Economic 'hangover' after N.B. vote: expert

32-day campaign now underway

Last Updated: Thursday, August 26, 2010 | 3:39 PM ET

CBC News

Donald Savoie, Canada research chair in public adminstration and governance at the University of Moncton, says tax hikes and spending cuts are likely needed to avert an economic crisis in New Brunswick. (Courtesy of Donald Savoie)The next New Brunswick government will likely have to slash services and raise taxes to avoid an economic crisis, no matter which party wins the Sept. 27 election, according to a public administration expert.

Donald Savoie, Canada research chair in public administration and governance at the University of Moncton, writes in a CBC News analysis article that the ruling Liberals and the Progressive Conservatives are not talking seriously about the province's economic problems.

The two main parties are continuing to make costly promises, while Savoie said the province cannot afford it and drastic measures will be necessary after the election.

"I see no alternative than raising taxes and introducing far-reaching cuts in public-sector activities. I would rank the coming upheaval potentially, at least, on a par with the 1960s when Louis Robichaud brought New Brunswick, kicking and screaming, into the modern era," Savoie writes.

Savoie served on Liberal Leader Shawn Graham's transition team when he was elected in the 2006 vote. He most recently served as chairperson of the economic advisory panel for Nova Scotia NDP Premier Darrell Dexter.

The 32-day election campaign officially started at 12:01 a.m. on Thursday. It is New Brunswick's first campaign under the province's fixed election date legislation.

The Progressive Conservatives surged into the lead in public opinion polls last November after the Liberal government announced its plan to sell NB Power to Hydro-Québec.

The deal was scrapped in March and the Liberals have eaten into the Tory lead. A poll by Corporate Research Associates put the PCs at 42 per cent support and the Liberals at 37 per cent, with a deemed margin of error of 3.4 per cent, 95 times out of 100.

When the legislature adjourned, there were 32 Liberals, 21 Tories and two vacancies.

'Massive hangover'

Liberal Leader Shawn Graham has promised to create 20,000 jobs in a second term and said he would not increase taxes or cut services. (CBC)Savoie questioned Graham's pre-campaign promise of creating 20,000 jobs because he doesn't say how those jobs will be generated.

And he said Progressive Conservative Leader David Alward has talked about shrinking the size of cabinet but that is not sufficient to tackle the looming economic problems.

He is also criticizing both parties for ruling out spending cuts and tax hikes so early in the campaign. Savoie said he believes the tune of the parties will change not long after the winner is declared on Sept. 27.

"There is no question that, come October, New Brunswickers will be waking up to a massive hangover. New Brunswickers will be told that we need to raise at least some taxes and to cut spending with a sense of urgency," Savoie writes.

"Suddenly, we will be told that revenues will be off the mark and holding growth in spending in health care and other sectors will be the new order of the day. To be sure, politicians will be singing a very different tune in the immediate post-election period."

The government is forecasting a $749-million deficit in 2010-11. Meanwhile, total debt stands at $8.35 billion, compared with $6.7 billion in 2006. And the Office of the Auditor General is forecasting the debt will hit $11 billion by 2014.

NDP Leader Roger Duguay said Savoie's analysis reflects what he has been hearing for the last year as he attended community events around the province.

Duguay is also promising to control spending but he has not outlined his tax policy. He said that will come later in the campaign.

"We have to balance our finances ... [the finances have] not been managed in a good way. It is weak and somebody one day will have to pay," Duguay said in an interview.

"I will say all through the campaign, if we want to keep our public services, health and education, first we have to deal with the debt. If not, we will have huge problems in front of us, which is what Mr. Savoie is saying. He is telling the truth."

'Tested like never before'

PC Leader David Alward has promised not to increase taxes or reduce government services. He has also said he would have a smaller cabinet. (CBC)To help the Nova Scotia government tackle its growing deficit, Dexter asked Savoie and other experts to recommend ways to climb out of the financial quagmire.

The expert panel recommended that the Dexter government raise the harmonized sales tax by two percentage points. The tax hike, to 15 per cent, is reaping an additional $215 million in revenue.

A one percentage point increase in New Brunswick's HST would raise $125 million in revenue for the province. But the two main political parties have ruled out that option.

If there are no new revenues from taxes, Savoie said tough choices on the spending side become necessary.

"To be sure, there will be some kicking and screaming as the New Brunswick government decides what it can no longer afford and which taxes it will increase. Schools, universities, hospitals, government departments and government programs will be tested like never before," Savoie writes.