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.