Moody’s warns Canadian provinces on debt and credit ratings (You listening, Ontario?) – by Michael Babad (Globe and Mail – May 22, 2014)

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Debt and taxes

Moody’s Investors Service is warning some of Canada’s provinces to get their act in gear lest their credit ratings face further pressure.

Moody’s, one of the world’s major agencies, didn’t single out any province in a new report released yesterday, pointing out that seven are in deficit. But its debt-to-revenue measure puts Ontario at the top of the naughty list.

Ontario, of course, is in the midst of an election campaign that pits the Liberals against the Conservatives as to who forms the next government.

The governing Liberals have presented a credible budget for these uncertain times, though it misses their original short-term target, forecasting a $12.5-billion shortfall, while still pledging to balance the books in line with the longer-term plan.

They also plan a jobs fund, billions in infrastructure spending and a focus on social services. The Tories, on the other hand, promise to balance the books far earlier, slash public sector positions and create a million jobs over an eight-year period, the latter being a wonderful catch-phrase but about as unrealistic as election promises come.

Both parties should take note of the latest from Moody’s, which puts net debt as a percentage of revenue at 237.7 in the 2014-15 fiscal year, the highest in the country.

Not only the highest, actually, but far and away above the next in line, Quebec, at 189.5.

The lowest is Alberta, at 31.9.

Alberta and British Columbia are alone among the provinces in holding a triple-A rating with Moody’s, the former deemed “stable” and the latter “negative.”

“Most Canadian provinces maintained their ratings and stable credit outlook through the financial crisis and subsequent slow recovery,” Moody’s said in its report.

“However, the continued accumulation of debt and difficulty in returning to balanced budgets is increasing negative credit pressure for some provinces.”

Moody’s noted that several of the provinces are reluctant to cut spending growth much more. Health care, in particular, is going to be a big issue.

“With populations aging in many provinces, health care will continue to be an expense that we will monitor carefully in terms of pressure it applies on fiscal outcomes.”

For the original version of this article, click here: http://www.theglobeandmail.com/report-on-business/top-business-stories/moodys-warns-canadian-provinces-on-debt-and-credit-ratings-you-listening-ontario/article18790943/#dashboard/follows/