Standard & Poor’s says the credit trends of Canada’s provinces deteriorated in fiscal 2004 as many budgetary deficits widen following several years of balanced positions.

Fiscal 2004 has been a challenging year for the provinces given the protracted nature of the slowdown in personal and corporate income tax revenues that had begun to take hold in 2000, S&P says. As a result, six out of 10 provinces posted wider deficits in fiscal 2004 after recording deficits in fiscal 2003.

Most provinces continued to grapple with nearly flat or declining overall revenues alongside persistent spending pressures on a number of fronts, including health care, education, and infrastructure, S&P notes.

“We believe that the steps taken to date by provinces are sufficient to result in a potential improvement in provincial budgetary balances in fiscal 2005,” said S&P credit analyst Mario Angastiniotis. “Nevertheless, sustained deficit financing might suggest that Canadian provinces collectively are facing a structural rather than cyclical problem, which would require additional corrective actions before their deficits are eliminated.”

Despite this deterioration in provincial finances, the collective credit quality of the Canadian provinces remains strong, the rating agency finds.

Many provinces are moving toward incorporating the financial results of related public sector entities, such as schools and hospitals, in their financial statements to provide a more comprehensive picture of their financial positions, the agency said.