New Brunswick must address its spending addiction

To maintain its high spending levels, the province has the highest income tax rates in North America and the highest sales tax rates in Canada

HALIFAX, N.S. Dec. 10, 2016/ Troy Media/ – Austerity is often used to portray cruel and callous fiscal measures, heartless cuts and deliberate neglect by government. But to meet an objective definition of austerity, there must be an actual reduction of spending. That’s not happening in New Brunswick.

Austerity has become a popular buzzword, gaining traction in the aftermath of the 2008 Great Recession and subsequent financial troubles in much of Europe. It has also found its way into New Brunswick’s public discourse, adopted by critics of curtailing government spending.

But do the budgetary habits of any New Brunswick government over the last three decades resemble these European cases?

My recently-published paper Measuring Austerity in Atlantic Canada provides an historical perspective on austerity rhetoric and policies. The numbers show that government spending in all four Atlantic provinces, including New Brunswick, has ballooned over the last generation.

The recent bout of austerity measures in the European PIGS nations – Portugal, Ireland, Greece and Spain – saw average annual spending decreases of 10 per cent. Total spending decreased by as much as a quarter in as few as two fiscal years. This is the experience that brought the term austerity into vogue.

How does New Brunswick compare? Between 2008-09 and 2016-17, program spending has increased by 9.7 per cent. This accounts for inflation and subtracts the annual cost of debt servicing, which sits at $700 million and consumes 7.8 per cent of all spending.

This increase came after a period of even greater spending growth in the province, one that pushed the government’s spending habits to unsustainable levels.

In 1980-81, the New Brunswick government, then under Richard Hatfield, spent about $4.1 billion (in 2016 dollars) on programs, or $5,800 per New Brunswicker. By the time he left office in 1987, Hatfield’s government had increased real program spending by 25.1 per cent.

The Frank McKenna government that followed Hatfield was often seen as a purveyor of restraint. It did curb spending growth but ultimately still increased program expenses by 7.6 per cent by 1997. Per capita program spending increased by 4.1 per cent.

Soon after McKenna’s departure, the spending taps were turned on full blast.

In 2000-01, the New Brunswick government was spending $7,382 per capita on programs. By the end of the Bernard Lord (1999-2006) and Shawn Graham (2006-10) governments, this figure had jumped by 50.2 per cent to $11,085.

The David Alward government (2010-14) managed a tiny decline in real per capita program spending of 1.4 per cent, hitting $10,927 in 2014-15. Yet this amount of program spending was still $1,723 per capita or 18.7 per cent higher than it was when the Graham government took power.

To maintain these levels of spending, New Brunswick’s government levies the highest income tax rates in North America and ties other Atlantic provinces for the highest sales tax rates in Canada. Such levels of taxation will result in an exodus of high-income earners and profitable businesses, undermining the very revenue source for ever-increasing spending.

New Brunswick’s net debt for 2016-17 sits at $13.46 billion, 68.8 per cent higher in real dollars than it was a decade ago. The province’s net debt-to-ross-domestic-product ratio is now the third highest in Canada, at 39.9 per cent, and is the fourth highest in per capita terms.

To service this mounting debt, the government must take funds that could be devoted to public services or returned to the public in tax cuts. This cost is despite sustained low interest rates. And it would be folly to assume that those low interest rates will continue indefinitely.

One need only look at the experience of the early 1980s to see what can happen. Interest rates surged in the first half of that decade and so did New Brunswick’s debt servicing costs. In current dollars, the expense of debt servicing more than doubled from $373 million in 1980-81 to $758 million in 1985-86. By the mid-1990s, debt servicing was chewing up one out of every seven tax dollars.

New Brunswick’s leaders would be wise to consider the disastrous impact of a similar scenario. Simply put, the province spends at an unsustainable level, one that demands rethinking about what government should do and how to lower costs.

If such temperance measures are not adopted, the result will be genuine austerity.

Patrick Webber is an independent scholar and former research co-ordinator for New Brunswick’s New Democratic Party. He is the author of [popup url=”” height=”1000″ width=”1200″ scrollbars=”1″]Measuring Austerity in Atlantic Canada[/popup], a study published by the Atlantic Institute for Market Studies.

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