New Brunswick has long been the plodding fiscal tortoise among the provinces, mired in high taxes, high debt and low growth.
Long the laggard, the Maritime province has now moved to the front of the pack, turning in a record surplus last year even as most other provinces struggle with massive deficits and rising debt loads. What’s more, New Brunswick is projecting another surplus for the current fiscal year – a feat that no other province will match.
New Brunswick’s success is built on Ottawa’s largesse, both in the form of billions of dollars in COVID-19 spending and long-running programs such as equalization. But Premier Blaine Higgs’s Progressive Conservative government has also held the line on program spending during the pandemic, a rare example in Canada of fiscal restraint.
The combination allowed New Brunswick to post a $409-million surplus for the fiscal year ended March 31, 2021, the province said Wednesday as it released final figures for last year and updated projections for the current one. That surplus amounts to just less than four per cent of provincial revenue. By way of comparison, a similarly sized surplus for the federal government for fiscal 2021 would be $11.8-billion, versus Ottawa’s projected deficit of $354.2-billion.
The province’s surplus represents a sharp turnaround from earlier projections, particularly in its first-quarter fiscal update in August, 2020, when the government forecast a deficit of $304-million. For the current fiscal year, New Brunswick is now forecasting a surplus of $37.7-million, up from the previous projection of a $244.8-million deficit in the 2021-22 budget.
As the chart below shows, that would mean New Brunswick is projecting to turn in five consecutive budget surpluses, ending nine straight years of deficits.
Richard Saillant, an economist based in Moncton, said his province is “surfing on a tsunami of federal dollars.” The proportion of New Brunswick’s revenue attributable to federal transfers jumped to 40 per cent in fiscal 2021, up from 35.4 per cent in prepandemic fiscal 2019.
Ottawa sent the province an additional $293-million in pandemic-related funding beyond the initial projections of the 2020-21 budget. Mr. Saillant said New Brunswick essentially used most of those funds to move into surplus and pay down its debt.
New Brunswick kept a lid on program expenses as well – a stark contrast to its peers. Excluding debt-servicing costs, spending for fiscal 2021 was three per cent lower than budgeted and just 0.68 per cent higher than in 2020. That amounts to a spending cut after taking inflation into account. Even health care spending barely kept pace with inflation, rising by just 2.9 per cent in fiscal 2021. All told, spending excluding debt servicing was $291-million below budget.
Mr. Saillant said the provincial government took a penny-pinching approach to economic assistance during the pandemic, moving only to prevent business closings, rather than cushioning their losses. That approach may yet prove to be a false economy, he warned, once Ottawa’s pandemic transfers recede.
“We’ll see if we’ve been swimming naked or not,” he said.
Despite projected back-to-back surpluses, New Brunswick Finance Minister Ernie Steeves is sounding a cautious note, emphasizing the size of the province’s still-hefty debt. “We still owe $13.5-billion,” he told reporters during a briefing this week.
“There is not $400-million sitting in a vault somewhere, waiting to be spent,” he added.
In part, that’s an attempt to swat back demands for public-sector salary increases and other hikes in spending. The provincial government was accused of delaying its first-quarter fiscal update by a month to avoid tipping its hand during negotiations with employees. Mr. Steeves said the delay resulted from wanting to update forecasts to fully reflect the economic impact of Ottawa’s pandemic support for individuals and businesses.
Because of that federal spending, New Brunswick has boosted its projected revenue from both personal income taxes and sales taxes for fiscal 2022, a $120.6-million upside. However, that revenue jump comes in part because the province is tied for the dubious distinction of having the highest rate of sales tax in the country, with an HST of 15 per cent.
Mr. Steeves said the government will continue to focus on spending restraint, since it cannot count on one-time federal transfers in coming years as the provincial economy recovers from the pandemic. “This could be a long haul getting out of this,” he said, adding that it took many years for New Brunswick to shake off the effects of the 2008-09 financial crisis.
Despite the cautious tone of the Finance Minister, New Brunswick is forecasting continued improvement in its debt position. As shown in this second chart, the province’s ratio of net debt to nominal gross domestic product is falling sharply, as modest surpluses whittle away at debt and the economy expands at a rapid clip.
Again, that’s a contrast to Ottawa and most other provinces, where that ratio is either declining very slowly or even increasing.
Rebekah Young, director of fiscal and provincial economics at Bank of Nova Scotia, says New Brunswick’s “continued conservative approach is still reasonable,” but adds that the province’s economy still has many structural issues.
Indeed, the federal Parliamentary Budget Officer has said the province’s finances are unsustainable in coming decades, and $600-million in tax hikes or spending cuts would be needed to achieve sustainability. The surpluses announced this week would take only a small bite out of that gap.
However, Ms. Young said the province’s finances are on a positive path over the next five years, particularly with net debt to GDP on a downward trajectory.
New Brunswick, she said, is providing a “textbook approach” on how to get ready for the next downturn.
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