Budget season in Atlantic Canada—one bright spot in sea of red ink

Budget season is now over, with four provincial budgets in Atlantic Canada. Outside of New Brunswick, the theme is largely one of red ink.

Starting with the region’s lone fiscal bright spot, New Brunswick projects an eighth straight balanced budget, while debt (as a share of the economy) will decline slightly to 26.7 per cent. Long-term restraint and balanced budgets mean that this year New Brunswick is projected to become the least-indebted province in Atlantic Canada (again, measured as a share of the economy), a remarkable turnaround from being the most-indebted province in the region approximately a decade ago.

That said, there are concerns. The Higgs government will increase program spending by 6.2 per cent this year, faster than the rate of inflation plus population growth, meaning the size of government is growing. Further, the Higgs budget was silent on much-needed tax cuts—something that may arise in the fall election campaign.

Newfoundland and Labrador’s budget projects somewhat mixed results. At first glance, the Furey government projects a deficit of $152 million, down from $433 million last year and not far removed from repeated deficits of more than $1 billion. However, a closer look reveals that the government missed an opportunity to to return to a balanced budget. Instead, the government chose to hike spending to $19,238 per person—the highest per-person spending level in Canada. Increased spending and ongoing deficits have produced more debt. Net debt will increase by $600 million, with the per-person debt burden reaching $32,807, the highest level in Canada. Simply put, the Furey government missed an opportunity to right the fiscal ship by repeating past mistakes and increasing spending once again.

Spending increases, ongoing deficits and rising debt were also the theme in Nova Scotia and Prince Edward Island. Much like Newfoundland and Labrador, both provinces are experiencing strong revenue growth, while at the same time increasing spending and running deficits. Neither government has a plan for a balanced budget.

Consequently, debt has skyrocketed. In Nova Scotia, the Houston government projects net debt will increase by 23 per cent between 2022/23 and 2025/26, a three-year increase larger than anything seen since the early 1990s. In P.E.I., the King government has tabled back-to-back budgets, which increase debt by more than 11 per cent each—the Island’s two largest increases in debt in the last 30 years. Of note, both provinces experienced severe financial challenges in the early 1990s due to the failed fiscal approach being emulated now.

The Houston budget did include a measure to index Nova Scotia’s tax brackets to inflation, a practise common in almost all other provinces. As a result, Nova Scotians will avoid a “stealth” tax increase—essentially, an indirect tax due to inflation—on a yearly basis. P.E.I. is now the lone province that does not adjust its tax brackets annually, although the King budget did include some ad-hoc adjustments that will provide modest tax relief.

Overall, this year’s budget season in Atlantic Canada represents a missed opportunity for balanced budgets and debt reduction, which could have set the stage for much-needed tax relief. While the budgets contained some good news in places, they largely miss the mark with higher spending, ongoing deficits and rising debt. Governments in Atlantic Canada need a change in fiscal course.