The legislature has been adjourned for the past two weeks for the spring break, but even with MLAs far away from the capital, the hits keep on coming to the NDP government.
The latest was the credit rating downgrade issued by one of the major bond rating agencies, and it came as absolutely no surprise.
Moody’s Ratings downgraded what’s known as the government’s “baseline credit assessment” to a1 from aa2. Now, that’s a phrase and coding system that few people understand, but it essentially means it will cost the government more when it comes to borrowing money.
And when a government is “borrowing” as much money as the B.C. government is, we’re talking about a potentially steep cost being exacted by the lenders.
In the next fiscal year (it begins April 1st), the government expects to spend about $3.8 billion when it comes to debt servicing costs. That estimate is based on paying 2.34 per cent interest rates for short-term borrowing and 4.72 per cent for long-term borrowing.
However, a credit rating downgrade means that the short-term interest rates will likely now be higher (how high is unclear). A one per cent change costs about $180 million over the course of the full year.
Credit rating agencies do not like budget deficits and high debt levels, but they are particularly critical of governments that have no plan to realistically get their fiscal house in order.
That is Moody’s take on the NDP government’s fiscal plan. It maintained its “negative outlook” on the government’s finances and said it “reflects the risk that the size and duration of planned deficits reduce the ability of the province to adjust to unanticipated shocks” due to upheaval in the world economy.
The actual downgrade is attributable to “a marked deterioration in the province’s credit fundamentals”, according to the Moody’s news release.
That “deterioration” is due to continued growth in operating and capital spending, and Premier David Eby was quick to seize on that point to frame the issue in more favourable terms for his government.
“With this budget, we had to make a decision,” he told reporters last week. “Were we going to, as the Conservatives suggested, make health care bear the brunt of cuts to be able to meet a credit rating, or were we going to make sure that we were doing all we can do to deliver services for British Columbians?”
That, to the premier, is the balancing act the government finds itself performing. Either heed the credit agencies’ view that spending must be reduced in the most expensive areas of the budget (i.e. health care and social services) or ignore them and opt to keep the spending taps flowing.
The B.C. Conservatives insist they have a plan to move the budget back into a balanced scenario, but have released no details to back up that claim. Simply saying they will grow the economy faster than the NDP is not going to be enough.
Another downgrade will likely come again next year and perhaps the year after that as well. The latest is the fifth downgrade in the past four years, and they don’t seem to have had any impact on the NDP government’s approach to budget-making.
Eby and his government are clearly betting that continued high spending in health care and other core areas of government services is a bigger priority for British Columbians rather than worrying about things like an a1 or aa2 rating.
He may well be right, but we won’t know for sure until the next election. Meanwhile, at least two more bond rating agencies will soon release their own assessments of the government’s fiscal situation, and none of them are likely to be positive.
Keith Baldrey is Global TV’s legislature bureau chief.
Keith.Baldrey@globalnews.ca
