The Ontario government will fund 60,000 new student places in colleges and universities over the next three years, Finance Minister Dwight Duncan announced Monday.

Duncan will make it official in Tuesday's provincial budget, but on Monday at Ryerson University he confirmed the new investment.

“Education remains a top priority,” the treasurer told reporters, noting he would like to see 70 per cent of Ontarians attending a post-secondary institution.

“We are determined to do more.”

The increased funding -- up to $300 million a year by 2015-16 -- is in part due to the fact that Ontario is slowly sailing out of a stormy sea of red ink with a revised and reduced deficit this year of $16.7 billion, sources said.

Government officials point out that is $2 billion less than the $18.7 billion budget shortfall most recently estimated for the 2010-11 fiscal year ending Thursday.

It is a full $3 billion below the projection of $19.7 billion made in the March 2010 budget -- further evidence Ontario has emerged from the world's worst financial crisis since the Great Depression.

“Not only have we turned the corner, but tomorrow’s looking better every day,” a senior insider, speaking on condition of anonymity due to budget secrecy, said Sunday.

“We are moving back to balance fairly quickly.”

It is encouraging news for Premier Dalton McGuinty with a provincial election set for Oct. 6 and his Liberals trailing Tim Hudak’s Progressive Conservatives in public opinion polls.

The change is thanks to a $2.6 billion reduction in program spending and $400 million less in interest payments, officials confided.

In Tuesday’s provincial budget, Finance Minister Dwight Duncan will forecast a 2011-12 deficit of $16.3 billion — down from the $17.3 billion he predicted last year.

Duncan will also reveal a 2012-13 shortfall of $15.2 billion, less than the $15.9 billion previously anticipated.

But Ontario is still not expecting to balance the books until 2017-18.

“Obviously, we’re doing better than planned . . . and we have overachieved,” said the insider, emphasizing the Liberals are just being prudent about when Ontario will be back in the black.

After weathering a global recession that battered corporate tax revenues and forced governments to borrow billions for stimulus spending, the official said pragmatism rules the day.

With a daunting provincial debt of $220 billion, which costs the treasury about $10 billion a year in interest payments, Duncan will use Tuesday’s budget to launch a high-profile “wise person’s commission” on the issue.

Bolstered by the clarion call of former federal finance minister John Manley, now president and CEO of the Canadian Council of Chief Executives, for “a war on debt,” the treasurer’s task force will study ideas for paying it down.

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As first disclosed by the Star’s Martin Regg Cohn, Duncan wants Ontarians to begin talking seriously about debt reduction.

“We need to develop a political consensus about this,” a senior official said Sunday.

“And we need to look at how do we get to a point where we can approach this . . . without the old Harris-Hudak slash and burn approach,” the source said, referring to former Tory premier Mike Harris’s drastic spending cuts after taking power in 1995.

Because Hudak was a minister in Harris’s cabinet after 1999, the Liberals believe he would follow a similar approach to governing.

While the current PC leader has yet to unveil his campaign platform, he has mused about cutting the 13 per cent harmonized sales tax.

Each percentage point drop would cost the treasury $3 billion in lost revenue.

Tories, however, counter that tax cuts stimulate spending, which boosts economic growth and creates jobs.

The Liberals have ruled out any cut to the HST, which melded the 8 per cent provincial sales tax with the 5 per cent federal GST last July 1, as unaffordable.

On Thursday, Duncan touted the fact his government has identified $1.5 billion in new savings over the next three years — largely by replacing four antiquated jails with two modern, efficient facilities in Toronto and Windsor.

“The good news is the economy is turning the corner to a brighter future. Our investments and the hard work of Ontarians are paying off,” the minister said in a luncheon speech to the Toronto Board of Trade.

“We also have to be realistic about the fact that those investments, designed to help our families, came at a cost to our government.”

“As a result, we face a challenge. It’s a challenge we can’t gloss over. The truth is the deficit and debt challenge belongs to everyone — regardless of age, gender, and, yes, political stripe.”

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