World’s leading rating firms question Canada’s budget cuts

The Harper government's spending cuts may be too much and too soon.

According to a story in the Wall Street Journal, analysts at Moody's and Fitch Ratings - two of the world's leading ratings firms - are warning that the Canadian government's plan to increase spending cuts isn't necessary and could actually do more harm than good.

In recent weeks, the Harper government has hinted that they may chop federal spending by $8 billion in each of the next three years, twice the amount it previously estimated,

But Steven Hess, Moody's lead analyst for Canada, said that with a budget deficit of around 2 per cent, there is "no rush" for the Canadian government to return to fiscal balance.

"From our perspective there is leeway there and doing it [cutting] too rapidly has negative effects and can be counterproductive as revenues grow more slowly," he told the Wall Street Journal.

"It is a risk [to growth] if they move too fast."

Shelly Shetty from Fitch Rating concurs.

"You don't have to swallow an extremely bitter pill if you are not sick,"she said, noting the Harper government deserves credit for its commitment to fiscal balance.

The warnings comes on the heels of a Statistics Canada report indicating real gross domestic product shrank by 0.1 per cent in November, following zero growth in October.

Opposition MPs have increasingly questioned whether cutting will do more harm than good to the economy.

"With 72,000 jobs lost in two months (October, November), Cana­da needs a jobs budget, not a cuts budget," Liberal finance critic Scott Brison told the Canadian Press earlier this month.

The NDP's Peter Julian told the Canadian Press that the government's announced intentions regarding budget cuts "are a serious, serious mis­take," noting that the GDP setback is only the latest of a "litany" of in­dicators showing the economy brak­ing.

Budget 2012 is likely to be presented in March.