Credit rating agencies hold a lot of power
June 26, 2014
The provincial Liberal Party was voted into office with a majority government. Are they in charge of our financial future or will that be in the hands of the credit rating agencies that decide our credit worthiness?
Ontario’s credit rating determines the interest rate we pay to borrow money. If we are deemed to be a financial risk then we will have to pay a higher interest rate to attract investors to lend us money.
Those credited rating firms have influenced fiscal restraint in the past and will likely do so in the future. They could be the invisible hands that steer our future.
The prosperity of the province of Ontario affects the prosperity of us all. Premier Wynne has the task to steer us back to the strong provincial economy that we once enjoyed.
Individual investors can be pro-active and through sound financial planning, do what it takes to enjoy financial success. However, our personal success is tied to the success of the province we all call home.
If Ontario fails then we will all suffer. Provincial services like health care and education are expensive and require a healthy economy generating sufficient tax revenue to balance the books.
Balancing the books will be Premier Wynne’s biggest challenge. Her success with financial management will define Ontario’s financial strength in the years ahead and greatly impact everyone’s financial stability.
Premier Wynne was elected on June 12th because she ran a sound campaign based on moving Ontario forward. Her vision of spending heavily on public transit and introducing a new provincial pension plan proved to be popular with voters.
A part of her election success in forming a Liberal majority government was based on aggressive attacks by many unions on the Conservative party. Will these unions that represent many provincial government workers expect the Premier to allow those workers to receive wage increases?
The May provincial budget she introduced was big on spending. The budget was defeated by the Conservatives and the NDP which is the reason an election was called. Her promise is to reintroduce the same budget.
Since the election, Premier Wynne has emphasized the need for fiscal restraint. Her ally in that financial restraint is the credit rating agencies.
If Ontario continues to live beyond its means, our provincial debt of $300 billion will continue to grow. That with certainty will downgrade our creditworthiness.
We spend $11 billion on interest charges now. That is estimated to increase because we continue to spend more than is collected in taxes. At some point, the current historic low-interest rates will rise and that will magnify the problem.
If Ontario does not implement sound fiscal policies and we have to pay more to borrow money, then the rules of governance change significantly. Action will be needed and that action could further stall the Ontario economy.
Higher taxes and decreased provincial spending will slow our economy which reduces tax revenues. It can be a vicious downward spiral.
You have heard the popular expression “the rich get richer”. The opposite is true. “The poor get poorer “and many of us will feel the effect if Ontario heads in that direction.
We have a lot at stake. Our standard of living would be affected if Ontario does not implement better financial management.
The Liberal majority gives them four years to manage our province with no meaningful input from the other two political parties.
Does it mean that Premier Wynne has a completely free rein on government? No, there are checks and balances built into the system. There is a chaperone in place. The credit agencies hold an incredible amount of power.
The future of Ontario is in the hands of Premier Wynne. Her effort of good financial management is supported by having to maintain a good credit rating.
Hopefully, the province will enjoy economic prosperity and that prosperity will help us all with our own individual financial success.