One of the world's leading credit-rating agencies has provided the most urgent warning to date of the perilous financial condition of Canada's largest province.
But Moody's Investors Services has also done a big favour to the man in charge of that province's books.
Ontario Finance Minister Dwight Duncan has been struggling to persuade both his fellow Liberals and the general public that it's time for some blood on the floor. And now that Moody's has changed its outlook on the province from "stable" to negative," he should have an easier time finding a receptive audience.
While Ontario has for the time being maintained its credit rating of Aa1, the agency warned that an inability to tackle debt and deficit problems could lead to a downgrade. That could both dissuade investment in the province's already struggling economy and add to the borrowing costs of a government currently $16-billion in the hole – conjuring images of the turmoil that has recently engulfed Europe.
Mr. Duncan will be reluctant to draw that comparison too much, at least in public, and, indeed, Ontario is still a long way off from Greece or Italy or Spain. But he may not entirely mind if others do so, because as the most hawkish member of the provincial cabinet, he's in the early stages of a pitched battle over how tough the next budget should be.
It was only this fall that Dalton McGuinty's Liberals campaigned for re-election on a moderately optimistic message about Ontario successfully navigating its way through stormy economic seas. Along with the other two leading parties, they glossed over the austerity measures that would be required of the provincial government in the months and years ahead. So Mr. Duncan now faces a tall task in making the case to Ontarians that, in fact, it's time for major spending cuts.
But perhaps his biggest challenge is internal. While he has some support in the Premier's Office, most members of his party did not enter public life because they wanted to make government smaller. Nor, in a minority government, are they necessarily eager to risk falling on unpopular austerity measures. But Mr. Duncan needs his colleagues, fellow ministers in particular, to drive those measures down through a bureaucracy that has its own reasons to resist them.
Sources say that, at more or less every caucus meeting of late, the Finance Minister has delivered a message that's much blunter than the (still fairly grim) one he's recently offered in public. But insiders give mixed assessments of how much buy-in he's been getting.
Mr. Duncan, and to some extent, Mr. McGuinty, have been counting on the coming report by Don Drummond to light a fire under all concerned. The former bank economist commissioned by the government last spring to conduct a review of public services is expected to be unsparing in his assessment of the financial challenges ahead – so much so that some senior Liberals have quietly been wondering what they got themselves into.
Now, that fire has perhaps been lit a little earlier. News of the potential credit trouble has given both the Liberals and the broader population something to think about as they head into the Christmas holidays, and will be an inescapable topic when budget preparations begin in earnest early in the new year.
"If a credible plan to address the fiscal imbalance and stabilize the debt burden is not implemented in the next provincial budget," the lead Moody's analyst for Ontario warned on Thursday, "downward pressure on the province's Aa1 rating would emerge."
Mr. Duncan could hardly have put it better himself.