Budget has debt agency sounding its alarm

Moody’s changes Ontario rating from ‘stable’ to ‘negative’ in warning shot to province

A major debt-rating agency is sounding the alarm on the Liberals’ big-spending pre-election budget. Moody’s Investors Service has changed the outlook on the province of Ontario’s ratings from “stable” to “negative” in the wake of Finance Minister Charles Sousa’s March 28 spending plan, which featured a $6.7-billion deficit.

While not a credit downgrade to Ontario’s “Aa2” rating, it is a warning shot.

“The outlook change to negative from stable on Ontario’s ratings reflects Moody’s expectations that spending pressure will challenge the province’s ability to sustain balanced fiscal results across multiple years,” the agency said.

“Furthermore, Moody’s assumes that the financing requirements will be larger than previously assumed, leading to an upward trend in the debt burden and a faster rise in interest expense than previously anticipated.”

“With an election set for June 7, the government released a 2018 budget that introduces a number of new spending initiatives and materially increases the capital infrastructure spending relative to previous plans.

“While this budget may not be implemented post-election, in Moody’s opinion, it highlights growing spending pressure that will need to be addressed in the near future.”

The rating service warned that “downward pressure on revenue generation would be amplified if the province were to face unexpected negative economic shocks.”

Progressive Conservative MPP Vic Fedeli said there are grave risks from spilling so much red ink. “Kathleen Wynne and the Liberals broke their promise to run a balanced budget for years to come, and are plunging Ontario into years of deficits,” said Fedeli (Nipissing).

“The Wynne Liberals are try- ing to buy the people of Ontario with their own money, and they need to realize there are consequences to their actions,” he said.

“Interest on our debt is already crowding out the services we all depend on like our schools, our hospitals and our roads. Ontario cannot afford a change in our credit rating.”

Wynne, for her part, emphasized that “the ratings agency maintained, confirmed, our rating.”

“It’s not a credit downgrade; it’s a forecast,” the premier said, noting “our economy is growing.”

“We are leading economic growth in the country; we’re outstripping the growth in the United States and … our unemployment level is the lowest that it’s been in 20 years,” she said.

“So those are really good indicators of a healthy economy, but, at the same time, not everyone’s feeling that. Not everyone’s feeling the benefit of that, and, so, my responsibility is to look at that and say ‘okay, what is it that people need at this moment?’ And what we hear from people around the province is that investment in them is what’s needed.”