A majority win in last month’s provincial election was surprising. The rating agencies’ reaction to Kathleen Wynne’s ill-considered budget was not.
This week, Moody’s Investors Service downgraded its outlook on Ontario’s debt from stable to negative, indicating it, like anybody who’s looked at the numbers, has no faith in the government’s ability to bring its deficit under control. And certainly not by the extended date of 2017-18.
This was a foregone conclusion given the government’s inability to control spending, manage taxes or tackle corruption and waste. The books will continue to haemorrhage.
The change in the outlook reflects Moody’s assessment of risks surrounding the province’s ability to meet its medium term fiscal targets, says the agency. Higher deficits and weaker growth don’t add up to improvements.
If the province’s overall credit rating falls, it will cost more to borrow money – which the government plans to do, spending more than it takes in – adding to the debt-servicing fees in excess of $10 billion a year.
Having pledged to reintroduce the budget that led to the fall of her minority government, Wynne is essentially telling Ontarians to expect more of the same poor economic performance we’ve seen under her watch. Having relied on public sector unions to vote for her and to spend millions on ads attacking former PC leader Tim Hudak in particular, Wynne is now beholden to the very groups responsible for massive spending increases and declining performance: residents are paying more and getting less all the time.
More of the same is likely to see the province’s creditworthiness slide.
“Ontario’s rating could be downgraded if the province fails to provide clear signals of its ability and willingness to implement the required measures to redress the current fiscal pressures.” Moody’s notes. “Furthermore, if medium-term debt affordability were to deteriorate due to higher-than-expected increases in debt levels or a significant rise in interest rates, the province’s fiscal flexibility would be reduced, exerting downward pressure on the rating.”
Growing concerns about fiscal mismanagement will certainly mean cutting wages and benefits to public employees, as well as significantly reducing the number of people on the payroll. Wynne, a former education minister, previously made conciliatory noises towards the province’s teachers, who remain disgruntled by predecessor Dalton McGuinty’s attempts to curb runaway spending in that sector.
Having bolstered Wynne in last month’s election, they’ll be expecting plenty of goodies at taxpayers’ expense, even above and beyond the inadvisable extension of all-day kindergarten, an attempt to justify more hires and spending even as enrolment drops.
Sooner or later, Wynne will have to make cuts and do what’s right for Ontarians who have no stomach for deficits and increased taxes. With that in mind, the government will have to focus on job creation and growth in the real economy, while curbing its own spending, shrinking the civil service and rolling back public sector wages.
You can bet the premier will be looking for more money from Ottawa, but, again, wages will be a big part of the equation while trying to reel in costs that have far outstripped inflation and economic growth. As the two biggest draws on the public purse, health care and education will need the most attention: we can no longer throw money away as we have in the past.
