Tax and Spend and Owe:
Latest AIMS Study Sees Little Improvement in Provincial Finances
Halifax – Could Do Better 3 is proof of the troubling trend that has been keeping Atlantic Canadians either in the poorhouse or on their way to Fort McMurray; governments have not learned the lessons that out of control spending increases and crushing debt should have taught them. Lower taxes, spending restraint and fiscal prudence are the way to prosperity.
The latest paper from the Atlantic Institute for Market Studies, Could Do Better 3: Grading Atlantic Canada’s 2006/2007 Provincial Finances by David Murrell and Ian Munro, discusses what needs to be done to ensure the state of provincial finances is improved.
Murrell, a professor of economics at the University of New Brunswick said, “There were some improvements last year in certain areas for the region overall, but tighter fiscal discipline, especially in terms of controlling spending and avoiding budget deficits, is essential if we are to head down the road to prosperity.”
Could Do Better 3 is the third annual review of budget performance in Atlantic Canada and grades the public finances – based on the budgets for the 2006/07 fiscal year – of the Atlantic Provinces relative to each other and to the Canadian average.
The region’s overall grade is a C, identical to the C it got for 2005/06. Thus the champagne will stay on ice for at least another year. The crucial grade reflecting the state of provincial finances remains sub-par, except in New Brunswick which managed to meet the national average in 2006/07. The four provinces generally recorded somewhat better marks for fiscal accuracy and the impact of the 2006/07 budget.
Murrell elaborated “Accuracy is important but the ability to keep government spending on the straight and narrow and enhance flexibility to respond to crisis in the future are critical. Our study finds that Atlantic Canadian governments need to do a better job of this.”
Newfoundland and Labrador’s 2006/07 overall grade of C/C+ is an excellent improvement over the lowly D it earned in 2005/06. Increased federal transfers and energy revenues, thanks to the opening of the White Rose oil field, will mean more revenue for the provincial government over the coming years. The potential for Newfoundland and Labrador to continue to improve on this grade could be eroded quickly, however, if the government does not address its long-term problems of debt per capita, interest payments on the debt, and government spending per capita. If the province fails to reign in its whopping per capita government spending (about $8800 / person) and super-size me civil service (96 provincial government employees / 1000 people) it will quickly erode any gains from increased energy revenues.
New Brunswick has the highest overall grade in Atlantic Canada with a C+. This puts it right at the national average. Murrell says the province did particularly well in terms of limiting spending increases, forecasting only 1.7% for 2006/07. The 2006/07 budget also contained reductions in tax rates for corporations and raised the small business threshold, two measures that should encourage economic growth. However, recent announcements in the 2007/08 budget that reverse these tax reductions do not bode well for maintaining this leadership position in the region next year.
Prince Edward Island seems to have taken some steps in the right direction since initiating the Program Renewal Effort in 2004/05 and the 2006/07 budget builds on that momentum, helping to improve its grade to a C this year from a D+/C- in the last report. Could Do Better 3 commends the province on steady progress, particularly with respect to limiting expenditure growth, reducing the small business tax, and reducing its deficit. Professor Murrell did caution, however, “The Island government is still running a deficit and spending too much on government, it needs to get these things under control to continue making progress.”
Nova Scotia’s grade has fallen from a respectable C+ last year to a worrisome C- this year. Per capita spending and the size of government continue to be lower than the national average and much lower than anywhere else in the region but interest payments on the province’s debt continue to rise as it is spending at too high a rate. The problem is compounded by the inability to accurately forecast budget balances. The province underestimated true per capita spending by over $600, an amount much higher than the ten-province average, earning it an F grade. Nova Scotia also owes about $11.6 billion, leaving every Nova Scotian on the hook for about $12,344.
AIMS Acting President Charles Cirtwill says Could Do Better 3 is a very good indicator of the challenges facing the region. “We have an ageing population and a labour shortage; but we also have seen above average growth in this region over the last few years. This period presented a golden opportunity to get our provincial finances in order so that we can be better positioned to meet the challenges ahead. This study indicates that we failed to capitalize on that opportunity.”
For further information, please contact:
AIMS Director of Research
902-429-1143, ext. 223
Dr. David Murrell
AIMS President (acting)
AIMS Director of Communications
902-429-1143, ext. 227 / 902-452-1172