The Picture of Provincial Debt: Part 8, New Brunswick
You could call New Brunswick “the little province that could” when you look at their debt and overall economic picture. While unemployment rates in this province are typically higher than the average you’ll find across other Canadian provinces; and the average family income is the second-lowest in the country, you may think that New Brunswick is on the brink of complete collapse. Put these stats together with the fact that there are twice as many fifty-year-olds in the province than there are five-year-olds, a declining youth population, and a rush of Baby Boomers coming in the next several years, you may think that New Brunswick is in pretty bad shape.
But it’s not.
New Brunswick’s debt stands at $10 billion, and it’s only risen moderately in the past fiscal year. And before the recession hit, New Brunswick was actually making strides towards reducing its debt, lowering it between 2005-2006 and 2006-2007. But the recession hit here in 2008, and it hit hard, as is indicated by the huge increase in net debt during the 2009-2010 fiscal year. And, when you look at the huge plunge this province’s deficit took during that same year, it becomes even more evident just how much this province suffered during this time.
So what happened during the recession to cause such a big hit to the deficit?
Well, much like Canada’s federal government had to introduce stimulus to keep the economy churning at a time it was struggling the most (remember those rock-bottom rates?) New Brunswick had to do the same thing. The province’s answer was dramatic tax cuts that eased the pressure on New Brunswick households so they too, could keep the provincial economy churning.
In the 2009-2010 fiscal year, the year these tax cuts went into effect, $143 million in revenue for the province was lost; and the next year, a whopping $247 million in lost revenue. Corporate income taxes were also slashed from 12 per cent to 10 per cent, which cost the province another $28 million. The Large Corporation Capital Tax, which was implemented by the Conservative government in 2005, was also phased out in 2010, and that dropped revenue by $45 million compared to the levels in 2005.
As the public debt grew considerably after the 2009-2010 fiscal year, so too did the province’s costs to pay off that debt. And it’s been increasing ever since, hitting a somewhat astonishing $661.8 million for the 2011-2012 fiscal year, the highest its been during the seven years represented.
Yes, things look grim indeed. But it’s not all bad in New Brunswick. The same little province that got itself into so much debt may not be as bad off as it appears, and they’re now also making great strides at once again reducing it.
One of the best ways to determine total wealth and the economic well-being of any one province is to look at the province’s debt per capita, or debt per person. This is an important measure when you take in the fact that New Brunswick is also one of the smallest provinces. So while the $10 billion of debt may not seem like much when compared to Ontario’s $250 and some billion, you also have to take into account that Ontario is Canada’s biggest province, in terms of population.
But looking at the debt per capita, which sits at around $38,000 in Ontario, you can see that New Brunswick really isn’t that bad off, with this figure sitting at $13,297 – measly compared to other provinces in the country.
And the news got better in August of this year, when the provincial government announced that the deficit for the year was going to be $260 million. That sounds like a lot, yes, but it’s $188 million lower than what was forecasted for this year’s deficit. Much of the praise for that slashing of the deficit goes to Finance Minister Blaine Higgs, who was elected nearly two years ago and at the time, had inherited a deficit of $700 million. He’s since reduced that by 60 per cent.
Higgs did it mostly by severely slashing government spending on things such as construction on roads, as well as on health services and excess spending. In total, financial statements this year showed that the province spent $128.8 million less than they had the year before. The provincial government was also given $120 million in revenue from NB Power.
This is certainly good news, but along with the announcement that the deficit came in much lower than expected, Higgs also warned residents of New Brunswick that they weren’t done yet. While the deficit may have been reduced, New Brunswick’s total debt still went up fairly dramatically – from $430 million to the $10 billion where it sits now. Higgs says that this huge increase is mostly due to the fact that the province is simply taking too long, and spending too much, on servicing that debt.
“Although we have managed to slow the growth of the debt, it remains a lasting reminder of the need for government spending that is sustainable relative to our revenue,” he said. “There is a definite need to return to balanced budgets and a targeted debt reduction plan.”
Higgs also called on the residents of the province to remember what the end goal was in paying off the debt, and to continue to both support and challenge the provincial leaders in doing what’s right for the province.
“We still need the public to think about the part they play in the demands they make, and help us make better decisions as politicians,” he says.
If the province can continue doing that, and continue to slash their deficit as they have this past year, it might not be very much time at all before New Brunswick is considered one of the richest provinces. They certainly seem to be on track for that now.
The five biggest cities in New Brunswick are:
A little while later, we’ll take a look at these cities, and the debt picture within them.