In its annual report on Ontario, Moody’s Investors Service says the province’s Aa2 rating and stable outlook are supported by its substantial tax base and large, diversified economy.

“Ontario’s outlook is stable, reflecting positive economic fundamentals that support a broad tax base, tempered by spending pressures and negative fiscal outcomes that are generating additions to net direct and guaranteed debt,” says Moody’s vp David Rubinoff, lead analyst for Ontario.

The fiscal plan as presented in the 2005-06 budget provides a framework to correct the structural deficit that, if followed, will ensure the province’s debt burden remains manageable and consistent with the Aa2 rating.

“Attainment of the expense targets contained in the fiscal plan will present a challenge, given that growth rates experienced in recent years have been considerably higher than what is included in the plan,” says Rubinoff, “however, the plan does make use of contingency reserves, providing some added flexibility.” If the reserve is not needed, the fiscal plan could generate a balanced position by 2007-08.

Moody’s says the Ontario economy, which generates in excess of 40% of Canada’s GDP, provides an abundant tax base to support government requirements. It adds that per capita income has long exceeded the Canadian average, and Ontario regularly outperforms Canada by many economic growth measures.

In 2004, the province recorded real GDP growth of 2.8%, following 1.7% the previous year when the Ontario economy faced several shocks, including the fallout from the SARS breakout and a power outage.

The rating agency says its report, “Ontario 2005 Credit Analysis,” is a yearly update to the markets and does not constitute a rating action.