More needs to be done to rein in public spending in New Brunswick, concludes a new report on the province's debt and deficit that raising the possibility of rural hospital closures and school consolidations as ways to save money.

The policy paper by the Atlantic Institute of Market Studies states the provincial government "has not adjusted to the reality of declining revenues and spending now significantly exceeds revenue, resulting in large deficits and growing debt."

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A new report on New Brunswick's debt and deficit concludes the provincial government must do more to rein in spending. (CBC)

New Brunswick debt is forecast to reach $12.2 billion by March 31, 2015. In unveiling his 2014-15 budget, Finance Minister Blaine Higgs has pushed back his target for balancing the provincial books to 2017-18.

The province's challenge is it is receiving a declining share of equalization payments and federal conditional transfers, so its revenue is declining while spending has remained constant, resulting in deficits and debt, states the report.

The report authored by David Murrell, an economics professor at the University of New Brunswick, and Shaun Fantauzzo, an AIMS policy analyst, acknowledges the Alward government has taken steps to cut spending through wage freezes, public service job cuts and pension reform.

"These measures are commendable; however, given the size of New Brunswick's fiscal problem, it is not clear that these actions will be sufficient to stabilize provincial finances," states the report.

"New Brunswick continues to face serious fiscal problems and frugal public management is required to bring expenditures closer into line with revenue, and restore sustainability to provincial finances."

The report states the current deficits are being driven by high levels of spending in central government, health and education.

"The government should examine ways in which it can reduce wasteful spending, which will help stabilize the province's fiscal situation," states the report.

Upper River Valley Hospital

The AIMS report says the provincial government's deficits are being driven by high levels of spending in central government, health and education. (CBC)

While noting that a detailed analysis of where the government can reduce spending is beyond the scope of the report, the authors nevertheless point to Saskatchewan's health-care rationalization in the mid-1990s as a possible model.

"Being a rural province with a dispersed population, Saskatchewan's problems were similar to those New Brunswick faces today," states the report. "To reduce costs, the provincial government there undertook a substantial rationalization effort of its hospital system, closing a number of rural hospitals without undue hardship.

"New Brunswick's government should consider whether similar actions would succeed in the province."

The report also suggests cutting spending in the education system by consolidating nearby schools that are below capacity and reducing bureaucracy in the school system. The report says the Alward government noted in its first budget that 321 schools in the province are operating at less than 60 per cent capacity due to declining enrolment.

"These numbers suggest closing underutilized schools and merging them with nearby institutions is a promising strategy to help bring down per-pupil costs that have increased steadily in recent years."