By Steven Lamb / March 26, 2009

The province of Ontario will face a massive deficit over the next seven years, as the government struggles to right the economy.

Finance Minister Dwight Duncan has projected a massive $56.8-billion deficit over seven years, as the province's coffers are drained by falling revenues and rising stimulus spending.

"The global crisis has reduced our government's revenues," he said. "Total tax revenues declined and will probably do the same in the years ahead."

The budget allows for $32.5 billion in infrastructure spending over the next two years, including $5 billion from Ottawa. Duncan said this should provide jobs for 300,000 Ontarians.

The budget also promises tax cuts which will benefit 93% of taxpayers, with those earning under $80,000 expected to save 10%.

The Ontario Child Benefit will be accelerated to provide up to $1,100 per year, per child to low- and middle-income families.

But the budget was not all handouts and taxcuts. The government plans to reduce the number of public service jobs by 5% over the next three years, through attrition and layoffs. Members of Provincial Parliament will have their salaries frozen for the coming year.

The budget would cut the corporate income tax rate from 14% to 12% by July 1, 2010, then again to 10% in 2013. The small business tax rate will fall from 5.5% to 4.5% by July 2010.

Goodbye PST, hello HST

Investing through mutual funds may get a lot more expensive, as the budget included plans to harmonize that province's sales tax with the federal GST. The new HST will come into force July 1, 2010, at a rate of 13%.

To ease the transition to the new tax, the government is planning to dole out cash payments. A family earning $160,000 or less will receive $1,000, rationed across three payments, starting June 1, 2010. A single person with an income of $80,000 or less will get $300.

The mutual fund industry voiced opposition to the plan, even before it was announced, with CI Funds' president Stephen MacPhail even threatening to move the firm to Alberta, which has no provincial sales tax.

Harmonization could also stymie the real estate market, according to the Ontario Real Estate Association. The group estimates homebuyers would pay between $1,750 and $2,325 more in taxes on a range of services involved in a closing the deal.

"Now is not the time to be erecting barriers to homeownership," said Pauline Aunger, president of OREA. "We need consumers to invest in housing to help get our economy going again.

"These additional taxes could price some homebuyers, especially first-time homebuyers, right out of the market."