With the help of increased federal transfers, the Liberal government of Ontario expects to be at least close to balancing its books over the next three years and probably be in surplus.

A small deficit of $400 million is projected in today’s budget for fiscal 2008, ending Mar. 31. Surpluses of $300 million and $400 million are forecast for fiscal 2008 and 2009. These numbers include reserves of $800 million, $1 billion and $1.3 billion respectively that, if not needed for unexpected expenditures or lower than anticipated revenues, will be available for additional spending, tax cuts or debt reduction. The province had a surplus of $310 million in fiscal 2007, a sharp improvement over the $2.4 billion deficit projected in the 2006 budget.

The budget incorporates the changes in federal-provincial fiscal arrangements announced in the Mar. 19 federal budget. These added $1.2 billion more in federal transfers in fiscal 2008 and about $500 million more annually from thereon. There are a couple of one-time or temporary federal transfers in fiscal 2008, including a $400 million payment related to Ontario’s costs in moving to federal corporate tax collection.

Most of the $500 million per year increase in federal transfers for the province in future comes from the increased funding for the Canada Social Transfer. This includes the move to equal per capita cash transfers; previously Ontario, as well as Alberta, had been receiving a good deal less than the other provinces.

As in the federal budget, families were front and center in Ontario Finance Minister Greg Sorbara’s election budget — the province goes to the polls on Oct. 10.

A new Ontario Child Benefit is proposed that will provide additional financial support for children in low income families, starting at $190 million in 2007 and rising to $765 million by 2011. Other programs that provide support for these children will be rolled into the Ontario Child Benefit over a number of years.

Ontario is following the federal budget in allowing pension income splitting but also plans to introduce a new Life Income Fund, which will replace all existing LIFs and LRIFs and which will provide more flexibility for seniors.

The new LIF will include an optional one-time unlocking of 25% of the funds. This can be done any point after the early-retirement date under the pension plan from which the assets originated.

The payment schedule in LIFs will also be amended to age 90 from age 100, thereby increasing annual income and permitting withdrawal of all the funds at age 90.

Sorbara also plans to eliminate the capital tax by July 1 2010, 18 months ahead of schedule, and move towards a standard business education tax rate of 1.6% in 2014 across the province, which will mean substantial declines for many businesses. The minimum wage is to be increased to $10.25 by 2010 from the current $8.

Ontario is also going to phase out by 2013 social service pooling in the Greater Toronto Area, whereby nearby municipalities contributed to social assistance costs in the city of Toronto. The provincial government commits to making sure municipalities who have been receiving financial support under pooling will have the funding they need.