher compensation.

The more recent document, which the Tories believe must have crossed Wallace's desk, shows that the Liberals are ignoring a "five alarm bell for action."

"Basically it tells you that nothing has happened for two years and he's getting alarmed that nothing has happened since," Tory Leader Tim Hudak said Tuesday.

But a spokeswoman for Finance Minister Charles Sousa said the government has held program spending to less than one per cent on average for the last two years.

It's implementing over 60 per cent of the recommendations from a government-commissioned report from economist Don Drummond outlining measures to slay the province's deficit without raising taxes, Susie Heath said in an email.

She said it has also reached agreements to freeze public sector wages and reduce pension costs.