When in doubt, get someone else to deliver the bad news for you. That seems to be the strategy of Ontario’s Liberal government, now in a minority position after two back-to-back majority terms and facing a chronically listing economy.

Like a grim New Year’s hangover, former Toronto-Dominion Bank economist and respected forecaster Don Drummond served up a seriously downbeat assessment of Ontario’s finances in the first days of 2012, part of a Liberal commissioned review of Ontario’s spending. Turns out the government of Premier Dalton McGuinty can’t possibly meet its promise to eliminate its $16 billion deficit by 2017-18 without sharp reductions in funding for many government services — in some cases, approaching 30%.

Yikes. After an October election campaign that included barely a whisper of fiscal trouble, replete with treats such as large tuition cuts for students, Drummond now says everything from education and health care to corporate taxes will have to be reconsidered.

Harsh realities are what’s driving Drummond’s message, he says. Instead of the 3.5% annual economic growth that prevailed over much of the past decade, Ontario’s future growth is likely to be in the 2% range — indefinitely — Drummond says. If something is not done to contain the escalation of the province’s debt, it could rise to $300 billion within five years. Ontario is also facing a possible credit- rating downgrade. (Currently, about $10 billion a year goes to debt-servicing costs).

Drummond is calling for reductions in the rate of yearly increases for core services — to 2.5% for health care and 1% for education, vs typical annual increases of 5%. But he doesn’t just want to cut back on spending, he wants to change the way government services are delivered. The most profound changes (if his 400 recommendations, to be formally delivered at the end of January, are adopted) will be in the health-care sector.

Drummond says he was “flabbergasted” to learn that 1% of the population soaks up about a third of total health-care spending, which accounts for about 40% of the province’s bills. Changes could include outsourcing some of the bureaucracy needed to administer provincial health care, as well as reducing hospital visits by delivering some services in other settings, such as long-term-care homes.

Drummond has also questioned the cost-effectiveness of key (some might say sacred) Liberal education initiatives, such as smaller class sizes in primary grades and full-day kindergarten.

And while taxes weren’t supposed to be part of Drummond’s review of government spending, they inevitably crept into the report. For instance, the plan to reduce corporate taxes further to 10% from the current 11.5% by the middle of next year should be shelved, he says.

The hard part, of course, is only beginning — deciding which of Drummond’s many unpalatable recommendations should be adopted. Public-sector unions, in particular, are likely to be defiant.

With the Liberals now having to placate both the New Democrats and the Tories, the looming battles are likely to be bloody.  IE