Yesterday Fitch, one of the major credit/bond rating firms, downgraded their rating of Ontario bonds from AA to AA-. From HuffPost,
"Budget options are likely to prove more limited given the extent of actions taken to date and use of one-time actions to achieve targets, in Fitch's opinion," the agency said.
"The downgrade to AA- reflects Fitch's concern that risks remain to achieving its goals and both debt burden and the accumulated deficit will remain significantly elevated."
But really, just about everyone saw this coming. From the same article,
Moody's credit rating agency changed Ontario's debt rating in July to negative from stable, citing concerns about the province's ability to eliminate the deficit as scheduled.
And also,
Ontario's auditor general issued a similar warning last week, cautioning that despite Ontario's work to eliminate its deficit, the province's rising net debt — the difference between its liabilities and its total assets — could have a number of negative implications for its finances in the future.
By 2017-18 the province's net debt will have soared to $325 billion, more than double the $156.6 billion a decade ago, the report estimated.
Auditor general Bonnie Lysyk's report noted that the government now spends more on debt interest than it does on post-secondary education, and those interest costs are growing.
What surprises me is that, given all these budgetary concerns, Ontario's credit rating is as high as it is. Yes, the gubmnt has the power to tax, but that is a limited option. And while the gubmnt can also reduce the outflow of funds, the current gubmnt has shown no inclination to do so.
To put things differently, see this study released last week by The Fraser Institute, which presciently said:
Ontario’s provincial debt has grown by $117 billion since the recession, largely because of government borrowing to fund day-to-day expenses — not investments in infrastructure ...
“Governments typically borrow money as a means to finance long-lived assets such as roads, schools or hospitals. In Ontario’s case, the province has gone deeper into debt to pay for day-to-day expenses such as the salaries and pensions of government employees and is passing the bill on to future generations,” ...
The study concludes that the growth in debt is unsustainable and will require a change in fiscal direction including a marked reduction in spending.
“If the Ontario government fails to change course, its unsustainable fiscal policies could provoke further credit rating downgrades, higher borrowing costs and spiralling interest payments,” said Charles Lammam, Fraser Institute associate director of tax and fiscal policy.