New Brunswick

Liberals make surplus disappear with new carbon-pricing plan

The Liberal government will have a surplus but the new carbon-pricing plan is going to make it vanish.

Province's decision to divert $180M in gas-tax revenue, means money won't be available for other programs

Minister of Finance Cathy Rogers said the surplus would help pay down debt. (Maria Jose Burgos/CBC)

Premier Brian Gallant's carbon-pricing plan could make projected Liberal budget surpluses vanish before they even appear.

The government's decision to divert $180 million in gas-tax revenue to a special climate change fund by 2022 means that money won't be available for other programs.

But Environment Minister Serge Rousselle has suggested there'll be room in the budget to keep funding those other programs: a fiscal cushion of surpluses that the Liberals expect starting in 2021.

"We did an excellent job in reducing the deficit," Rousselle said. "We did what we had to do."

Without an additional carbon tax on top of existing revenue, a continuation of current levels of spending would eat into projected surpluses, eroding the province's ability to pay down some of its massive $14 billion debt.

And the Liberal deficit reduction so far — while real — isn't enough to change that reality, according to Herb Emery, the Vaughan chair in regional economics at the University of New Brunswick.

"They created some room for themselves, but they're basically committing to borrowing," he said.

Environment Minister Serge Rouselle (CBC)

"What we're really leaving now is a legacy for future generations that will be greener and cleaner, but they're paying for it," he said.

"The more we borrow and the more we accumulate debt, [the more] we're asking future taxpayers or — if we get bailed out federally — federal taxpayers to cover this conversion."

The Liberal financial plan projects a narrow $21 million surplus for 2021, not nearly enough to cover the approximately $108 million of gas tax money that would be diverted that year.

At some point you have to pay down your debt and deficits, which would be future surpluses.- Herb Emery, Vaughan chair in regional economics at UNB

The projections don't go beyond 2020-21, making it unclear on what basis Rousselle believes there will be room in the budget to cover future shortfalls.

The gas-tax diversion will work this way: rather than impose a new carbon tax, the Liberals will begin shifting money from the 15.5-cent-per-litre gas tax into a separate climate fund, starting next year.

The Liberals will redirect 2.33 cents next year, representing $37.4 million in the fund.

By 2022-23, the diversion will grow to 11.64 cents, worth $180.2 million.

The fund will be earmarked specifically for climate-change measures, including reducing emissions, mitigating the impacts of global warming, and researching new energy solutions.

That means it won't be available for the programs now funded by the full gas tax.

Smoke and mirrors 

NDP leader Jennifer McKenzie called the plan "a shell game. …The gas tax is being used now for health care and education spending and it's not available. It's smoke and mirrors."

She called for an additional carbon tax on top of the gas tax, not a diversion of existing revenue, so that other government spending doesn't have to be sacrificed.

Herb Emery, the Vaughan chair in regional economics at the University of New Brunswick. (Jacques Poitras/CBC)

"The new carbon tax would be a new source of revenue," she said.

But asked about that scenario repeatedly last week, Rousselle insisted several time that reduced deficits will give the Liberals room within their future budgets to pay for everything.

That undercuts comments last month from Finance Minister Cathy Rogers, who said running surpluses would help pay down the accumulated debt of the province, now approaching $14 billion.

"Of course we know that there's a great cost to servicing our debt," Rogers said. 

By "addressing this and redirecting the debt servicing costs," Rogers said, some of the $700 million spent on the debt would be free for program spending.

But surpluses can't be spent twice: if they are used to fill a spending gap created by the gas tax diversion, the debt can't be paid down at the same time.

"At some point you have to pay down your debt and deficits, which would be future surpluses," Emery said.

"So yes, they're basically saying in the future, we're going to have this better situation fiscally and we're going to spend some of that now because the needs are pressing in order to deal with climate change."

A Finance Department spokesperson said Monday that the five-year gas-tax and climate-fund projections released last Thursday do not affect the forecast of a $21 million surplus in 2020-21.

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