Finance Minister Dwight Duncan says the global economic crisis has hit Ontario hard. (CBC)Ontario will run a deficit of $500 million this year rather than make steep spending cuts to cope with an uncertain economic future, Finance Minister Dwight Duncan said Wednesday.

He also downgraded economic growth to 0.1 per cent instead of the projected 1.1 per cent for the fiscal year 2008-2009.

"We are in the midst of a global economic crisis not imagined a few short weeks ago. It is spilling over into the real economy impacting Ontario families and businesses," Duncan said at the legislature while delivering his fall economic outlook.

'A deficit, followed by a plan for its elimination, represents a balanced response to today's global reality.'—Dwight Duncan, Ontario finance minister

"For that, the McGuinty government is equipped, prepared and determined to get through the challenging economic times."

The Liberals decided to protect health care and education funding and chose to run a deficit, Duncan told the legislature, adding it was a balanced response to challenging economic times.

Duncan also said Wednesday that the hiring of some 9,000 new nurses and 50 family health teams pledged in the March budget would be delayed.

"The McGuinty government will continue to implement its agenda, in a responsible and prudent manner, given the challenging economic environment," Duncan said. "A deficit, followed by a plan for its elimination, represents a balanced response to today's global reality."

On Tuesday, Premier Dalton McGuinty had ruled out any layoffs in the public sector, but said municipalities, universities, school boards and hospitals would feel some pain.

"All of our transfer partners … had anticipated certain kinds of growth in their funds based on our three-year projections that we do through our budget now. Well, we won't be able to live up to those original projections."

McGuinty has said the downturn could last for two years in Ontario.

Ontario's manufacturing sector has been hit hard in the wake of economic downturn in the U.S. while the global credit crisis has elicited gloomy economic forecasts across the country.

Total revenue is projected to decrease by $918 million from the 2008 budget forecast, while total expenses are expected to increase by $132 million.

Tory slams economic statement

Ontario's Progressive Conservative party reacted quickly to Duncan's economic statement, saying that just seven months ago, Liberals introduced a budget showing a surplus of $5.6 billion and an $800-million reserve.

Opposition Leader John Tory said the Liberals failed Wednesday to provide Ontarians with any real help.

"A month ago, the same minister [Duncan] boasted of reserves and contingencies, now he has a deficit," Tory said in a press release. "Was that due to incompetence, inaction, misleading numbers or all three?"

"Today was about making adjustments to the last budget, which very clearly signaled the challenges that were already present in the Ontario economy," Duncan told the CBC's Susan Bonner on Wednesday evening.

The Liberals put significant expenditures in the March budget that tried to address job losses in the province's flagging manufacturing sector. These included $1.5 billion in training for skills programs, along with improvements in infrastructure and greater support for research and development.

The budget also proposed eliminating the capital tax for manufacturers as well as providing incentives to innovative businesses.

B.C., Sask. look to sunny future

The Ontario plan came hours before Premier Gordon Campbell said in a provincewide television address he will recall the provincial legislature for an unplanned sitting this fall to implement accelerated tax cuts and other measures in response to the world economic crisis.

B.C. finance minister Colin Hansen has said he's expecting spending increases in his next budget, in light of higher than anticipated natural gas and drilling rights revenues. Last month, Hansen increased the budget surplus estimate to $1 billion from about $30 million, but downgraded the economic growth forecast from 2.4 per cent to 1.7 per cent.

Campbell has already ruled out running a deficit.

The previous day, Saskatchewan, in the midst of an economic boom, announced the biggest single-year tax reduction in its history.

Premier Brad Wall even visited Ontario last month, hoping to woo laid-off workers to his province.

With files from the Canadian Press