The Ontario government's plan to largely erase its record deficit by reining in public-sector wages is in tatters after an arbitrator's ruling awarded a pay hike to thousands of hospital workers.

The ruling could force the province's cash-strapped hospitals to make painful cuts to front-line patient care in order to reward employees with pay raises, say health-care experts and union leaders. The government has made it clear it won't provide one extra cent for wage increases over the next two years.

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