This is an extension of AIMS’ successful Could Do Better series, which evaluates the status of provincial finances. The Institute has published three such papers for the Atlantic Provinces. This is the first for Western Canada, and a forerunner to a national Could Do Better series.
To determine a single overall grade for each province, we first construct three separate subgrades:
- a measure of the fiscal health of each province just before the tabling of the fiscal year 2006/07 budget in spring 2006;
- a measure of the fiscal accuracy, or transparency, of the 2005/06 budget, which allows us to assess how the province has adhered to its 2005/06 budget forecast according to the revised data in the 2006/07 budget, and how the province’s data deviate from the more comprehensive statistics published by the Dominion Bond Rating Service; and,
- a budget impact grade, which is the assessment of the 2006/07 budget itself. We then average the three subgrades to derive an overall grade for each of the four western provinces and Ontario, with a C+ representing an average grade across all ten provinces.
As a group, the western provinces and Ontario generally score better than the ten-province average. Ontario leads the way with the highest overall 2006/07 grade, a B. Alberta and British Columbia are tied with the second-highest mark, a B–. Manitoba comes in next with an overall mark of C+/B–. Saskatchewan registers the lowest mark among the five provinces west of the Ottawa River with an average C+.
Could Do Better – West finds that the economies of Ontario and the four western provinces face considerable uncertainty. Ontario is in the midst of a noticeable slowdown in growth, given troubles with its auto and non-auto manufacturing exports. A possible slowdown in the economies of China and other Asian nations could depress natural resource prices. A growth slowdown — and possible economic recession — could lead to very little growth of provincial own-source revenues, not only for Ontario and the west, but for all ten provincial governments. Given the consensus among forecasters that an economic slowdown is imminent, the governments of Ontario and the western provinces should undertake tighter discipline, particularly to limit spending. The four western provinces must continue to record annual budget surpluses, and Ontario — which could fall into recession as soon as this year — must end its fiscal deficits. All five provinces should strive to improve their finances through fiscal year 2007/08 and beyond.
To read the complete report, click here.