The recent New Brunswick budget shows that a series of tax increases and modest spending measures to tackle the province’s dire fiscal situation will not mean less provincial debt. Rather, debt will continue to grow under the fiscal plan unveiled last week. To reverse course the province needs to adopt a strategy to grow its economy and jobs in the private sector.
The budget totalling nearly $9-billion in expenditures offers timid reductions in public expenditures. Some $45-million will be saved by reducing 1,300 jobs in the civil service. That’s a good start and the government should be commended for its willingness to reduce public sector jobs. No other province in the region has done as much. But the bulk of that work remains to be done. Overall, government spending will increase this year along with the tax burden and the province’s debt will jump to $13.5-billion in 2017. That is nearly $18,000 for each New Brunswick resident.
By some measures, New Brunswick’s situation is worse than elsewhere in the Maritimes. Its economy is smaller and its deficit is more than double Nova Scotia’s. Despite the attempts at cost cutting, New Brunswick’s deficit this year will add $460 of provincial debt per person, compared with $127 in Nova Scotia and $224 in P.E.I. Not a sign of progress.
And the government’s forecast of achieving a balanced budget in fiscal year 2020 seems unlikely, given the province’s economic outlook and an election in 2018. But delaying this objective shirks the responsibility to solve the problem sooner than four years away, which is well past the government’s mandate.
Very likely, the province will be in much the same position this time next year. And by then, it may be further in debt, its population will be slightly older, and more people will have moved away. This strategy of tinkering at the edges of a profound problem does not address the structural reforms needed for New Brunswick to get its fiscal house in order.
The solutions required to produce long-term results and set the province back on track will need a clear vision and a comprehensive growth strategy.
Given the significant proportion that health and education take up in the provincial budget, the choice not to attempt even to look for a nickel in administrative savings in these areas will have larger consequences and may eclipse gains made elsewhere. No government service should be off limits to finding innovative, efficient solutions or better ways to deliver services. The government does no service to New Brunswick by kicking these problems down the road.
New Brunswick is now past the point where it can raise more taxes. Indeed, the income tax burden had become so heavy that the government cut taxes on top earners. While the province’s deficit is partly being addressed with a higher HST and other taxes that will hit working families, without economic growth the aging population will soon wash away these gains. And every year the economy shrinks is a year the economy weakens further and makes it harder to turn around.
There is no need to wait for the moment when New Brunswick hits the debt wall and can borrow no more. Instead, greater solutions that focus on creating the conditions for growing the economy should be on the table.
The time for new and better choices has come precisely because the old solutions aren’t working and keep setting us further back. The longer the wait, the longer more opportunities to grow and prosper dissipate.
Hiking sales taxes is a short-lived solution. Nova Scotia raised its HST to 15 percent to eliminate its deficit one government ago but continues to post deficits.
The path to growth should be paved with opportunities for investment, enterprise and commerce. Someone thinking of opening a business in Atlantic Canada will look at a province’s fiscal health, the tax burdens from sales to payroll taxes, the available labour pool, business input costs affected by taxes and regulations, as well as the legal and regulatory prohibitions against otherwise accepted practices. Here, on most measures, our region is weak.
Jurisdictions that over-tax, provide subsidies to favoured companies, and run chronic deficits are less likely to be thought of as stable, innovative and attractive to investment. And so investment dollars and the jobs that go with them are more likely to end up elsewhere – in New England, central or western Canada.
Without a long-term strategy for growth and a reform of its spending model, New Brunswick cannot reverse course.
Marco Navarro-Genie is president of the Haultain Research Institute.