New Brunswick

PCs promise balanced books, but harsh realities may bring out red ink again

New Brunswick is back in the black, but the province’s new deficit-free status may not be here to stay.

Economist questions long-term sustainability of balanced budgets

New Brunswick Premier Blaine Higgs delivered the State of the Province address in Fredericton on Thursday. (Stephen MacGillivray/Canadian Press)

New Brunswick is back in the black, but the province's new deficit-free status may not be here to stay.

Premier Blaine Higgs announced Thursday that the Progressive Conservative government will have a balanced budget this year and another one next year.

With a small Liberal surplus of $67 million last fiscal year, that will mean three straight years of black ink.

But Higgs was cagey on whether his government will stay out of deficit in the long term.

"We're balancing," he said. "I just don't know how long I'm going to be there. I can't hold someone else accountable, but I can hold myself accountable."

That may have been a nod to Higgs being at the head of a minority government, but it's also a wise caveat that recognizes troubling long-term fiscal trends, according to economist Richard Saillant.

Saillant said the factors creating this year's balanced budget are temporary, and deficits could easily return unless there are difficult cuts in the future.

"It's kind of logical the books would be balanced for this year," he said.

Higher revenues

Saillant said Higgs caught a break with revenues far higher than what the previous Liberal government was projecting when it forecast a $188 million deficit for 2018-19.

"For reasons I still don't get fully, the [Liberal] revenue forecast was well below what was reasonable to expect," he said.

Premier Blaine Higgs announced New Brunswick is deficit-free. (Stephen MacGillivray/Canadian Press)

The Liberals projected $165 million in revenue growth this year, but federal transfer payments alone are increasing by $143 million, Ottawa announced in December.

With modest economic growth continuing to generate more income tax and sales tax on top of federal transfers, "this year and the next, [balanced budgets are] going to be easy without doing much," Saillant said.

After that, it's going to become more challenging.

Higgs promised during the election campaign to eliminate the deficit by his government's second budget, due in the spring of 2020.

But that may actually be when the PC premier's good luck starts to run out, Saillant said.

More spending to come

The growth in federal transfers comes mainly from Ontario's booming economy removing it from the equalization-payment pie, a shift that left larger slices of cash for the remaining have-not provinces.

Saillant said that's a one-time shift, so transfer growth will level off in a year or two — even as demands for more spending will continue to pile up.

With the first wave of the large baby boom generation reaching the age of 73 this year, "we're barely seeing the tip of the iceberg in terms of aging-related spending on health," he said.

"Whether they can remain on track in future years without future [restraint] initiatives, that's a much more debatable issue."

Economist Richard Saillant says the levelling out of federal transfers and increased health spending could spoil a string of balanced budgets. (CBC)

Dieppe Liberal MLA Roger Melanson defended the low revenue forecast in his party's last budget, saying it was "the best-educated forecast" at the time, taking into account uncertainty about trade agreements and softwood lumber exports.

"You can never do that 100 percent sure when you do the budget, because it's a very complicated formula. So you do an estimate, based on history," he said.

How does this affect our credit rating?

Travis Shaw, a vice-president at the Dominion Bond Rating Service — which warned last year that it might downgrade New Brunswick's credit rating — said a balanced budget this year is good news.

"On the surface, on the fiscal front, this is encouraging relative to what we had previously understood the situation to be," he said.

But he also warned that the long-term picture is more important for the province's debt rating.

The federal transfers boosting the revenue this year are outside the provincial government's control, but spending is something it has the power to curtail.

"We'll want to see how well the province is adhering to their targets in that regard."

A credit downgrade could translate into the province paying higher interest rates on the money it borrows. The rating service warned last year that the province's fiscal trend was "negative" and said that could lead to an eventual downgrade.

Shaw said the agency will wait until after the March 19 budget to decide on New Brunswick's rating.


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