Budget makes it harder for N.L. to balance books on schedule, says credit rating agency
Moody's says 'credit-negative' budget means spending will need to decrease to hit balance target in 2022-23
One of the country's largest credit rating agencies says Newfoundland and Labrador's newest budget will make it harder for the province to balance the books on target.
Michael Yake, vice president and senior analyst at Moody's Canada, told CBC's Here & Now this week that the province unveiled what his agency calls a "credit-negative" budget.
Revenues are significantly lower than what they were previously planned as well.- Michael Yake
"There's a couple of elements that are behind that credit-negative viewpoint," he said.
"One is the fact that the path back to balance has become a little bit more complicated than what we envisioned in the past, and the second is the revenues are significantly lower than what they were previously planned as well," Yake added.
"Which simply puts more pressure on expenditure control to get back to balance."
Those two factors lead Moody's to think it'll be harder for the province to achieve its target of 2022-23 to balance the books.
The $8.4 billion in expenditures planned for 2018-19 — 2.5 per cent higher than forecast in last year's budget — means spending will have to decrease every year for the next few years to hit the balance target.
"We were always concerned that the expenditure would have to be flat in the last three or four years of the budget's plan," said Yake.
"And what we're seeing now, because of the increase of the expenditures this year, in '18-'19, expenditures actually have to decrease every year, 1.4 per cent, in order to get back to balance."
Decreasing spending like that is "true austerity," he said.
"It's the difference between keeping expenditures flat, which the previous plan had, and true austerity, where there's declines in expenditure every year."
Yake said Moody's hasn't really seen any province in Canada succeed in reaching true austerity over the past 15 years.
Despite its concerns, the rating agency left the province's credit rating unchanged at AA3 with a negative outlook.
The analyst said some of the economic assumptions made in the budget aren't as unrealistic as declining spending over the next few years.
"There's 5,000 public sector employees who could retire within the next few years. There's always the possibility to have savings there. And with the price of oil … at $63 [a barrel] currently in the forecast, that's within our range as well."
"So the assumptions aren't too far off, but really it's the details and, as I mentioned before, the fact that expenses have to decline across several years in a row, which we just haven't seen before."
With files from Here & Now