New Brunswick government deficits keep rollin’ along

The recently thawed out Dr. Evil in Austin Powers asks for a ransom of ……$1 million dollars! and then is told by the suave Robert Wagner that his companies make a billion in profit each year.

 

Someone asked me about the $500 million provincial deficit and I told them you have to put it into some perspective.  In the 1930s, debt servicing costs were the largest expenditure of the provincial government in New Brunswick.  At $644 million in this year’s budget it is large but still less than 10 percent of the overall budget.

In the early to mid 1980s, budget deficits in New Brunswick were consistently in the two to three percent of GDP range.  Now it is around 1.4 percent of GDP.

Having said that it is still a big problem because there is no real pathway to eliminate it.  As I pointed out last week, the relative reduction in federal transfer payments to New Brunswick is essentially the same as the provincial deficit and there is no chance of the feds re-establishing the previous level.

So where do we get $500 million?

Every percentage point of HST increase is supposed to generate around $125 million in new tax revenue.  So you would need to increase the HST by four points to 17 percent to get there that way.  That won’t happen.

You can tweak up personal income tax rates but that will only bring in modest revenue and we already have above average rates in New Brunswick.

You could jack up corporate income taxes but you would have to nearly triple the total amount collected if you wanted to eliminate the deficit solely on the backs of those corporate scoundrels.

If you don’t want to raise taxes, you could try to cut $500 million out of spending.  Good luck with that.  In the McKenna years from 1992 to 1997 program expenditure increases averaged only 1 percent per year.  Good luck to any government attempting that circa 2013.

Optimists will say we can grow our way out of it.   By my back of the napkin estimate if the government held spending increases to around 2 percent and real GDP grew by 3-4 percent per year we could grow out of it in 7-8 years but no one has any allusion that will happen.

I dislike the word ‘profligacy’ but it has come into fashion so I will make the statement that among the 10 provinces in Canada no other has been as profligate with public deficits in the last few years with the exception of Ontario.  Even then, if you look at deficits per capita, New Brunswick takes the cake.  Between  2006-2007 and  2013-2014, the public debt in New Brunswick (excluding NB Power) grew by 71% or nearly $5 billion.

And with an election year coming up – spending promises will be made by all sides so do expect any deficit reduction efforts any time soon.

New Brunswickers –  I guess all Canadians – don’t connect public debt to themselves.   Just the New Brunswick government debt works out to $35,000 per family in the province.  That is $35,000 spent on past New Brunswickers to be paid by future New Brunswickers.

 

 

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8 Responses to New Brunswick government deficits keep rollin’ along

  1. Benoit Essiambre says:

    That is quite a conundrum. It is not clear that raising taxes or reducing services on people or businesses won’t make them leave for provinces with more favorable economic conditions resulting in more debt and deficits, at least on a per GDP or per leftover capita basis.

    The Bank of Canada could fix the problem if it stimulated enough for investment to spread Canada wide and not just out west. Otherwise if the worldwide economy booms sufficiently in the coming years, we might be saved by the rising tide. Cross your fingers.

  2. mikel says:

    Dude, you are missing some BLATANT logic. Ok, so all those ideas of yours individually won’t add up, so why not look at smaller changes in EACH.

    HST-raised two points to match Nova Scotia’s= $270,000,000
    CIT- $25,000,000 (rollback)
    PIT- $320,000,000

    Oh, actually that solves it right there. But you have been missing the big picture, this is an old tactic-slash taxes until cutting is inevitable, which is what the government has been doing.

    Add to that however, the 60 million each year it now costs the government for apartment owners and those with second homes, then you could lower the HST increase.

    But you’ll notice NONE of those things are happening, they simply add more debt, and keep making cuts to services.

  3. The provincial government now takes in only about $3 billion/year from those three sources. Raising $500 million in new taxes from those three areas HST/PIT/CIT would represent roughly a 17% increase in tax collection over night. Imagine how the average family in New Brunswick would feel that hit – particularly in a province with well below disposable income as it is.

  4. mikel says:

    First, corporate income tax will affect most families by 0%. Heck, most businesses have been saying to increase their taxes for years! Second, the HST increase is a hit for sure, but if Nova Scotia can handle it, like I said, retract Alward’s gift to apartment owners and second home owners and the HST increase would only be 1%, which isn’t a huge increase.

