Seeking a $4.1 billion GDP boost in New Brunswick

Dominic Cardy would scrap the Department of Economic Development and put the money into ‘small business’.  Brian Gallant is planning to make New Brunswick the Smart Province.  Premier Alward is chipping away.

What we need to know is the strategy each party would put forward to raise the provincial GDP by $4.1 billion in very short order (or a roughly 14-15% rise).

Where did I get $4.1 billion?

The province takes roughly 13% of provincial GDP in taxes, fees and other own source revenue so in order to eliminate a $538 million deficit without raising taxes you will need to generate $4.1 billion worth of incremental GDP (13% of $4.1 billion = $538 million).

Now, you don’t need to raise the $4.1 billion in one year but you need to over a series of years – and remember it must be incremental GDP.  Other industries are going to ebb and flow beneath but you need to boost the overall GDP by $4.1 billion if you are to kill the provincial deficit through economic growth.

We need a little straight talk express here.   The feds are reducing their relative share of the NB budget every year so don’t expect much from them.

Higgs is right, there must be ways to streamline expenses but that is only on the margins – you will never see a steep decline in public spending in this province.

You could raise taxes too but there is genuine concern among economists about how much room there is to move on that front.  A two percentage point increase in HST could possibly raise $200 million/year – maybe less depending on how it impacts on spending – but that sill leaves a huge deficit.

It’s all to vague right  now.  The provincial government was saying shale gas could be worth $200 million/year when it is a fully mature industry but that might take a decade or more and, quite frankly, does anyone think that industry will be investing here any time soon?

So the parties should be telling us their plan to generate the $4.1 billion GDP boost while holding public spending below the rate of inflation.

Tough challenge.

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6 Responses to Seeking a $4.1 billion GDP boost in New Brunswick

  1. Dave Young says:

    Just curious is the relationship between the province’s revenue and GDP roughly linear?

  2. Benoit Essiambre says:

    To go a bit further, a 15% rise in GDP is a 2.8% annual rise if we want to get there in five years.

    How does that compare to the long term growth rate of New-Brunswick? How much above trend do we need to be?

    It seems the major focus should be to maintain a rising number of good jobs and a rising working age population to fill these jobs.

    If the good jobs would materialise, the population situation would automatically improve since younger workers wouldn’t leave the province for lack of career opportunities.

    The big problem is that much of this is caused by poor monetary policy around the world. As long as central banks keep undershooting inflation and gdp growth, investment and job creation will remain weak especially in economically underprivileged regions. If every time we make some headway, and things start to improve, central banks pull back, this will quickly undo the effects of governmental and private sector efforts to make things better. This puts the solution mostly in the hands of central banks.

    Also if becoming competitive with other provinces with regards to investment requires lowering salaries too much, the population issue might worsen as workers leave for higher paying regions.

    Equalization payments seem to be the only thing saving us from catastrophe right now.

  3. @Dave Young
    No, the relationship is not particularly linear – some sectors generate more revenue than others (retail, mining, etc.) but for a thought exercise, I used the 13%.

  4. mikel says:

    We’ve been over this before, again, you can go to CBC and actually move the sliders around and watch its effect on the deficit. As far as taxes go, its worth reminding people that Moody’s LOWERED NB’s credit rating when Shawn Graham LOWERED taxes. Virtually every economist out there said it was crazy, so I think the remarks here on the subject of taxes are a little out of skew.

    Its also worth reminding people that things like potash got a royalty free holiday, and now look whats happened just as the royalty holiday is set to expire. Its also worth reminding people that Bernard Lord was going to sue because royalties on natural gas were set in Calgary and were royally screwing the province.

    In short, its not just ‘monetary policy’ which is the problem. And I don’t think the feds should be simply let off the hook as if they are handing out charity. Alberta’s workforce and Canada’s armed forces is largely staffed by maritimers, at least far more than equalization amounts to. In fact, I can’t remember where I read it but basically if NB were still getting what it got five years ago in equalization, there would be no deficit at all. Which means when you talk deficit, you are talking about a FEDERAL, not provincial problem.

  5. mikel says:

    What might be an interesting project for somebody is to compare the budget to Nova Scotia. Didn’t the NDP balance the budget last year? (and got booted out for their trouble).

  6. anonymoose says:

    mikel :
    In short, its not just ‘monetary policy’ which is the problem. And I don’t think the feds should be simply let off the hook as if they are handing out charity. Alberta’s workforce and Canada’s armed forces is largely staffed by maritimers, at least far more than equalization amounts to. In fact, I can’t remember where I read it but basically if NB were still getting what it got five years ago in equalization, there would be no deficit at all. Which means when you talk deficit, you are talking about a FEDERAL, not provincial problem.

    You’re not wrong, but the Feds ain’t going to help us. As long as Ontario has a skinned knee no-one will care about compound fractures out here.

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