BRITISH COLUMBIA

Credit agencies look to post-election budget to assess B.C. credit rating

04/22/2013 08:10 EDT | Updated 06/22/2013 05:12 EDT
VANCOUVER - In a stark reversal of political fortunes, Christy Clark has found her party under attack on what once could have been considered sacred Liberal ground: fiscal performance.

Clark's Liberals have spent months branding this election as a choice between their fiscal responsibility and flagrant New Democrat spending.

But the NDP accuses the government of lying about a balanced budget when it believes there is actually an $800 million deficit, hidden behind higher revenue projections and lower spending forecasts.

Not so, says Clark, citing credit agency reports.

"Whether or not the budget is balanced isn't based on what people believe or what municipal managers believe," the premier told a Vancouver radio station on Monday.

"Go ask Moody's. ... they said it was balanced. These are the world's experts. Dominion Bond Rating said the budget was balanced, again, the world experts in this."

A few hours later, Clark dialed back her claim.

"What they say is we have a superior record of fiscal management and they say that our revenue targets are absolutely on," Clark said after a campaign stop at a water desalination plant.

"In contrast, the NDP say our budget isn't balanced because they say our revenue targets are all out, well, the NDP isn't telling the truth about that.

"We've got a demonstrated record of success on this, on both the revenue side and the spending side."

But what have credit rating agencies actually said about B.C.?

In a report issued April 12, Standard & Poor's affirmed the province's AAA rating but did not proclaim the budget balanced.

Analyst Paul Judson said the incumbent Liberal government introduced a budget with a plan to bring the province's operating budget "back into balance" in fiscal 2014.

However, Judson said, the budget was not passed before the election call.

"What we're really doing is we're waiting to see what the newly elected government, what its budget is going to look like before we judge B.C.'s financial prospects. The new budget is what we're looking to," Judson said Monday.

"It's safe to say that with the economy facing headwinds, regardless of whoever gets to be in charge, the winning party is going to be challenged in reaching this balanced budget and improving the province's debt burden."

B.C. is one of just three Canadian province's to have S&P's highest possible credit rating, but it was not always so, Judson pointed out. The high rating is based on the province's fiscal performance — and not on the governing party, he pointed out.

Rating agencies are "agnostic," he said.

But Helmut Pastrick, chief economist for the Central 1 Credit Union, said while the reports are not an endorsement of any political party or government, they could be considered a warning about economic direction.

"Perhaps its just a cautionary note, if you will," Pastrick said.

In its March 26 report, DBRS confirmed the province high rating on long- and short-term debt, but also noted that the budget measures may not be implemented before the May 14 vote.

"Nevertheless, the fiscal progress made to date and a relatively low debt burden in relation to peers provide British Columbia with sufficient flexibility within its current ratings, be it to withstand further economic malaise or a potential relaxation in fiscal discipline," said the report by Travis Shaw, vice-president of public finance.

Moody's Investors Service affirmed an AAA rating in its April 4 report, citing the province's "strong fiscal flexibility and track record of prudent fiscal management."

"Should the government's resolve to achieve fiscal redress diminish and/or if the province is unable to stabilize and then reverse the accumulation in debt, then downward rating pressure could emerge," said the report.

Neither declared the B.C. budget balanced.

Pastrick said all eyes will be on the next government.

B.C.'s debt increased as a result of a 2009 recession, which is not a concern "at this point."

"I imagine the greater concern is whether and what policies might be introduced that could affect economic growth," he said.

Clark has suggested in her stump speech that a New Democrat win will mean an automatic downgrade in B.C.'s credit rating, based on the fiscal performance of the last NDP government more than a decade ago.

Not so.

The province's rating will be reviewed when a budget is passed — by whoever is in power after May 14, Judson said.

"Many things are said during campaigns that don't come to pass so we're waiting to see the newly elected government's final budget to help us better judge B.C.'s financial prospects," he said.