UPEI economist believes another surprise provincial surplus likely next year

Prince Edward Islanders can expect another surprise surplus announcement from the provincial government next Halloween, says UPEI economist Jim Sentance — which he said could provide a financial cushion allowing government to introduce new spending measures or further tax cuts. 

Sentance reached that conclusion after looking at the figures behind the surprise $75 million surplus for the 2017-18 fiscal year announced by the MacLauchlan government last week.

On Oct. 31 — the legislated deadline for the P.E.I. government to publish its annual audited financial statements — government announced an operating budget surplus for 2017-18, initially projected to be $601,000, was actually $75.2 million. After paying for capital spending projects, that left $37 million that went to pay off P.E.I.'s debt.

"To be fair, you should note government budgeting is not an exact science," Sentance said.

"Having said that, the amount by which they've overshot their budget is pretty significant."

Surplus grew by $74.6M

Audited financial statements from the five previous fiscal years show that government missed its financial targets by an average of plus-or-minus $10.2M — compared with the $74.6M difference in the fiscal year ending Mar. 31, 2018.

The improvement in the most recent surplus came as a result of provincial tax revenues that were higher than estimated. Personal income taxes came in $8.4 million over budget, sales tax revenue came in $25.4 million over budget, and corporate income tax revenue came in $38.1 million higher than the initial budget estimate.

Sentance said the province has for the past two or three years been "fairly significantly low-balling the amount they were going to get" from corporate income taxes.

source: P.E.I. government

"I think they're probably taking a very conservative estimate," he said.

"You've probably got a government that's very keen to make sure the budget is balanced at the end of the day."

Another big surplus to come?

Sentance said tax revenues for 2017-18 not only exceeded what was in that budget, they also exceeded the estimates in the new budget government tabled in the spring.

Based on that, he said Islanders can expect another surprise surplus to be announced a year from now, barring any further spending announcements, tax cuts or a significant downturn in the economy.

"I would expect they're going to get 50, 60 million more [in tax revenues] than was in the budget," he said.

While making conservative revenue estimates provides the province with a fiscal cushion if things go wrong, Sentance said there are downsides.

'Stuff doesn't get done'

"You're either not spending money you could spend," Sentance said. "And the other side of course is tax relief ... We've got among the highest taxes in the country. We've got a lot of areas where they could be spending more money. That's the downside. Stuff doesn't get done."

Ann Wheatley of the Cooper Institute doesn't have a difficult time thinking of where she would have liked to have seen some of that $75-million surplus spent.

"We've had typically very low social assistance rates that don't match the cost of living," she said.

"We've been hearing about affordable housing and the lack of investment on the part of the provincial government in public housing. We could have been doing that."

Wheatley said increases in social assistance rates announced two days after the surplus was revealed don't go far enough.

Government announced Friday it would increase shelter allowances by six per cent and food allowances by 10 per cent as part of a five-year, $68-million, poverty reduction strategy.

Wheatley said there was a "very good" consultation process used to develop the strategy where government heard "about the depth of poverty in P.E.I. and the impact of poverty on people's lives. And I think that makes it even more of a cruel reality when you look at what kind of surplus we have and how that could have been used … to make [people's] lives better."

Province 'in a better position' to support Islanders

In announcing the surplus on Oct. 31, Premier Wade MacLauchlan said the province's strong financial position would help his government invest in key priorities.

"We are now, as a government and a province, in a better position to build on the investments that we have made and to continue to meet key priorities, like mental health, housing, providing more tax relief for Islanders, and supporting Islanders who are the most vulnerable," MacLauchlan said.

CBC News emailed the premier's office and the P.E.I. Department of Finance for further comment for this story but had not received a response at publication time.

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