Fiscal health, budgetary accuracy, and budgetary impact are a hit and miss proposition in Atlantic Canada concludes the latest AIMS paper “Could Do Better 2: Grading Atlantic Canada’s 2005/2006 provincial finances” by Dr. David Murrell and Bruce Winchester.
Says Murrell, an economics professor at UNB, “promises of balanced budgets, fiscal growth and prudent spending generally go unrealized in Atlantic Canada. Large government, huge debts, unchecked spending and creative accounting are far more likely to be found here.”
Murrell and co-author Bruce Winchester have just published the second annual review of budget performance in Atlantic Canada. Could Do Better 2 again grades the public finances of the Atlantic Provinces relative to each other and to the Canadian average.
The region doesn’t do well. Its overall grade is a mere C, which is slightly better than the C- they got last year.
New Brunswick slips into a tie for first place in the region this year with a grade of C+. Murrell says the province’s budget accuracy remains excellent, but that is offset by declining fiscal health due to profligate spending and a relatively large government sector. Despite the sizable spending increases, New Brunswick continues to have the best debt picture in Atlantic Canada, and continues to project, and achieve, surpluses. Murrell warns that situation will not last if spending continues to spiral out of control. A warning the Lord minority government continued to ignore for its 2006-2007 budget – watch for this grade to slip farther next year.
Nova Scotia has improved from a C/C+ last year to a solid C+ this year, with spending per capita at lower than the national average and size of government not only lower than the national average but much lower than anywhere else in the region. This prudence likely reflects not a cautious government however, but the realities of an ongoing debt crisis, one that is still not resolved even with the funds coming in from the offshore deal with Ottawa. Nova Scotia also continues to have problems accurately reporting budget balances. Says Winchester, “Nova Scotia has boldly claimed four balanced budgets in a row, but the Dominion Bond Rating Service reports that, when you standardize reporting practices and account for capital expenditures, NS has registered per capita deficits of $76, $116 and $62 in fiscal 2002/03, 2003/04, and 2004/05.” This sleight of hand hurts Nova Scotia’s overall grade and is a trick to watch for when the new Tory government tables its budget in the coming days. Especially as this will be a pre-election budget likely to “turn on the taps” and push NS back into the spending race with its neighbours.
Deficits, big government and more deficits are the story on Prince Edward Island. With 66 provincial government employees for every 1000 people, PEI has the largest size government, per capita, in the region. Murrell says Prince Edward Island gets a better grade than their fiscal health or budget performance warrant because they are reasonably good at painting an accurate picture of their fiscal challenges in their budget documents. Increasing spending and adding to the debt hurt them last year, and that trend continued in this year’s budget. In any other competition, PEI would be heading for the cellar, but this is generally a race to the bottom.
Newfoundland and Labrador leads the region in higher than average spending and, next to PEI, has the largest government on a per capita basis in the region. Newfoundland’s grade was further harmed by the fact it underestimated the budget deficit by some $2000 per capita in 2004/2005. The inflow of cash from the accord with Ottawa has not led to an improved balance sheet but instead has fired a new round of spending in 2006/2007. Newfoundland should hold on to its position at the bottom of the region in next year’s analysis.