In the past decade, across all of Atlantic Canada and party lines, surpluses have been few and far between.
Deficits have also become fashionable at the federal level.
Given this environment, the Prince Edward Island government deserves credit for getting back to balance, based on the projections included in the budget introduced in April.
However, balance should be the first milestone in a fiscal plan, not the last. Too many governments achieve balance only to plunge back into deficit.
The surplus comes when P.E.I.’s economy is relatively stable. The government should take this opportunity to firm up its balance sheet, pay down some debt and give relief to Islanders who need it.
How does that look?
Start with spending. The province should hold the line on expenses, subject to increases for inflation and population. That will produce a surplus on a yearly basis, growing with greater revenues, while maintaining services.
What to do with the excess funds?
- Pay down public debt. The province spends more than $100 million a year in debt-servicing. That could be better used elsewhere.
- Launch targeted tax relief. While some progress has been made, the basic personal exemption is still the lowest in the country. It should be raised to the national average and indexed to inflation, along with the tax brackets.
- Reverse the across-the-board fee hikes for vehicle registration and driver’s licences that were implemented in 2012 under the guise of balancing the budget.
These recommendations lower the burden for Islanders in need, as a first step. Future surplus should be used to aggressively pay down debt, then to cut taxes. More support for job creation, entrepreneurship and strategic industries would also be welcome – this will broaden the tax base, immeasurably preferable to raising rates.
Overall, the government should be commended on its budget. But there are some areas of concern. The government recently bailed on any prospect of school or hospital closures. Maintaining these rural services at historical levels is problematic when, for the first time, half of all Islanders live in urban areas. Declining rural populations are demanding their service levels remain the same, yet contribute less and less to provincial revenues.
Health-care spending is the most serious area of concern. Admittedly, every province in Canada struggles with this problem. However, P.E.I.’s numbers are astonishing. According to public accounts, the province spent $353 million in health care in 2007, 29.3 per cent of the budget. Budget 2017 projects spending of $650 million and 36 per cent of the budget. The numbers are growing in absolute terms in addition to their share of the total.
Health-care services may or may not be improving, but the spending track is unsustainable. Options previously off the table need to be considered as a response. Unless we want health to eventually represent all of the province’s spending, something has to give.
A balanced budget is a worthy accomplishment that places P.E.I. on a decent footing. It should be used as the first step toward a brighter fiscal future.
The best way for all Islanders to share in that future is by reducing their tax burden without gutting services. Luckily, that opportunity is available to the province.
Alex Whalen, a native of Summerside, PEI, is Operations Manager at the Atlantic Institute for Market Studies. He is a graduate of the Schulich School of Law at Dalhousie University and the UPEI Business School.