Liberal throne speech day marred by Moody’s ‘negative’ debt outlook
ABOVE: Premier Kathleen Wynne repeatedly defended her position that the budget will be in balance by 2018 despite a variety of new spending
TORONTO – Premier Kathleen Wynne and senior cabinet ministers Thursday downplayed a move by Moody’s Investors Service to change Ontario’s debt outlook from stable to negative, but the Opposition predicted an expensive credit downgrade will soon follow.
Moody announced the change in the province’s outlook late Wednesday, while affirming Ontario’s Aa2 credit rating, citing concerns over the Liberal government’s ability to eliminate a $12.5 billion deficit by 2017-18 as scheduled.
“After several years of weak to moderate economic growth, and higher than previously anticipated deficits projected for the next two years, the province is facing a greater challenge to return to balanced outcomes than previously anticipated,” the ratings agency said in a statement.
After the throne speech outlining her government’s priorities, Wynne said she was committed to balancing the books in three years but would also make strategic investments in transit, skills training and education to help create jobs and grow the economy.
“I don’t think you first deal with the deficit and then build up people’s skills and talents and then make sure you have the appropriate infrastructure,” she said.
“The reality is that a strong economy thrives when there is strong infrastructure, when there’s an educated workforce.”
Finance Minister Charles Sousa said the Liberals run the lowest cost government in Canada per capita, and claimed credit rating agencies and the banks that loan the government money aren’t worried about its massive debt load of nearly $290 billion.
“The bankers aren’t freaking here,” Sousa told reporters. “What has happened is the degree of revenue has not met expectations, that’s really the issue.”
But the Opposition said the move by Moody’s was entirely predictable because the Liberals said the July 14 budget will be identical to the May budget that triggered last month’s election, a fiscal plan the agency called a “credit negative.”
“The signal from Moody’s that they’ve downgraded their outlook, somebody is freaking,” said Progressive Conservative finance critic Vic Fedeli. “I think one of the first things Minister Sousa needs to do is acknowledge there is a problem.”
Credit ratings agencies waited until after the June 12 election before commenting on the budget, which contained $5.7 billion in new spending, as a “courtesy” to avoid interfering in the campaign, added Fedeli.
“There’s a deteriorating financial position in Ontario and it’s recognized now by the agencies,” he said. “You can’t continue to spend and reduce the deficit at the same time, it’s just physically impossible to do both, yet they claim to be doing both.”
The New Democrats called Moody’s change to a negative outlook “a concern,” and said the Liberal government would have to consider tax hikes in addition to better controlling spending.
“One of the things we thought was important was to bring new revenue for some of these infrastructure projects with a slight increase in the corporate tax rate,” said NDP Leader Andrea Horwath.
“The Liberals decided not to do that and instead they’re going to try to freeze wages and create an atmosphere of reductions that people will be surprised by.”
Treasury Board president Deb Matthews, who was given expanded powers to find hundreds of millions of dollars in more savings each year, suggested the negative outlook from Moody’s wasn’t that important.
“I wouldn’t say I’m worried about it,” she said. “We know there’s a challenge and that’s why we’ve created this new position as president of the Treasury Board to focus on this challenge.”
The Liberals insisted they will not eliminate civil service jobs to balance the budget, which Sousa said can be done on schedule without taking “extreme measures” or by cancelling planned spending on transit, infrastructure and job creation.
“There are some out there who would suggest that we take measures of greater austerity at the expense of the livelihood of individuals, that’s dangerous and that puts us in economic peril,” he said.
Eleven billion dollars a year in interest charges is already the third largest expenditure in the Ontario budget, behind health care and education, and would go even higher if the province’s credit rating was downgraded.
The negative outlook from Moody’s will be followed by a credit downgrade not only for the province, but for municipalities, electricity utilities, universities and other agencies funded by the government, predicted Fedeli.
“The biggest concern is that it will take away money that could be spent on services,” he said.