FREDERICTON – There is growing skepticism in financial circles that incoming premier David Alward will be able to keep his pledge of no tax increases, despite his statement that his election promises are a contract with the people.

Even before news broke Thursday that Standard and Poor’s has downgraded the province’s outlook to negative, political watchers were cautioning New Brunswickers that tax increases of some sort, at some point in the next four years, likely are inevitable.

“The scenario is going to run out as everyone expects: they (the Tories) will spend the first couple of weeks looking at the real books; then they will do the surprise-and-shock routine for a couple of weeks and then they’ll say, ‘We have no choice’,” Charles Cirtwill of the Atlantic Institute for Market Studies said in an interview.

“Depending on the level of commitment to their promise, they will start with raising user fees and sin taxes. But they will likely, depending on their level of shock, move quite quickly to outright breaking promises around taxes.”

During the campaign, Alward said that a Progressive Conservative government has “a comprehensive and sound plan to bring order and stability back to our provincial finances without raising taxes or reducing services.”

Alward went on to specifically promise that he will not raise the harmonized sales tax, despite pressure from Nova Scotia to match its recent two-per-cent hike.

Nova Scotia Finance Minister Graham Steele has gone on record saying that he believes New Brunswick will have to increase taxes in order to tackle a deficit of close to $750 million and a soaring debt of more than $8 billion.

“One way or another, they’re going to have to come to grips with the unsustainable financial path that they’re currently on,” Steele said recently.

Cirtwill said the NDP government in Nova Scotia is counting on an HST hike in New Brunswick because of the problems the different tax levels are causing in border communities such as Amherst, N.S.

“I think he (Steele) has banked his entire political career on the fact that (New Brunswick) will have to raise (its) taxes,” said Cirtwill, president and CEO of AIMS, an independent think-tank based in Halifax.

“If Alward finds a way not to do that, the Tories and Liberals here will be throwing parties and Steele will be apoplectic.”

Craig Brett, Mount Allison University economics professor and Canada Research Chair in Canadian Public Policy, said the basic math of New Brunswick‘s grim financial situation seems to dictate significant tax increases at some point.

Brett said he shares the skepticism of other analysts about Alward’s ability to balance the books without a revenue boost from higher taxes.

“I don’t see how any one element can do all of the heavy lifting on this file,” he said, referring to Alward’s pledge to fix the fiscal crisis largely through trimming expenditures.

“Let’s face it, expenditure increases, sluggish growth and tax cuts all had a part to play in getting us $748 million in the hole. So there were three things teaming up to get us into this hole and then to expect one thing to drag us out of it – you’re asking one of the three pieces to move way out of proportion.”

Alward has pledged to cut government spending by $150 million annually and cancel tax breaks for the wealthiest New Brunswickers in his plan to tackle the burgeoning deficit and debt.

He also promised to freeze corporate tax rates at 10 per cent, doing away with Liberal Leader Shawn Graham’s plan to cut the business tax to eight per cent by 2012 from the current rate of 11 per cent.

However, a fully implemented Progressive Conservative platform would add about $141.6 million in annual spending to the province’s expenditures.

And Tory campaign commitments would also decrease revenues by more than $21 million over a four-year term.

Cirtwill said that if and when Alward does break his no-tax-increase promise, he should do it quickly and early in his mandate.

“He has a majority, so he’s nice and comfortable for four years,” he said.
“Now is the time to feed everyone the hard medicine and then hope the economy rebounds.”