The head of an Atlantic Canada economic think-tank says New Brunswick does not have the luxury of waiting until the next election to determine whether it should implement new revenues measures – including a hike in the HST.
Charles Cirtwill, president and CEO of the Atlantic Institute for Market Studies, says the province is in a race to correct its fiscal shortfall while borrowing rates remain low.
Meanwhile, a senior analyst with Standard & Poor’s says New Brunswick must now set new targets of when it will reach a balanced budget in the wake of comments made by Finance Minister Blaine Higgs that the government will not reach its own deficit reduction goals.
Bond-rating agencies and Auditor General Kim MacPherson have already warned that if the province doesn’t continue to reduce spending or increase revenues, it’s at risk of damaging its credit rating.
The fear is that a drop in the province’s credit rating would force higher interest payments, making the fiscal situation even worse.
That threat has become even more real with the Tory government stating it will not make good on its promise to balance the books by fiscal 2014.
“Hold a referendum now on the HST,” Cirtwill said on Monday. “If you’re stubborn and you refuse to raise that without going back to the populace and you wouldn’t do it last May when you had the chance, then do it now and don’t wait until late 2014 and the next election because you don’t have the luxury of waiting.”
Cirtwill said the government has made significant gains in finding savings and efficiencies in government but that it has avoided the “painful discussion” of significant cuts or moves to increase revenues such as tax hikes.
“As a result, your deficit is not going down,” he said. “They will literally have to go program by program and decide ‘we’re not going to do this anymore,’ not because it’s not a good thing, but because we have to keep the schools open, the hospitals open, the roads paved, and that’s all we can afford.”
Cirtwill said the government can achieve a balanced budget by choosing either deep cuts or a hike in revenues, which could be found through an HST increase, but a longer and more stable financial footing would require both.
Mario Angastiniotis, a senior analyst with Standard & Poor’s, said Monday that he doesn’t believe the missed target will affect the province’s credit rating, noting that the major international bond-rating agency had already downgraded New Brunswick’s credit rating to A+ from AA- last June.
“From our perspective, that downgrade reflected the fact that we weren’t confident that the plan that they put forward was enough to balance the budget,” Angastiniotis said. “There were some doubts about the ability of the global economy to recover quickly, so from that perspective we remained skeptical that New Brunswick would balance by 2014-15.”
Angastiniotis said he will look to see new targets set by the province to monitor the government’s commitment to reach balanced budgets.
He also agreed with New Brunswick’s finance minister that if the changes necessary to achieve a balanced budget by the end of the Tory government’s first mandate were too radical, it may result in greater damage to the province’s economy in the future.
“This is something to be said about the aggressiveness with which you try to tackle the deficit,” Angastiniotis said. “If you are too aggressive, you might bring about a worsening of the economy.
“If you are too aggressive in cutting the deficit, that can detract from economic growth.”
University of New Brunswick economics professor David Murrell warns that the debt service charges are getting steeper and steeper.
Last year, about eight per cent of the entire provincial budget went toward debt repayments – $643 million. That’s more money than what was spent on social services, economic development or highways in New Brunswick.
But Murrell said the province may still have a year or two of breathing room before things get even tougher on the province, noting the Bank of Canada lowered its economic estimates last week and said it will likely keep interest rates unchanged longer than previously thought.
In that time, he predicts New Brunswick will push forward “noticeable” spending cuts and new revenue generation.
“A lot of business watchers (are) saying interest rates will rise two or three years down the road,” he said. “But over the next year or so the consensus is we have this rock-bottom interest rate that gives a little space.”