By Henry Gray (AIMS On Campus Student Fellow)
In its latest budget, the Government of New Brunswick punted its responsibilities by projecting a cumulative provincial debt of $14.4 billion by the end of April 2019, steadfastly refusing to address the province’s looming debt crisis. In fact, in promoting their budget, neither the Premier nor the Minister of Finance devoted much time to discussing those two ‘D’ words: debt and deficit. This was akin to a sports reporter discussing the local team’s performance in the game last night without mentioning that the team was shellacked. Finance Minister Cathy Rogers even had the temerity to claim in her budget speech that the Liberals had “restored fiscal order” in the province. By all the key metrics, however, New Brunswickers lost decisively in the 2018 budget.
Reality has begun to set in. Last month, DBRS, a Toronto-based credit rating agency formerly known as Dominion Bond Rating Service, downgraded New Brunswick’s economic trends from “stable” to “negative”. This is not merely a symbolic categorization. It means that New Brunswick could soon be slapped with higher interest payments on its debt.
In a press release, the agency announced that it “questions the credibility of the current fiscal plan, given the lack of flexibility to respond to unforeseen pressures or fund new programs that are likely to arise as a result of campaign commitments in the upcoming fall election.” Indeed, electoral considerations seem to be what is motivating the government to make these policies of questionable long-term wisdom. With an election set to take place September 24, the Liberals, in crafting their final budget before the next election, have bet that voters will prefer an upsurge in government spending to the government staying the course on the balanced-budget targets that it has laid out.
Up until this point, the government had done a commendable job of sticking to its deficit-reduction objectives. In fact, the government managed to exceed its deficit-reduction goals the past three years. This year, however, the Gallant Liberals will be running a deficit of $189 million – far greater than the projected deficit of $117 million. This has also pushed back the date at which the government will supposedly be in surplus. The initial forecast had predicted a $21 million surplus in 2020-21. Now, the government is saying that it will run a $79 million deficit that year, and it will only return to surplus in 2021-22, which will be the first time that New Brunswick balances the budget in 14 years.
New Brunswick already carries the dubious distinction of having the highest debt per capita in the Maritimes. By adding $372.3 million to the net debt, the Gallant Liberals have now increased the province’s debt per capita to $19,050 for every man, woman, and child in the province. All the government is doing is pushing difficult decisions into the future. One presumes that the members of the government have told themselves that they can worry about these matters once re-election has been secured.
“There is an old adage that says you have to spend money to make money,” Finance Minister Cathy Rogers said as she defended her government’s decision to blow a massive hole in their plans to arrive, eventually, at fiscal rectitude. The literature is clear, however. Governments that succeed in reducing their deficits and debt tend to do so primarily through restraining spending rather than raising taxes.