PEI·Analysis

P.E.I. budget is balanced, but debt will grow for 2 more years

After years of telling Islanders a balanced budget was just around the corner, a P.E.I. Liberal government has delivered the goods. But the MacLauchlan administration is projecting two more years of growing the province's $2.2-billion-dollar debt before that number starts to decline.

Provincial debt has grown by almost a billion dollars after a decade of Liberal government

P.E.I.'s debt will grow by an expected $24 million this year and $19 million in 2018-19, before dropping by an estimated $7 million in 2019-20. (iStock)

A day long foretold by Island Liberals has finally come to pass.

On Friday, Finance Minister Allen Roach tabled a provincial operating budget with a modest surplus of $601,000.

As far as surpluses go, that's a "thin sliver of a shave of a speck," according to Green leader Peter Bevan-Baker, but as the Bard once wrote, a surplus by any other name would smell as sweet.

And so ends a journey, if all goes according to plan, that began in the very first days of the first administration of Robert Ghiz.

Back then, provincial treasurer Wes Sheridan assured Islanders that government's cautious approach to managing revenues and expenditures "would result in fiscal balance in the relative short-term."

Former provincial treasurer Wes Sheridan after delivering the provincial budget in the spring of 2008. According to his budget address, a steady and cautious approach to fiscal management would allow government to balance its books 'in the relative short-term.' (CBC)

Sheridan proved a poor predictor of when that balance would be achieved.

Current Premier Wade MacLauchlan also got it wrong during the 2015 provincial election campaign, when he said his administration would be able to balance the books within a year.

In fact, it turns out the award for successfully predicting when P.E.I. might return to balanced budgets goes to former PC leader Rob Lantz, who in that same election campaign said the books couldn't be balanced in less than two years. 

A decade (and more) of growing debt

When Ghiz and Sheridan came into office, the PC government of Pat Binns had just posted back-to-back budget surpluses in 2005 and 2006, and tabled the blueprint for a third straight surplus before losing the election.

As the Liberals took office the province's net debt stood at $1.3 billion. As of March 31, 2016 that figure stood at almost $2.2 billion. (It's worth noting there was a world financial crisis during that period.)

Even if government manages to meet its financial targets and post budget surpluses for the next three years, the debt will continue to grow for two of those years, according to P.E.I. budget documents.

Data source: RBC

That's because, while government is predicting its revenues will exceed operating expenses, it's not factoring capital spending into that equation.

Once you factor in the construction costs of things like provincial manors and the Cornwall bypass, P.E.I.'s debt will grow by an expected $24 million this year and $19 million in 2018-19, before dropping by an estimated $7 million in 2019-20.

                                                                                               
P.E.I. three-year fiscal plan (millions of $)
Operating SurplusIncrease (Decrease) in Net DebtNet Debt — End of Year
2017-20180.624.12,220.4
2018-20195.418.92,239.3
2019-202012.9(7.1)2,232.2

That said, the province's debt-to-GDP ratio continues to move in the right direction. This is the measure of government's ability to pay its debts based on the size of its economy.

At 34.5 per cent, P.E.I. has the lowest ratio east of Manitoba (that's a good thing). That number is expected to continue to decline even as the net debt inches upward for a couple more years.

The best laid plans

As the premier himself told the House just moments before the new budget was tabled on Friday, "we presented a budget in the spring of 2016 that would have been balanced if it weren't for" [insert financial calamity here].

Premier Wade MacLauchlan in debate in the P.E.I. Legislature Friday, April 7, 2017. (P.E.I. Legislative Assembly)

In this particular instance, the financial calamity the premier was referring to was a federal overpayment of roughly $30 million in HST revenues which had to be paid back.

The year before government first warned its deficit would hit well above the mark because of rising pension and health care costs. But when the final numbers were in the deficit came in below projections, which was credited to a boost in corporate income tax revenues.

There always seem to be myriad forces, some good, some bad, which muck up government's financial plans.

Over the next 12 months, if the good financial forces outnumber the bad, P.E.I. will end up realizing this budget surplus. But we'll have to wait for figures from the auditor general in the fall of 2018 before we know for sure.

ABOUT THE AUTHOR

Kerry Campbell

Provincial Affairs Reporter

Kerry Campbell is the provincial affairs reporter for CBC P.E.I., covering politics and the provincial legislature. kerry.campbell@cbc.ca

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