UPDATE 1-Ontario finds C$1.5 billion in budget savings

* Savings over 3 years include use of new jails

* Finance minister says won’t make deep cuts

* Last budget before October provincial election
(Adds details, CIBC commentary)

By Claire Sibonney

TORONTO, March 24 (Reuters) – Ontario has found C$1.5
billion ($1.55 billion) in savings to help tame its budget
deficit in coming years, but it won’t resort to major spending
cuts for fear of stalling the recovery, the province’s finance
minister said on Thursday.

The savings over three years include efficiencies that come
from using newer jails, said Finance Minister Dwight Duncan,
who is due to deliver the budget for Canada’s most populous
province on Tuesday.

“Thoughtless, across-the-board cuts would stop the economic
recovery in its tracks,” he said in a speech to a Toronto
business audience.

“There will have to be more to build on what we’ve done
already and it will also show people what our approach will be
in the coming years as we move to balance,” Duncan later told
reporters.

Duncan’s budget will be the last before a provincial
election scheduled for Oct. 6. Polls have shown the governing
Liberals, led by Premier Dalton McGuinty, trailing the main
opposition Progressive Conservatives, who have said they will
eliminate government waste and bloat.

Duncan said the province will examine other ways to save,
which could include selling some public assets, though he
seemed to rule out the sale of major government-owned
corporations such as the Liquor Control Board of Ontario, which
has more than 600 retail outlets across the province.

Ontario gave its last fiscal update in November, when it
said it would aim to eliminate its C$18.7 billion deficit by
2017-18. [ID:nN18109469] [ID:nN14214088]

“There should rightly be a focus on ensuring the economy
gets back to a solid footing before exerting too much fiscal
restraint, and I think that’s a message we’ve heard from the
minister pretty clearly,” Warren Lovely, a government
strategist at Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research), told
Reuters.

“But it’s also clear that deficit reduction may not be the
top priority for Ontarians and as a result I wouldn’t
anticipate a significantly more aggressive stance on deficit
reduction,” he added, noting the political element to the
budget.

Two years ago, Lovely said, budgets were about stimulating
the economy, last year they transitioned from stimulus to
restraint, and this year it will be about keeping on track to
fiscal restoration, particularly after Ontario’s credit ratings
were bruised.

Duncan recently said there would be no new taxes or tax
increases in the budget. He said on Thursday there would be no
tax cuts, but he did not rule out additional tax credits.

A report by TD Economics warned that that the province
should focus on cutting its deficit rather than reducing taxes.
It said the future is rife with risks and the province’s
sizable deficit and debtload would give it less room to
maneuver if there were a crisis.

CIBC’s Lovely noted that Ontario, Canada’s manufacturing
heartland, will have more leeway in the near term from a
stronger U.S. economy.

But the longer term hurdles remain a strong Canadian
dollar, high energy prices and the prospect of a slower U.S.
recovery — which will need to be balanced against maintaining
services.

Health care and education for example, Ontario’s biggest
priorities, make up 70 percent of the province’s spending.

($1=$0.98 Canadian)
(Additional writing by Jeffrey Hodgson; editing by Rob
Wilson)

UPDATE 1-Ontario finds C$1.5 billion in budget savings