Ontario Public Service Employees Union president Warren (Smokey) Thomas says he was disappointed in the province's budget plans for public sector wage increases. (Nathan Denette/Canadian Press)

Ontario labour leaders say the provincial government can expect difficult negotiations for new collective agreements after the Liberals introduced a budget hinting at wage freezes and limiting new funds for health care.

Ontario Finance Minister Dwight Duncan tabled a budget on Thursday that mapped a slow road to balancing the province's books, projecting deficits until 2017-18 and offering little in the way of new spending or direct cuts to programs.

It froze wages for non-unionized public sector workers for two years, but also referred indirectly to unionized public sector workers when it based its deficit projections on no increases in future collective bargaining agreements.

Ontario Public Sector Employees Union president Warren (Smokey) Thomas said the plan sets up adversarial negotiations in the future, particularly in light of the province's plan to increase hospital budgets by only 1.5 per cent, or about half of what the Ontario Hospitals Association said was needed to maintain the status quo.

That sets up a threat of future hospital layoffs, he said.

Looming battle over hospital budgets

"We are disappointed that the government would declare, without consultation, that thousands of these workers will see their incomes go down for the foreseeable future, or lose their jobs," said Thomas.

Ontario Nurses' Association president Linda Haslam-Stroud, said the budget means more cuts to services and nurses.

"The government continues to say that nurses are the backbone of the health-care system, but the cuts are breaking our nurses' backs," said Haslam-Stroud in a statement. The ONA estimates that some 1,800 RN positions have been cut in the last eight months as hospitals tighten their belts.

Michel Bilodeau, the CEO of the Children's Hospital of Eastern Ontario, said the hospitals' response to the 1.5 per cent increase will depend on how unions react. But he said salaries in health care have risen almost 80 per cent over the last decade, or about three times the rate of inflation.

"So I think it's appropriate that we take a rest for two years," he said.

With files from The Canadian Press