A major credit-rating agency is warning Ontario must do more to either control spending or jack up revenues if it hopes to get its budget back to balance.
Standard & Poor’s on Monday opted to leave the province’s rating unchanged, at AA– for long-term debt and A-1+ for short term credit with a negative outlook, sparing the Liberal government a downgrade just a week after reintroducing its budget. In a note, the agency cautioned that it could lower the province’s rating in the next year if it does not see progress towards the balanced budget.
“We believe Ontario’s current budget plan to restore budgetary balance by fiscal 2018 may not be achievable unless the province implements additional revenue measures or takes more aggressive cost-containment initiatives in the next three fiscal years,” the note read. “We expect to see these measures introduced in the coming months following the June election of a majority Liberal government.”
The Liberal plan to erase red ink mostly involves aggressively controlling costs: the budget promises the government will find hundreds of millions of dollars in savings, and limit spending growth to just 1.1 per cent. There are few details, however, on where cuts will be made. The budget also hikes income taxes on people making over $150,000 per year and jacks up levies on airplane fuel and tobacco.
S & P’s doubts that it will be possible to squeeze spending to the extent that the Liberals are promising, making a bigger tax hike necessary.
“In our opinion, it is a challenge for any province to sustain this low growth rate in spending, due to continuing pressures in health care and education. As a result, the government will likely have to look to revenue measures to bridge the gap,” the note said.
Ontario’s rating is the third-highest Standard & Poor’s category. Among Canadian provinces, it is two notches below triple-A rated British Columbia, Alberta and Saskatchewan, and one step up from Quebec.
The province also holds the third-highest rating with Moody’s. That agency two weeks ago changed its outlook on the province to “negative,” warning that it must see actual progress on erasing the deficit, and not just promises.
Economists and finance experts generally agree that the province’s debt is manageable. Although it is high in absolute terms – one of the largest among sub-sovereign jurisdictions – the province’s debt-to-GDP ratio is in the mid-range, at 39 per cent. The province’s economic growth, however, has been sluggish, meaning the government cannot rely on economic expansion to erase the deficit.
Ontario Liberals dodge credit-rating downgrade from Standard and Poorâ€™s - The Globe and Mail