Laggard to leader: New Brunswick sees record surplus as other provinces face massive deficits, rising debt

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New Brunswick has long been the fiscal turtle among provinces, mired in high taxes, high debt and low growth.

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Long a laggard, the maritime province has now moved to the front of the pack, turning in a record surplus last year, while most other provinces struggle with massive deficits and rising debt loads. In addition, New Brunswick is forecasting another surplus for the current fiscal year – a feat no other province will match.

New Brunswick’s success is built on Ottawa’s generosity, both in the form of billions of dollars in COVID-19 spending and long-running programs like Equalization. But Premier Blaine Higgs The Progressive Conservative government has also kept the line on program spending during the pandemic, a rare example of fiscal restraint in Canada.

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The combination allows New Brunswick to post a surplus of $409 million for the fiscal year ended March 31, 2021, the province released Wednesday. Last year’s final figures And updated estimate for the present. This surplus is only less than four percent of the provincial revenue. By comparison, a similar-sized surplus to the federal government for fiscal 2021 would be $11.8-billion, versus Ottawa’s projected deficit of $354.2-billion.

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The province’s surplus represents a sharp change from earlier estimates, particularly in its First Quarter Financial Updates In August, 2020, when the Govt. Estimated losses of $304 million. For the current fiscal year, New Brunswick is now forecasting a surplus of $37.7 million, which exceeds last year’s estimate of a deficit of $244.8 million. 2021-22 Budget.

As the chart below shows, this would mean that New Brunswick is projecting to turn five consecutive budget surpluses, ending nine consecutive years of deficits.

Richard Salant, an economist based in Moncton, said his province is “surfing a tsunami of the federal dollar.” The proportion of New Brunswick’s revenue due to federal transfers reached 40 percent in fiscal 2021, up from 35.4 percent in pre-pandemic fiscal 2019.

Ottawa sends province an additional $293 million in pandemic-related funding beyond initial estimates Budget 2020-21. Mr Salant said New Brunswick essentially used those funds to move surpluses and pay down its debt.

New Brunswick also kept a lid on the program’s expenses — unlike its peers. Excluding debt-servicing costs, spending for FY21 was three per cent below budget and just 0.68 per cent higher than in 2020. This is equivalent to cutting spending taking inflation into account. Even health care spending barely kept pace with inflation, rising just 2.9 per cent in FY21. All told, spending excluding debt service was $291 million below budget.

Mr Salant said the provincial government took a money-pinching approach to economic aid during the pandemic, moving only to prevent business closures, rather than cushion them. Harm. After Ottawa’s transfer of the pandemic, he warned that this approach could still prove to be a false economy.

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“We’ll see if we’re swimming naked,” he said.

Despite the projected back-to-back surplus, New Brunswick Finance Minister Ernie Steves seems to be on a cautionary note, emphasizing the size of the province’s still-heavy debt. “We still owe $13.5 billion,” He told reporters during a briefing this week.

“There’s no $400 million sitting in a vault somewhere, waiting to be spent,” he said.

To some extent, this is an attempt to roll back the demands of the public sector for wage hikes and other hikes in spending. The provincial government was accused of delaying its first quarter financial update by a month to avoid turning its hand during talks with employees. Mr Steves said the delay resulted from a desire to update forecasts to more fully reflect the economic impact of Ottawa’s pandemic support for individuals and businesses.

Because of that federal spending, New Brunswick has increased its projected revenue from both personal income taxes and sales taxes for fiscal year 2022 to $120.6 million. However, this revenue jump comes in part because the province is tied up with the highest rate of sales tax in the country for the dubious distinction of HST of 15 percent.

Mr Steves said the government would continue to restrain spending, as it could not rely on one-time federal transfers in the coming years as the provincial economy recovers from the pandemic. “It may be a long haul to get out of this,” he said, adding that it took New Brunswick several years to overcome the effects of the 2008-09 financial crisis.

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Despite the finance minister’s cautious tone, New Brunswick is predicting a continued improvement in its debt position. As shown in this second chart, the ratio of the province’s net debt to nominal GDP is falling rapidly, as the marginal surplus is driven away by debt and the economy expands rapidly.

Again, this is in contrast to Ottawa and most other provinces, where this ratio is either decreasing or increasing very slowly.

Rebekah Young, director of fiscal and provincial economics at the Bank of Nova Scotia, says New Brunswick’s “continued conservative approach is still justified,” but adds that the province’s economy still has several structural issues.

Indeed, the Federal Parliamentary Budget Officer has said: The province’s finances are shaky Over the coming decades, $600 million in tax increases or spending cuts will be needed to achieve further stability. The surplus announced this week will take only a small part of that gap.

However, Ms Young said the province’s finances are on a positive trajectory over the next five years, particularly with net debt to GDP on a downward trajectory.

He said New Brunswick is providing a “textbook perspective” on how to prepare for the next recession.

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