Recently, two of the world largest rating agencies have downgraded Ontario’s debt. Canada’s largest province, once the economic engine of Canada, is now struggling to convince Ontarians that it’s plans to cut costs and balance the budget will work.
Ontario’s Ambitious Plans
The 2012 Budget passed weeks after it was tabled after Premier Dalton McGuinty finally agreed to the NDP’s “Fairness Tax,” that will increase income tax on incomes over $500,000. Finance Minister Dwight Duncan says this will lead to a lower than expected deficit this year because of the extra $470 million a year it will raise.
To win NDP support the Liberals will also increase welfare and disability support payments and put more money into child care and give one-time funding of $20 million to help rural and northern hospitals. All this and balance the budget by 2017.
Experts at Moody’s are not Impressed
Credit rating agency Moody’s downgraded Ontario’s debt last week to Aa2 from Aa1. It happened a day after competitor Standard & Poor suggested they might do the same.
One expert from the rating agency noted in a research report that, “the downgrade of Ontario’s rating reflects the growing debt burden and the risks surrounding the province achieving its medium-term fiscal plan.” Jennifer Wong, Moody’s lead analyst on the province adds, “Ontario’s subdued growth outlook, extended time frame back to balance and ambitious expenditure targets, are all cause for concern.”
This Could Make it Harder for Ontario to Borrow
The rating agency’s move could make borrowing for the province more expensive, and threaten the province’s 2017 plan to balance the books.
The real risk remains Ontario’s ability to convince foreign companies to set up shop in the province. Without outside interest Ontario’s ability to create new jobs remains difficult, and this means the provinces unemployment rate will remain higher than the national average.
Ontario – Still Lots to Discover
The financial hub of Canada is still in Toronto and that is a major positive for the province. Canada’s banking system remains the model for the world and having it based in Ontario will continue to create jobs and help the economy.
Also Canada’s auto industry which was decimated during the 2008 economic crisis continues to show signs of revival. It currently is directly employing 112,000 Canadians, and ultimately supporting 375,000 jobs.
Ontario still has the best land and water access to the U.S., our country’s biggest trading partner. The province also has many industries based here, farming, mining, financial services and health care. All this makes the province better diversified.
Duncan points out Moody’s new rating on Ontario is still higher than those of the two other major rating agencies. He is referring to DDBR and Fitch.
“At the end of the day, these agencies have a common message for us: They want the parties of this minority legislature to work together to hit the fiscal targets we’ve laid out,” he said in a statement.
In my opinion despite what the various rating agencies might say Ontario remains a strong province to invest and live in. And its return to its economic heydays is a reality, it will just take time.