    For personal income tax, according to a report on CBC, most low wage earners will feel a hit of about $200. Most of Graham’s taxation gift overwhelmingly favoured those with large paycheques-many of them civil servants. That’s according to the sliding scale at the CBC website where people can use a slider to raise specific taxes and see instantly how much it decreases the deficit.

    And thats just resetting the tax rates back to 2008 levels, so add in an increase for large wage earners and that gets rid of the deficit right there without even getting into larger questions of government waste-and I know some people on the ‘inside’ and if you think there is no government waste just because they are TALKING ‘austerity’, then you don’t know government.

    So I really don’t see anywhere near a 17% increase in there. Mind you its all hypothetical, because I agree that people now distrust government SO much that ANY tax increase they feel will simply go to line somebody’s pocket and won’t go to services. Alward already looks even more wishy washy than Graham, and it looks like raising taxes is inevitable at some point, and like Graham he seems to be waiting for an election to be close before making highly unpopular public policy decisions. At least Frank used to have the brains to make big changes in the FIRST year so that he’d have three years to PR the public. We got nailed with a ‘health premium’ during the liberals first year in office here in Ontario, which was unpopular-until it balanced the provinces’ books and led to a surplus.

  5. mikel says:

    To the first comment, the Bank of Canada has no power to ‘stimulate investment’ in the east. People are ALREADY leaving the province because there are no jobs, and no doubt many are going because of poor service relative to other provinces. THAT is the reason why its important to have transfer payments, New Brunswick is TRAINING many of those workers who are doing the work Alberta needs, so its certainly only fair that New Brunswick get some of that ‘oil money’.

    I think your optimism is unfounded, the only thing we saw with the ‘worldwide boom’ was an increase in public service jobs-and outmigration. This blog showed pretty clearly that MOST of the benefits that came to wealthier parts of the country never occurred in New Brunswick. It was peak boom time when the forestry industry collapsed, which is one of the main money earners of the province, and earned a collective shrug from Ottawa.

  6. Benoit Essiambre says:

    @mikel
    The Bank of Canada has nearly all powers to stimulate the east. The maritime provinces, because of more difficult economic conditions, have smaller margins and make for riskier investments compared to other provinces. When interest rates are too high or inflation is too low, the first investments to go are the riskier ones.

    When the US central bank started speaking of tapering, there were huge money flows out of emerging markets. As the poorer provinces, we are like the “emerging markets” of Canada. We are at the extremities of the investment circulatory system. If the heart doesn’t pump hard enough nothing gets to us.

  7. You write, “You could jack up corporate income taxes but you would have to nearly triple the total amount collected if you wanted to eliminate the deficit solely on the backs of those corporate scoundrels.”

    Now my back of the napkin logic tells me two things: first, that New Brunswick spends around $8.5 billion a year, and second, that corporate income tax in the province pays a grand total of 2 percent of that, a third of $500 million a year or roughly $170 million.

    So I’m not so sure why raising the corporate income tax rate is such a non-starter. Particularly if you combine a corporate income tax rate increase with some of the other measures considered.

  8. m ikel says:

    The Bank of Canada does NO regional development that I’ve EVER seen. Its a ‘national bank’, it regulates currency and sets rates. Unless you are proposing that it make a special ‘maritime loony’ that has a different exchange rate than a ‘central or western loony’ then thats a non starter. Regional development comes from the legislature, it comes from Ottawa. You are right that OTTAWA has power to do all these things, look at the hoops it jumped through to stabilize the economy by propping up the CMHC or the auto industry in ontario. But thats not the central bank.

    I think there really should be investigative reporting on corporate income tax in New Brunswick. I had a friend who worked for revenue canada who basically said that corporations essentially pay what they want. I’ve been listening to a lot of financial documentaries about tax dodging, thats pretty big news right now, and in New Brunswick it would be interesting to see who is paying what. I suspect raising it would accomplish little, but like MLA paycheques, its one of those things where its the optics of it that is more important than anything else. The government of NB really shot itself in the foot back when it used the flood to close off the camera’s and raise their own pay. Ever since then the view of government, which was never good, turned justifiably nasty. As I’ve pointed out numerous times, Maine has 400 elected representatives and spends 2/3 the amount on its legislature that New Brunswick does. Yet Alward’s ‘solution’ to a problem they themselves created was to make the New Brunswick government even less representative than it already was-and its probably the least representative government in the country.

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