Fredericton – New Brunswick’s budget offers a glimpse of what’s needed to get the province’s fiscal house in order, but falls short of providing enough to make it happen.
“In a year when 35% of the province’s revenue is coming from Ottawa, the government has to remember that the windfall means New Brunswick’s economy is actually doing poorly compared to the rest of Canada,” says Bruce Winchester, AIMS’ Director of Research Services. “This government needs to be more aggressive with its tax cuts, and less aggressive with its spending increases.”
In a paper for AIMS titled “Could Do Better”, UNB economist Dr. David Murrell examined last year’s budgets in all Atlantic provinces. He pointed out that New Brunswick’s spending is increasing much faster than its revenues. This latest budget does nothing to address that problem.
Growing spending is the watchword in this budget. Since taking office in 1999, the Lord government has increased per capita program spending at a rate that exceeds inflation by almost 13 per cent. Certainly increases in health care spending of more than 48 per cent contributed to that level, but in total education and health care account for more than 52 per cent of all program spending. Therein lies the problem. How much longer will New Brunswick’s government be able to keep all other spending in check?
New Brunswick remains quite reliant on federal transfers. Improved equalization payments and enriched health care funding have certainly given the province the leeway to increase its spending. The budget is balanced this year and next, but what happens when the federal money runs out?
Today’s tax cuts are good news, they will promote economic growth, jobs and in turn will increase government revenues, but they don’t go as far as they could, or should. “The tax cuts are a small step to providing the fiscal environment to make New Brunswick an attractive place to do business,” says Winchester, “tax cuts are good, as long as they can be achieved responsibly, and we think they can be achieved responsibly on a much larger scale than this budget provides.”
Tax cuts, debt reduction, and stringent control on low-value spending provide a formula that promotes economic growth and thus lightens the tax burden on everybody. Economic success is more and more dependent on the “brain workers” who are the most mobile of the population and can easily flee onerous tax burdens.
Personal income tax rates, competitive with other jurisdictions, are needed to attract and keep these workers and their industries. The decision to cut both small business and personal income taxes will likely contribute to stronger economic growth over the next few years. The reality is that New Brunswick is the most competitive tax jurisdiction in Atlantic Canada, that hasn’t changed. However, that still leaves it as the best of a poor lot.
“New Brunswick’s budget continues the province’s even keeled approach to budgeting,” added Winchester. “There is plenty of good news, but spending increases remain the single largest threat to the province’s fiscal health.”
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