Premier David Alward’s government may need to backtrack on its promise not to increase taxes if it wants to extricate the province from its massive deficit, according to a public administration expert.
The New Brunswick government was hit with a double-whammy of bad economic news last week.
Finance Minister Blaine Higgs announced on Thursday the provincial government’s projected deficit had nearly doubled to $356 million and then on Friday, Statistics Canada revealed the province’s unemployment rate jumped to 11.6 per cent.
Higgs said last week the provincial government won't increases taxes or impose highway tolls in its current mandate as a way to erase the deficit.
But Donald Savoie, a Canada research chair in public administration and governance at the University of Moncton, said in an interview the provincial government "will have to eat its words and look at taxes."
"Let me be blunt here: I don’t think it is wise to say, ‘No tax increases this mandate," Savoie said.
"I think they will have to look at new taxes or increasing the level of taxation in certain areas. I just don’t think they can see themselves through this problem by pruning more spending. It’s just not there."
Savoie warned during the 2010 election campaign that the Progressive Conservatives and Liberals were ignoring the province's debt crisis.
Savoie said New Brunswick political leaders can look to Nova Scotia for guidance on tax reform. He pointed out Nova Scotia Premier Darrell Dexter had promised not to raise the HST but had to backtrack on that pledge when he saw the worrisome state of that province’s finances.
"And I think the fiscal side in Nova Scotia is looking a lot better than it used to, and I think that's a lesson learned."
Savoie served on a task force that advised Dexter on how to steer the Nova Scotia government out of its financial mess.
The public policy expert said Nova Scotia’s financial situation is now better than New Brunswick’s.
Savoie isn’t the only person who has urged the Alward government to rethink its refusal to increase taxes.
A group of business leaders also made a similar recommendation almost two years ago.
A one percentage point increase in the Harmonized Sales Tax would raise roughly $125 million.
Savoie said the New Brunswick government has cut taxes several times in recent years and he said the desired payoff in terms of new economic activity has not materialized.
"We’ve cut taxes … I haven’t seen a great influx of new investment. So we need to look at that again. We need to look at the spending and revenue side," he said.
Shale gas opportunities
Aside from raising taxes, the public policy expert said there are two other ways for the finance minister to dig the provincial government out of the financial hole.
Savoie said he thinks there is still room to cut spending.
Higgs said in an interview last Friday he would be "at a loss to identify any real cuts."
Instead, he said the provincial government has reduced the civil service through attrition and found "efficiencies" within departments.
As well, Savioe said the Alward government needs to focus on economic development if it wants to turn around the jobless rate.
He pointed specifically to forestry, fisheries and the oil and gas sector as opportunities.
The provincial government has recently received two reports on the shale gas sector and is currently examining its regulatory framework surrounding the industry.
Southwestern Resources Canada abandoned its seismic testing for shale gas in New Brunswick in 2012, citing delays in obtaining provincial permits.
Savoie said the provincial government needs to at least allow companies to see if there is a potential for an industry to develop.
"I think it's unwise, to say to foreign investors or outside investors, ‘No you can't even look to see if there's oil and gas there,’" he said.
"I think we should at least let them look, at least find out if there is oil and gas there that we can exploit."
He said it would still take several years for any economic benefits to flow from the oil and gas sector, but "we have to start somewhere."
Alward and Higgs have also said the provincial government needs to look at the shale gas sector as a potential revenue generator.