Conservatives say Ontario needs public sector wage freeze after Moody's warning

TORONTO - The opposition parties offered totally opposing views Friday on how to avoid an expensive downgrade in Ontario's credit rating after Moody's Investor Services put the province on a credit watch.

"What this tells us is Ontario is on the road to becoming the Greece of Canada," said Progressive Conservative Leader Tim Hudak after Moody's revised the outlook on the province's credit rating from stable to negative.

"Ontario is the only province in all of Canada that is now in the rating agencies' crosshairs (and) that’s very worrisome."

Moody's is worried about the province's growing debt — estimated at $241.5 billion for 2011-12 — and fears slower-than-expected growth will make it difficult for Ontario to eliminate a $16-billion budget deficit by 2017 as promised.

"Ontario's net direct and indirect debt, at roughly 200 per cent of consolidated revenues, was at the high end of the spectrum for Canadian provinces," Moody's said in a release.

The credit rating agency sent Ontario a "very clear signal to cut spending" said Hudak, who called for an immediate wage freeze for doctors, teachers and about one million public sector workers, calculating it would save $2 billion over two years.

"It is a big step towards resolving the problem," said Hudak.

"It relieves pressure in the system, and also helps you get at the underlying problem of government being too big and too expensive."

The NDP used the language of the Occupy Wall Street protesters to say the minority Liberal government should cancel planned corporate tax cuts instead of freezing wages.

"Why should the cuts be to the 99 per cent? Why shouldn’t the cuts be to the one per cent," asked New Democrat Cheri DiNovo.

"We’re giving money to banks and insurance companies so they can put it into cash reserves without creating jobs."

The Tories oppose any delay in reducing Ontario's corporate tax rate from 11.5 per cent to 10 per cent, even though they postponed similar cuts in 2002 when they were last in power. Hudak was in cabinet at that time.

"Here’s a lesson learned: shortly after that I moved from the minister of consumer and business services to an office firmly in opposition," said Hudak.

"Get behind businesses and help them create jobs instead of jumping in their way."

The Liberal government has been waiting for a report due next month from economist Don Drummond, who has been studying ways to restructure the Ontario public service and find efficiencies.

Drummond has already recommended spending growth be limited to one per cent a year until the deficit is eliminated, which would mean deep cuts to most ministries if health care and education are protected, as promised, and actually get increases.

TD Economics said Friday that a clearer sense of whether Ontario's debt rating will ultimately get downgraded by Moody's will come in the next three-to-four months, but so far, Thursday's "outlook revision has had little impact in financial markets."

"The government's response to the findings of the (Drummond) report will be a key input in Moody's next move," said TD deputy chief economist Derek Burleton.

Moody's doesn't believe the Liberal government can curb spending and eliminate the deficit by 2017 as scheduled, said Hudak.

"I think Moody’s saw that this government does not have the spine to get spending under control, and they’ve sent a pretty clear message to stop the spending," he said.

The Canadian Union of Public Employees released a survey Friday that it said showed the majority of Ontarians do not support deep cuts to public services in order to reduce the deficit.

"Instead, the public overwhelmingly support increasing taxes on corporations and the wealthy," said CUPE Ontario president Fred Hahn.

"They know we have to pay for services, and that's why they support targeted new tax measures to raise revenue."

Finance Minister Dwight Duncan said the credit watch from Moody's means the province faces some difficult decisions in the spring budget, but he insisted it will meet its deficit-reduction targets.

In Toronto for an event Friday, Prime Minister Stephen Harper refused to comment on specifically on the move made by Moody's.

"I can just say this, that I think Canadians understand that our deficit and debt situations are far, far superior to the situation we see in virtually the entire rest of the developed world," he said. "This is a big Canadian advantage and one that we must keep."