A second credit rating agency put Ontario on credit watch Wednesday, just hours after the province announced last year's deficit was $300 million less than projected only a month ago.
Standard and Poor's revised its Ontario outlook from stable to negative, saying it was concerned about the minority government's ability to rein in spending and stay on track to achieve a balanced budget by 2017-18.
"The outlook revision reflects our view regarding the minority legislature's ability to meet what we view as challenging cost containment targets in the next one to two years necessary for the debt burden to peak in fiscal 2015 as planned," concluded Standard and Poor's in its report.
Moody's Investor Services took the same action last fall, but that was before the Liberals introduced an austerity budget that limited government spending increases to just one per cent a year for the next five years. S&P was concerned the Liberal government would not be able to keep spending that low.
"In our opinion, it is a challenge for any province to sustain this low growth rate in spending, due to the substantial cost pressures in health care delivery alone," said the ratings agency.
Finance Minister Dwight Duncan said the S&P report shows how important it is for the province to stick to its deficit-reduction targets, and warned an actual credit downgrade would prove very expensive for a province that already spends over $10 billion a year to service its debt.
"S&P says there’s a one in three chance it will lower Ontario’s credit rating in the next two years," said Duncan.
"If we don’t hit our targets we’ll end up paying more money to bond holders instead of for schools and health care."
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The deficit for the 2011-12 fiscal year fell to $15 billion from the $15.3 billion projected in the 2012 budget, in part because the government agreed to a two percentage point surtax on incomes over $500,000, said Duncan.
"Some of the tax will accrue in the previous year because of the way the tax system is set up," Duncan told reporters.
The Liberals agreed Monday to introduce the new tax bracket so the NDP would not vote against the minority government's budget and trigger another election. The Conservatives had already vowed to reject the budget, even if it meant defeating the government.