Ontario’s credit outlook has been cut to negative by another major rating agency just as the Liberals announced the deficit will shrink faster and disappear sooner thanks to the NDP’s “tax-the-rich” scheme in the revamped budget.
Standard & Poor’s said Wednesday that the move — following a similar step by Moody’s in December — reflects concerns about “the minority legislature’s ability to meet what we view as challenging cost containment targets in the next one to two years.”
While Ontario’s credit rating on $235 billion in debt remains steady at AA, the negative outlook is a warning sign that the government must succeed in a public sector pay freeze along with other cuts to avoid a credit downgrade within two years.
Finance Minister Dwight Duncan said he “welcomes” the outlook change because it underscores the need for restraint as the government negotiates with doctors, teachers and other public servants.
“It sends a message to our bargaining agents and our bargaining partners … that there is no new funding for wage increases,” Duncan said.
Wednesday’s move does not impact Ontario’s borrowing costs, which would rise only if the province’s credit rating is downgraded.
Earlier in the day, he announced the fiscal situation is improving thanks to increased tax revenue from the new tax bracket for 23,000 Ontarians who earn more than $500,000 annually.
This year’s red ink will come in at $14.8 billion instead of the $15.2 billion projected in the March 27 budget document.
By spring 2018 — the year Duncan had been forecasting a balanced budget — there should be a $500 million surplus.
Even last fiscal year’s budget deficit will be $300 million lower at $15 billion because of the new tax, owing to technicalities that allow some revenue to accrue in the previous year, Duncan added.
The new income tax bracket — a condition for the NDP to allow Tuesday’s budget vote to pass and avert a spring election — will boost revenues by $300 million this year, then by $600 million in each of the next four years before tailing to $500 million in 2017-18 and being eliminated as the deficit is gone.
Those deficits should fall steadily to $12.8 billion next year, then $10.1 billion, $7.2 billion and $3.5 billion in 2016-17.
The changes are the result of days of negotiations between NDP Leader Andrea Horwath and Premier Dalton McGuinty to achieve a compromise.
Progressive Conservative finance critic Peter Shurman said S&P;’s warning is “terribly serious” and repeated his party’s call for more belt-tightening.
