Provincial heads 'in the sand' about spending and debt, economist says

Unless New Brunswick gets a bailout from Ottawa, the provincial debt will continue to grow as the population ages, a Moncton economist says.

Richard Saillant posted a graph comparing the increase in the net debt per capita between 2014-15 to this fiscal year, 2017-18, of four provinces: Quebec, Prince Edward Island, Nova Scotia and New Brunswick.

New Brunswick stands out like a sore thumb on the graph, which shows the three other provinces have not added to their debt on a per capita basis.

Debt per capita went down "sharply" in Quebec, "meaningfully" in Nova Scotia to and "slightly" in P.E.I., Saillant said.

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The graph shows Quebec's net debt per capita dropping by $1,000 and Nova Scotia's around $300, and P.E.I.'s staying relatively the same, which will "allow them to respond to future challenges," such as a population that's getting older.

But in New Brunswick, there's been an increase of about $1,200 net debt per capita, which Saillant said "is very significant," although he doesn't think government realizes the kind of trouble it's in.

"The trajectory that we're faced with is unsustainable and we're essentially leaving an enormous burden on future generations," said Saillant, who worked in the federal civil service for 15 years and is a former vice-president of the University of Moncton.

With the provincial election in September, the Moncton economist said it's important to see four governments with the same political stripe, heading in "very different directions."

"The reason I posted it online is essentially for people to understand the trajectories are quite different and that all four provinces actually had similar circumstances," he said.

Government in denial

Since 2014, when the loonie dropped and the price of oil went down, all oil-consuming provinces, such as the four provinces in Saillant's graph, benefited economically.  

"It was temporary but we had a tailwind that essentially made our economies grow much faster than they will in the long run," he said. "With stronger growth you get much stronger revenues."

With stronger revenues, the economist said, the other provinces chose to put their finances on a sustainable track.

But New Brunswick chose a different route.

It raised the HST in 2016 to 15 per cent, instead of "transforming the way we do spending."

"I suspect in Nova Scotia and Quebec they took the bull by the horns a bit more, and that's why they returned to fiscal balance."

Change needs to happen now

As a province of worsening fiscal conditions, he said, New Brunswick needs to acknowledge its financial problems sooner rather than later to avoid putting a financial burden on future generations. 

For instance, the province has to acknowledge the student population is declining in New Brunswick, yet the government announced it would add to the number of teachers regardless of the decline in enrolment.

"You need to reshuffle money around from areas that need less money to areas that need more money," he said.

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With an election looming in September, the Liberals will spend almost $73 million more in the coming year and run a deficit for an extra year.

"Another way to govern is to say, 'Yes we're listening to voters but at the same time, we're facing a reality.'"

Spending on baby boomers — the first members of that group turned 72 this year — is growing "exponentially" as they age, from $6,000 per capita at age 65 to $25,000 per capita at age 85, he said.

"There's a big mountain ahead of us, we had leeway to get prepared for it," Saillant said. "We should never have gotten into debt as we did."

Ever since the first baby boomer retired, he said, New Brunswick's long-term growth is four times slower than it was before. 

After reviewing the budget, the Dominion Bond Rating Service changed New Brunswick's economic trend assessment from "stable" to "negative" in February, although it kept the credit rating of A.

"In New Brunswick, my only possible read is that we chose to put our heads in the sand," he said.

In January, the province announced government spending of about $237 million more this election year, increasing what had been a projected deficit of $117 million for 2018-19 by $73 million.

"Anything can be justified as long as you feel it's the best way to get elected," he said. "It's a political calculation to keep on spending."