Governments are People, Debt is Debt

Moody’s credit rating agency changed the outlook on Ontario’s debt rating on July 2, 2014 to negative from stable, citing concerns about the province’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.  Failure to redress the fiscal challenges would add further pressures to a debt burden that has worsened in recent years,” Moody’s Investors Service said in a statement.

The change in outlook affects approximately $250 billion in debt securities, Moody’s said as it reaffirmed Ontario’s Aa2 ratings.

The ratings agency didn’t wait for the Liberals to introduce their budget July 14 before lowering the outlook to negative, but Premier Kathleen Wynne has said it will be identical to the May 1 fiscal plan that was rejected by the opposition parties, triggering the June 12 election.

Finance Minister Charles Sousa said the recently re-elected Liberal government remains committed to eliminating the $12.5 billion budget shortfall in three years, and blamed a weak economy and the federal government for the fact Ontario had to “adjust” its deficit targets for the next two years.

“Due to lower revenue growth and federal cuts to transfers, we have adjusted short-term deficit targets but remain on track to balance the budget by 2017-18,” Sousa said in a statement.

Once considering the apparent inability of the Ontario Liberals to take responsibility for the provinces current financial circumstances by blaming a weak economy and the federal government for their problems I would suspect that the chances are near nil they will balance the budget by 2017-18 as they claim they are “on-track” to do.

It has been our experience at Case that a debt only gets paid once the debtor takes ownership and responsibility for their debt.  Consumers and corporations are people.  Governments of the day are people.  We would anticipate the probabilities to be higher that we will see a credit rating downgrade long before the Ontario budget is balanced, unless of course someone takes responsibility.