Greg Bonnell

Reporter

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There’s no denying the shifting fiscal fortunes of Canada’s provinces.

Ontario has laid out its plan to balance the books in the next fiscal year. While the province’s debt burden is continuing to swell, for now Queen’s Park has the low dollar and depressed oil prices working in its favour.

It’s a study in contrasts with Alberta, which just a few days ago revealed the cost of the crash in crude prices – warning of a “once-in-a-generation economic challenge.”

Ontario announced Thursday it's pledging free post-secondary education for students from low-income families and free carbon allowances to a broad range of industries as it maintains its vow to balance the books next year.

Still, the budget tabled Thursday outlines key areas where Ontarians will pay more -- at the gas pump, on their heating bills, for a pack of smokes and for a bottle of wine.

Finance Minister Charles Sousa will close the books on 2015-16 with a $5.7-billion deficit. The budget tabled Thursday projects a $4.3-billion shortfall for the coming fiscal year before getting back in the black -- a promise critics have cast considerable doubt on.

"We're balancing the budget," Sousa re-affirmed Thursday.

The finance minister acknowledged that cheap gasoline and the falling dollar have buoyed the province’s economy and pumped up its tax take by making Ontario’s goods more attractive to the United States.

“Right now, uncertain economic winds are currently blowing in the right direction for Ontario,” he said. “A low dollar, low oil prices and steady U.S. demand all favour Ontario exports.”

Ontario’s optimism came a day after Alberta painted a bleak picture because of the same economic forces. The collapse of oil prices could drive its economy into the deepest slump since the 1980s and double its deficit to more than $10-billion.

It’s a jarring role reversal for the two provinces: Not so long ago, Alberta was riding high on a commodities boom while Ontario was struggling with the slow-motion decline of the manufacturing sector. Now, the diverse economy of Canada’s most populous province is suddenly leading the country and giving Mr. Sousa an unexpected boost in his deficit-fighting efforts.

The pillars of Sousa’s $134-billion spending plan are a cap-and-trade program to reduce carbon emmissions estimated to collect up to $1.9 billion annually, and a streamlined student grant.

The Ontario Student Grant will start in the 2017-18 school year, making average tuition free for students from families with incomes of $50,000 or less. Additionally, the Liberal government says 50% of students from families with incomes of $83,000 or less will receive grants that exceed average tuition.

While that may sound expensive for a government looking to erase a multi-billion dollar deficit, Sousa says folding several older grant and assitance programs into this new one will not cost taxpayers any more money.

Ontario's participation in the Western Climate Initiative with Quebec and California begins in 2017, and the auctioning of carbon allowances are expected to generate that $1.9 million annually starting in 2017-18.

Still, a "broad range of industries" will receive allowances free of charge - a "transitional measure" that will be reviewed in 2020. The budget says there are short-term competitive risks for Ontario industries with high emmissions, such as cement, lime and steel.

The free-of-charge allowances are aimed at reducing "carbon leakage" - companies pulling up stakes and relocating to jurisdictions with no carbon pricing.

In an economic analyis provided by the government, the cap-and-trade program is expected to restrain GDP growth by just 0.3% between 2015 and 2020.

Sousa insisted that the $1.9 billion collected from the allowance auction has been earmarked for green initiatives, and not general revenues aimed at balancing the budget, as critics have charged.

Balance, Sousa insists, will be achieved by limiting average program spending growth to less than 2% until 2018-19. The budget also highlights $930 million in gains since 2013 by cracking down on tax avoidance and the underground economy.

As the province continues to borrow to fund deficits, the net debt is forecast to move above $300 billion next year for the first time in the province's history. That will push Ontario's debt-to-GDP ratio to 39.6% for this year and next, before it begins to fall modestly back.

Interest payments on that debt will reach nearly $12 billion in 2016-17, the third largest expense behind health and education. Still, Sousa said he expects credit agencies will view his budget favourably.

Opposition Conservatives called government revenue projections -- 3.9% average annual revenue growth between 2015 and 2019 -- far too optimistic, adding Sousa's budget succeeded only in making life less affordable for Ontarians.

Premier Kathleen Wynne warned ahead of the budget that the cap-and-trade program would raise gas prices by 4.3 cents a litre, or $8 month, and natural gas home heating bills by $5 a month. In other words, $13 a month for the average household.

Thursday's budget also outlined higher taxes for tobacco and wine, or so-called "sin taxes."

Taxes per cigarrette are going up 1.5 cents to 15.475 cents per smoke. Annual hikes will be indexed to inflation starting in 2017. The province expects to collect an extra $100 million in 2016-17.

When it comes to wine, you'll pay an extra 10 cents on a bottle that currently sells for $7.95. If your tastes run a little higher, expect to pay an extra 15 cents on a $13.75 wine. Although wine will be easier to buy, as sales come to grocery stores.

The budget forecasts Ontario's real GDP growth at 2.5% for last year (the final tally isn't in yet), 2.2% for this year and 2.4% in 2017.

The province said it remains on track to collect $5.7 billion from "maximizing the value of government owned assets," including the privitization of Hydro One. Sousa declined to say when the next tranche of Hyrdo One shares would be offered.

- with files from The Globe and Mail