Reducing provincial net debts in Atlantic Canada

By Salman Dostmohammad
AIMS on Campus Fellow

Since the financial crisis of 2008, the fiscal outlook for all provinces has worsened due to rising levels in the net debt. In fact, as depicted below, data from Statistics Canada show that in 2015, for the first time in Canadian history, the provincial debt grew larger than the federal debt.

While each province has its own story, the problem facing Atlantic Canada is largely economic. The region has long been in a precarious demographic situation with a disproportionate number of an older population when compared to younger generations. The young have been leaving in search for opportunities elsewhere. Previous policies have made doing business in the region more difficult due to higher business and personal income tax rates.

The net debt is affected by a continual decline in revenue and an increase in costs. Healthcare is the single greatest cost for the provinces and aging populations utilize health care services at a greater frequency than younger populations. Over time, healthcare costs have risen faster than the economy has grown. This was certainly on the minds of the premiers at the recent First Ministers Meeting, where they discussed a renegotiation of healthcare transfers. It doesn’t help much that the Maritime Provinces are the most reliant on health transfers from the federal government.

However, to address the net debt will require policy makers to do the right thing and pursue pro-growth policies. This means investing in a long term plan for the region and creating opportunities for Atlantic Canadians to stay.

The adoption of pro-growth policies that address the regions high business and personal income tax rate, will benefit the region by increasing prosperity and ultimately help to reduce the provincial net debt for the region in the process.

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