Upcoming budget represents unique opportunity for New Brunswick

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Appeared in the New Brunswick Telegraph-Journal, March 2, 2021
Upcoming budget represents unique opportunity for New Brunswick

The Higgs government will soon table its 2021 budget. New Brunswick’s low incidence of COVID cases and spending restraint have left the province in better fiscal shape than most other provinces, with an expected provincial budget deficit of only $13 million in 2020. As a result, in the upcoming budget, the Higgs government has a unique opportunity to tackle long-term fiscal and economic challenges, which still loom large.

Nearly every province in Canada has taken on additional debt in the past year because of waning revenues and COVID-related spending, resulting in large deficits. Again, New Brunswick appears to be in better fiscal shape, but the province has still accumulated significant debt over the past decade or so.

Indeed, net government debt in New Brunswick nearly doubled between 2007/08 and 2019/20. Today, the total debt bill is a projected $14.1 billion—or roughly $18,000 for every person in the province. At this level, New Brunswick’s debt equals roughly 38 per cent of its economy—the second-highest percentage in Atlantic Canada, only trailing Newfoundland and Labrador.

Government debt has both immediate and future costs for New Brunswickers. Of course, as households pay interest on mortgages, credit cards and vehicle purchases, governments must also pay interest on their debt. These interest payments currently total $655 million annually, or $838 per person, in New Brunswick. That number will continue to grow if the province piles up more debt or if interest rates rise in the coming years. And a higher price tag for debt interest would consume more resources unavailable for priorities including health care, education and pro-growth tax relief.

At the same time, the province is also struggling to create jobs and attract business investment, which are both key to recovering from the COVID recession. Specifically, between 2014 and 2018 (the latest year of comparable data), business investment in New Brunswick declined by 0.1 per cent annually compared to 1.4 per cent annual increases between 1990 and 2014.

As a result, the province has underperformed compared to other Atlantic provinces and underperformed relative to its own investment history. This is concerning because investment remains critical for economic growth and innovation.

But again, there’s good news. New Brunswick has a head start on many other provinces in the COVID recovery due to its relatively strong fiscal position. In this year’s budget, the Higgs government can reverse these long-term trends and improve its fortunes. For starters, it should reduce the size of the provincial government by reducing spending. A smaller government has less adverse effects on economic growth. Greater economic growth could increase government revenue and allow the province to return to budget balance quickly.

The government should also improve the province’s overall tax competitiveness to help attract businesses and skilled workers to create jobs and prosperity. Reducing taxes on personal income and businesses is a good place to start. Beyond that, the province should also reform its regulatory system and make it more conducive to business investment.

The 2021 budget in New Brunswick represents a significant opportunity for the province to improve its financial situation and produce economic prosperity New Brunswickers and their families for decades to come.

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