12 years of deepening debt limit N.B.'s response to virus-ravaged economy
Calls build for province to spend its way out of pandemic-caused economic woes, but the debt limits options
No one is saying "told you so," but growing calls for New Brunswick to spend more to support economic recovery in the wake of the COVID-19 crisis are running up against the reality of the province's heavy debt load and its already limited fiscal capacity.
That could impede New Brunswick's ability to respond like other provinces to the economic wreckage caused by the pandemic, a financial weakness policy makers from both major parties helped create and have been warned about repeatedly for more than a decade by successive auditor generals.
"When I look at the key messages on the province's fiscal situation from the past number of years out of this office we were concerned about the long stretch of deficits year after year after year and the growth in net debt of the province," said auditor general Kim MacPherson in an interview last week.
Beginning in 2008, MacPherson's predecessor, Michael Ferguson, started issuing warnings that growing debt levels in the province could make the province financially vulnerable and reduce its "flexibility" to respond to future events. MacPherson repeated the warnings in her own reports when she took over in 2010.
She said the last two months have confirmed the validity of those concerns
"No one anticipated anything as significant as this world pandemic," said MacPherson.
"But I would say getting a handle on the fiscal situation of the province in normal times is a wise thing to do and be better prepared for when these very unanticipated events occur. We'd be better able to handle them."
Next week the New Brunswick legislature reopens and a key issue to be debated is whether the province should borrow and spend more to supplement federal efforts to carry the economy through the pandemic.
'This is not a time to be timid'
The Liberal and Green parties are both calling for New Brunswick to match at least some programs launched in other provinces to support households and businesses not fully covered by a myriad of multibillion-dollar initiatives launched by Ottawa.
"I have no hesitation in saying this is going to require a significant amount of money to reinvigorate our economy and get our economy back", said Liberal Leader Kevin Vickers in an interview last week.
'This is not a time to be timid or to not tackle this head on."
The New Brunswick government has offered some targeted assistance during the last two months but less than other provinces overall, and Premier Blaine Higgs has been reluctant to spend more freely, citing the long-term implications of adding to the provinces debt problem
"I will put the money of the province in the places that are needed the most to have us recover the best," Higgs said on Wednesday at his regular COVID-19 press conference.
"It's not about today. It's about the next five, 10,15, 20 years."
The difficulty for New Brunswick is it used up a lot of its borrowing room in recent years already.
Running up debt
The province's net debt was last audited March 31, 2019, and had reached $13.9 billion. For the size of New Brunswick's economy, it's the largest debt load among the Maritime provinces and about 25 per cent higher than the Canadian average of all provinces.
Just over half of that liability — $7.2 billion — was run up over a 12-year period between 2006 and 2018 by the three one-term governments of Shawn Graham ($2.9 billion), David Alward ($3.5 billion) and Brian Gallant ($853 million).
Combined, New Brunswick's debt grew 107 per cent over those 12 years, nearly three times faster than the province's economy.
Ferguson and MacPherson sounded alarm bells about what was happening during the entire time.
"Any growth in New Brunswick's debt must remain in line with growth in the economy to ensure that our Province can sustain its programs and services," Ferguson wrote in 2008 in what was the first of 12 straight years of debt growth.
"If debt is growing faster than the economy, New Brunswick will suffer reduced capacity for sustainability."
Situation different elsewhere
Other provinces, like Ontario, Alberta and Manitoba, also underwent steep increases in their debt levels in those years but, in each case, had stronger economic growth than New Brunswick to support the borrowing and more fiscal capacity to afford the payments.
New Brunswick does not raise enough money to pay its own bills already and relies more than any province other than Prince Edward Island on equalization grants from Ottawa to make ends meet. This year it is scheduled to receive $2.2 billion in equalization to help it cover more than 20 per cent of its expenses.
Other provinces, like Saskatchewan, which is spending among the most to supplement federal COVID-19 recovery efforts, and which New Brunswick is being encouraged by Kevin Vickers to emulate, are in significantly better financial shape.
Saskatchewan carries $2 billion less debt than New Brunswick, has an economy twice the size and has the fiscal capacity to pay its bills without equalization.
MacPherson said it is up to the legislature to decide how to proceed but did make the point New Brunswick's weaker economy and dependence on federal funding makes taking on debt a bigger and more long-term problem than it is for wealthier provinces.
"New Brunswick's ability to get a handle on our fiscal situation is more challenging because of our demographics, our aging population. Our unemployment rate is higher than the national average and the slow economic growth — it makes it that much more difficult to turn things around."