Appeared in the Fredericton Daily Gleaner, March 16, 2020
By Jake Fuss and Alex Whalen
Last week, the Higgs government tabled its 2020 budget. While the future of this government remains unknown, the budget highlights some of the important challenges facing the province. On the positive side, the government forecasts its fourth consecutive balanced budget, and recorded in 2019/20 its first decline in net debt since 2006/07. Crucially, however, it failed to address high taxes on personal income and businesses, which have dire implications for the province.
In summary, New Brunswick recorded a $97.8 million surplus in 2019/20 and is projected to run another $92.4 million surplus this year. Consequently, the province has begun reducing net debt for the first time in more than a decade. This is welcome news for taxpayers, as they ultimately foot the bill for government debt. The provincial net debt per person is expected to decrease from $17,778 last year to $17,507 in 2020/21.
The province’s debt (relative to the size of the economy) is also projected to decline. Specifically, this ratio is expected to reach 34.7 per cent in 2020/21, down from 36.3 per cent in 2019/20. Put differently, the budget plan shows the province is making modest progress to curtail debt accumulation in the short-term.
This is important, as debt accumulation means more money spent on paying interest on government debt instead of things such as education, health care and tax relief. New Brunswickers will pay $807 per person in provincial debt interest costs this year. Paying down debt in the years to come will provide some relief from these interest payments.
The Higgs government plans to markedly increase program spending this year, with program spending set to increase from $9.2 billion in 2019/20 to $9.6 billion in 2020/21 (or by 4.3 per cent, faster than the combined inflation-plus-population growth rate of 2.5 per cent).
Subsequently, spending restraint will be necessary going forward, as a large portion of the province’s revenue growth has come through increased transfers from federal programs such as equalization, and the province is experiencing rapidly escalating health-care costs as evidenced by the recent controversy over proposed emergency room closures. Taken together, these issues underscore the need for greater fiscal discipline.
In the long-term, fiscal challenges remain and sustainability is a major concern. The federal Parliamentary Budget Office (PBO) recently determined that New Brunswick, with an ageing population and weak projected economic growth, is one of several provinces with an unsustainable fiscal plan. While the government has begun tackling the debt, additional action is likely required to prevent debt-to-GDP from rising in the medium- to long-term.
Additionally, growing the provincial economy is the surest way to hedge against these longer-term issues, and tax relief remains a key ingredient of that equation. While the budget includes modest relief on property taxes, personal and business taxes remain a major concern.
For example, before the budget, New Brunswick had the fourth-highest top combined federal and provincial personal income tax rate (53.3 per cent) of any jurisdiction in Canada and the United States. The province is also among the 10 highest tax jurisdictions in North America at the $50,000 and $75,000 income levels. The Higgs government’s decision to maintain these uncompetitive personal income taxes means New Brunswickers will continue to keep less of their hard-earned money. These rates will also continue to limit the province’s ability to attract and retain entrepreneurs, professionals and businessowners who are critical for a growing economy, patricianly as economic storm clouds loom over the country and perhaps the entire world.
The budget also does nothing to reduce New Brunswick’s corporate income tax rate (14.0 per cent), which is the third highest in the country. This high rate deters investment and job creation. By failing to act, New Brunswick becomes less competitive with other jurisdictions as provinces such as Alberta and Nova Scotia recently began reducing business tax rates.
Again, this is all bad news for New Brunswickers. Research repeatedly shows that high personal and business income taxes often have a negative effect on economic growth. Furthermore, for a province that badly needs to attract investment, skilled workers and entrepreneurs, these high taxes act as a deterrent to those considering New Brunswick as a place to move to or a place to stay.
In its 2020 budget, the Higgs government forecasts a balanced budget and a second consecutive year of debt reduction. This is welcome news for a province that had been inching toward fiscal peril in previous years. However, while these measures are positive, the lack of meaningful tax relief in the budget means significant challenges will persist until more serious policy change is enacted, regardless of which party is in power.