Q: Generally, how do you feel New Brunswick is faring fiscally?
A: If someone is trying to characterize New Brunswick as the basket case of the federation, they’re wrong. New Brunswick is suffering from the same problems as the rest of the country, but its revenues are actually increasing.
The problem is that their revenues are not increasing at the same pace as their spending. They’re expanding their number of employees and their number of programs. It’s an unsustainable situation when government spending is growing at two, three or four times the rate of inflation. That simply can’t happen because at some point the bills come due and someone has to pay them. And you can’t simply jack up the bills because people will leave.
That being said, New Brunswick has a couple of advantages. For example, its debt is growing but it’s nowhere near the level of its neighbours. New Brunswick’s debt is roughly $8 billion. Nova Scotia’s is very quickly going to hit $14 billion. Newfoundland and Labrador’s is close to $10 billion. New Brunswick has some wiggle room to borrow money in an effort to redesign the economy, which is exactly what the current government is doing by lowering taxes. I’d much rather run a deficit to finance a transformative change in my economy, than simply run a deficit to continue funding a ballooning civil service – like in Nova Scotia.
Unlike Nova Scotia and Newfoundland, the size of New Brunswick’s government isn’t out of whack. It’s still bigger than it damn well should be, but there’s potential for New Brunswick to simply cap the rate of growth. The expansion of government should only be linked to the rise in population, plus inflation. That would very quickly get the size of government under control.
Q: Is the current track sustainable?
A: No, but it’s not as bad as everywhere else. That is not a ringing endorsement of the financial management in New Brunswick. It just means everybody else has been worse. If any province can afford to take a few years to get back to a balanced budget, it’s New Brunswick. But I still think they could balance the budget sooner than 2014-15.
Part of the problem is that New Brunswick, like other provinces, used the recession as justification for racking up huge deficits. They jacked up the debt and they tried to put a chicken in everybody’s pot. We have committed far more to stimulus spending than we required.
Another problem is the current lack of restraint. To me, that is the one failure in New Brunswick: they’ve talked about the need to rein in government, but they haven’t done much about it. New Brunswick needs serious restraint and they needed it two years ago.
Q: What should be done to improve the province’s fiscal footing?
A: You have to deal with this entire fiscal situation in the context of the demographic crunch. Our population is about to get significantly older. What happens when people retire? They demand more services and pay less taxes. That’s why New Brunswick has to right-size its government now. The simple fact is: We can’t continue to grow our services the way we have been.
It’s not necessarily about cutting overall government spending. It’s about becoming more creative and flexible in how we deliver programs. Government has to stop doing some things – like running NB Power or the liquor corporation – and start doing things like boosting education resources.
Take the province’s poverty reduction plan. It involves spending more money, but it will end up saving money in the end. Anything the province can do to get the aboriginal community, the black community and the under-educated more involved in the economy is beneficial.
Q: What else should be done?
A: The province needs to continue with its tax reforms. They should cut even further on the personal income tax side – as long as they’re offsetting that cut with a corresponding increase in the HST. To do one and not the other impacts the province’s capacity to deliver programs.
Q: What does the future hold for New Brunswick?
A: When people outside the region ask me what’s going on here, I tell them this: We have an experiment occurring between free-market concepts in New Brunswick and free-spending concepts in Nova Scotia. I think we’re going to see that New Brunswick’s approach is better. New Brunswick’s approach is about doing what governments should be doing, which is creating an environment for business – as opposed to trying to be business.
Charles Cirtwill is president and CEO of the Atlantic Institute for Market Studies, a think-tank. Based in Halifax, Cirtwill holds a law degree and a master’s degree in public administration from Dalhousie University.