Finance Minister Dwight Duncan dropped a bombshell in my column last week when he warned that some ministry budgets will be slashed by one-third — part of the sweeping restraint and restructuring exercise now underway.

The full extent of those cutbacks has largely escaped public notice because they are buried in the deceptively cruel calculus of the coming budget:

To protect health care (allowed to rise 3 per cent) and education (1 per cent), all other departments must take a hit. That’s the only way to bend the cost curve to a 1 per cent overall budget increase, allowing Ontario to wipe out its $16 billion deficit by 2017-18.

“You’re talking about real cuts of upwards of 33 per cent in some ministries,” Duncan told me. “You’re right — some of them are going to be enormously controversial, politically.”

And one controversy begets another.

Wednesday’s gloomy fall economic statement will make clear that the worst is yet to come. So is there any way to help the new minority Legislature face Ontario’s inconvenient fiscal facts?

The New Democratic Party keeps posing a good question to the Liberal government: If we are all being asked to sacrifice because government expenditures must be reined in, why not shore up the revenue side of the equation to ease the pain?

Ontario is in the process of cutting corporate tax rates to historic lows. In the 2008 budget, the Liberal government announced a phased reduction from 14 per cent to 10 by mid-2013.

NDP Leader Andrea Horwath argues that there is still time to reverse the process, preserving hundreds of millions of dollars in foregone revenue at the very time that billions of dollars must be found to balance the budget. The combined federal-provincial tax rate in Ontario is lower than in the U.S., which seems overly generous at a time when corporations are reaping the benefits of the more business-friendly HST.

Her views are hardly heretical. None other than Premier Dalton McGuinty railed against corporate tax cuts for years in opposition and in power, until he suddenly changed course in 2008. Under Michael Ignatieff, the federal Liberal party campaigned vociferously for a freeze in corporate tax cuts in the last election.

McGuinty’s sudden conversion suggests he has found religion on corporations. When I asked about it in the election campaign, the premier ruled out acquiescing to the NDP — even if he needed their support in a minority scenario.

But the debate over corporate taxes extends beyond a house divided: Cabinet is also divided on the issue.

Some Liberal ministers have openly questioned the premise that corporate tax cuts are sacrosanct while everything else is on the table. The ideological cleavage emerged when Don Drummond, who is heading the commission on reform of Ontario’s public sector, briefed cabinet recently on the deficit situation.

McGuinty and his finance minister aren’t budging, because they know they have the support of Progressive Conservative Leader Tim Hudak, whose own campaign platform promised to match the Liberal corporate tax cuts.

Still, it’s a populist issue true to the NDP’s roots. Despite the hyperbole from Duncan about “job-killing taxes,” the New Democrats aren’t suggesting punitive measures against corporations, merely a more measured — and measurable — approach that rewards job-creation with specific tax incentives. That’s different from the blank cheque that comes from giving all corporations a break, whether or not they re-invest in new equipment or create jobs.

Drummond’s interim report is due in January, setting the stage for a tough budget in March. To stanch the red ink, there will be blood on the floor — except for blue chip corporations that remain unscathed.

At that point, more people may wonder: Why are ordinary Ontarians expected to sacrifice while corporate Ontario dodges the bullet?

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Martin Regg Cohn’s provincial affairs column appears Tuesday, Thursday and Sunday. mcohn@thestar.ca, http://twitter.com/reggcohntwitter

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