(Updates with details throughout)

By Lynne Olver

TORONTO, March 22 (Reuters) - Ontario, Canada's richest province, forecast a small budget surplus of C$350 million ($302 million) for the next fiscal year on Thursday, as it embarks on a broad social spending program ahead of a provincial election to be held later in the year.

The budget for the 2007-08 fiscal year allocates almost C$91.2 billion to spending on government programs as well as interest payments, while total revenues are seen at C$91.5 billion. The budget contains no tax increases and few new incentives for business.

Finance Minister Greg Sorbara, whose Liberal government faces a provincial election on Oct. 10, said the 2007-08 plan will be the government's second consecutive budget surplus, and he hailed a new era of sustainable surpluses.

"We're keeping the commitment that we made a year ago to get our financial health in order," Sorbara said at a news conference.

For the current fiscal year, ending March 31, Ontario forecast a surplus of C$310 million due to higher revenues than previously forecast and lower interest payments. The government expects surpluses to swell to C$1.3 billion for 2008-09 and to C$1.6 billion for 2009-10 as revenues outpace projected program spending.

New money to alleviate child poverty and improve housing, plus a boost to the minimum wage, are key social measures for the next fiscal year, with a modest increase in health and education spending.

An Ontario Child Benefit, amounting to C$2.1 billion over five years, is proposed for low-income parents. The provincial minimum wage, currently at C$8.00 an hour, is projected to rise in three steps to C$10.25 by 2010, although the first increase would not kick in until March 2008.

"Telling someone who is working for C$8 or C$9 an hour today that three years from now, something might be done to help them is empty at best," said Howard Hampton, leader of the opposition New Democratic Party.

"A JOB KILLER"

Tax breaks for the corporate sector are largely absent in the budget, aside from a seven-year plan to cut business education taxes by C$540 million. That is designed to narrow the wide range of education tax rates that businesses pay in communities around Ontario, and will affect thousands of companies and manufacturers, Sorbara said.

The government also plans to speed up, by 18 months, the elimination of the capital tax levied on equipment, machinery and other assets. It is now due to disappear in July 2010.

"Everyone agrees it was just a job killer," Sorbara said of the capital tax.

Total infrastructure spending -- a hallmark of the Ontario budget a year ago -- is projected to decline to C$5.95 billion from about C$6.65 billion.

The government predicted Ontario exporters, hurt in recent years by a sharp jump in the Canadian dollar and competition from emerging markets, will make a gradual comeback, but the auto sector will face "ongoing challenges". Auto production, the backbone of Ontario's manufacturing sector, is seen flat in 2007, after dropping 4 percent in 2006.

Provincial economic growth is projected to be a lackluster 1.6 percent in 2007, then pick up steam to 2.8 percent in 2008, according to private-sector and provincial finance ministry forecasts.

The province's total debt is expected to hit C$157.1 billion at March 31, up from C$154.9 billion a year earlier, although net debt as a percentage of gross domestic product is expected to decline over time.

"Despite being awash in cash, (Liberal leader and Premier) Dalton McGuinty continues to push Ontario deeper and deeper into debt" with his spending spree, Opposition Leader John Tory of the Conservative Party told reporters.

The budget plan describes environmental protection as "an economic imperative", but contains few major announcements. The Ontario government plans to unveil a clean air plan later this spring.

($1=$1.16 Canadian)

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