TORONTO -- As governments in Canada and the United States consider rescue packages for the struggling auto industry, Ontario Premier Dalton McGuinty warned Saturday that giving taxpayers' money to support the sector could drive the province's deficit into dangerous territory.
Ontario already had to revise its budget forecasts for this year to eliminate an expected surplus and instead post a $500 million deficit.
With mayors from 22 Ontario communities pressing the province to help save the industry, auto dealers begging for help and the automakers looking for cash, McGuinty said the demands on his government are only increasing as the economic times get worse.
"The auto sector demand alone could cause our deficit to dramatically balloon," McGuinty said after a speech to a Liberal policy conference.
"When it comes to the deficit, some people say `Well, what difference does it make?' Well, it makes a big difference. If we get caught with a major structural deficit, it becomes difficult if not impossible to get out of it."
Prime Minister Stephen Harper warned about the dangers of deficit financing at the Asia-Pacific Economic Co-operation summit in Lima, Peru Saturday, saying it's something Canada has had "bad experiences" with.
"We were once badly in a long-term structural deficit position. Federally, 27 straight deficits threatened the very stability of our economy," said Harper.
"We worked long and hard to get out of it and to educate the public as to why it was bad."
With more than 400,000 Ontario jobs at stake, McGuinty spoke about the "economic and social value" of the auto sector, making it clear the province intends to offer financial aid, even if it means adding more red ink to the books.
"We've got to balance public support and what that means in terms of costs and the absence of support -- the failure of the industry -- and what that means in terms of costs," he told reporters.
"It makes for a real challenge for us."
Analysts warned Friday that General Motors could soon be forced to seek bankruptcy protection if a U.S. government bailout package isn't worked out soon, saying the auto giant could run out of cash before January.
Federal Industry Minister Tony Clement and Ontario Economic Development Minister Michael Bryant's visits to Detroit and Washington this week helped give a clearer picture of the situation the automakers face in the United States, McGuinty said.
"It was an opportunity for them to get a sense -- even if they didn't get all the meetings that would have liked -- they got a feeling for how things are unfolding there, which is very helpful to us."
McGuinty cautioned the auto companies that provincial support would not be automatic, and said taxpayers want to know the companies and unions have a strategy to get out of the current mess.
"I think Ontarians are bringing both goodwill and a healthy skepticism to the table," he said. "But they are going to have to demonstrate to us that they are prepared to do what it takes. Let's see some specific plans. Let's get some reliable assurances things are going to get better."
However, McGuinty said taxpayers and governments also have to be realistic in demanding that car makers to switch to smaller, more fuel efficient cars and trucks, noting that five out of the top ten selling vehicles in Canada are trucks and mini-vans.
"We buy a lot of trucks and big vehicles, and we need to be honest about the demands we place on the auto sector," he said.
"If we want them to produce more fuel efficient vehicles, I think we have to buy more fuel efficient vehicles."
