Ontario's deficit is expected to reach $24.7 billion in the current fiscal year, provincial Finance Minister Dwight Duncan announced Thursday.

And the province's economic output is expected to show a decline of 3.5 per cent for 2009, Duncan said in the Ontario Economic Outlook and Fiscal Review, which he released at Queen's Park.

Declining corporate tax revenues and increasing demand for public services have dragged down the government's bottom line, Duncan said.

Corporate tax revenues dropped by an "unprecedented" 48.1 per cent in 2008-09, or by more than $6 billion, the report says.

Despite a deficit of up to $24.7 billion in 2009-2010, Ontario Finance Minister Dwight Duncan says he has 'every confidence Ontario will come through this recession.' (Chris Young/Canadian Press)

And the economic downturn forced more people to depend more heavily on public services like social assistance, skills training and health care, Duncan said.

Employment in the province dropped three per cent, or by 205,200 jobs, from 2008, the report says, with jobs in the auto sector down by 25.5 per cent in the first nine months in 2009 compared with the same period in 2008.

The report singles out the struggling auto industry as a unique expense, and a "distinct challenge and opportunity." Ontario pledged $4 billion in emergency loans in December to support the Canadian subsidiaries of U.S. automakers Chrysler and General Motors.

Other investments in infrastructure, skills training and reshaping the province's tax system "ensure that we are ready for growth," Duncan said.

'Some signs of recovery'

The province has seen "some signs of economic recovery," he said. "Financial markets have started to stabilize; equity markets and housing markets have improved."

Ontario's international exports increased in June, July and August, and the province's labour market has shown modest job gains in the same period, he said.

The projected $24.7-billion deficit for the year ending next March 31 "is generally consistent with the size of Ontario’s economy, relative to the Canadian economy — and generally consistent, proportionally, to the federal government’s deficit," Duncan said.

Duncan originally predicted a deficit of $14.1 billion when he presented this year's budget in March.

"I have every confidence that Ontario will come through this recession — wiser, more efficient, more competitive, stronger and ready for economic growth," he added. "We have the fundamentals in place: a highly skilled workforce, a strong education system and a passion for innovation."

'A $25-billion deficit represents a historically dismal performance.'—PC Leader Tim Hudak

Duncan's report was met with jeers and laughter from opposition members.

"Now, it's official: Canada's worst government is now running Canada's worst deficit," responded Progressive Conservative Leader Tim Hudak.

"A $25-billion deficit represents a historically dismal performance, and this minister and this premier should be ashamed about their performance and what they've done to the province of Ontario," Hudak said, referring to Duncan and Premier Dalton McGuinty.

The report is "same old, same old" and contains "absolutely no new plans that are going to help ordinary people," NDP finance critic Michael Prue said.

"They can expect, out there, Mr. Speaker, to get whacked in the months ahead," Prue said.

Leaner and meaner?

NDP Leader Andrea Horvath seized on a comment by Duncan that the government will be leaner and meaner.

"They should have got leaner and meaner with their consultant friends that they were spending a million dollars a day on," she said. "Instead of addressing the problems people are facing in Ontario, the McGuinty government is making things harder for them. They are asked to pay more, yet they get less.".

The report is the first step in developing next year's Ontario's budget.

Next, the Ontario Treasury Board will consider how the government will return to "firmer fiscal footing and balanced budgets, while protecting key services," Duncan said. The board's report, and details of any possible cuts, won't come until the March budget.

Duncan said the global recession has led to a near 12 per cent contraction in world trade this year, and reduced Ontario's economy to the same size it was in 2005.

He now projects deficits of $21.1 billion in 2010-11 and $19.4 billion in 2011-12.

However, he and McGuinty have promised to protect the key priorities of health care, education and job creation, and said they plan to go ahead with full-day kindergarten for four- and five-year-olds. The government will also set aside $650 million in the fight against swine flu.

Ontario is also moving ahead with a plan to merge sales taxes that will provide tax cuts for corporations as well as a reduction for low-wage families — reducing tax revenue by $2.3 billion over four years.

With files from The Canadian Press