By Ian Munro
As Appeared on page A7
Leading up to Tuesday’s provincial budget, the province had a nice string of economic wins going: taxes were reduced in last year’s budget, the new Premier got off to an excellent start by declaring his bold vision for a self-sufficient New Brunswick, and last week Statistics Canada reported unemployment figures that were better than anything we’ve seen since the mid-1970s.
And then came this week’s budget – so much for momentum.
Raising business taxes sends the wrong signal to businesses who are weighing options as to where they should set up or expand operations. Not only is the bottom-line math affected, but investors will now be more suspicious as to what the government may have up its sleeve in future years. In contrast, a firm stand on tax rates this year could have reinforced the message that the government is absolutely committed to making New Brunswick a great place to do business.
The same sort of negative signal has been sent to workers being enticed by job offers from booming western Canada. In the budget documents issued Tuesday, the government tried to show that the absolute dollar amounts of the personal tax increases are small, but what they don’t mention is that at pretty much any level of income, Ontario and the three western-most provinces take significantly less money out of your pocket. How do we expect to stem the westward flow of young workers by making existing tax disadvantages even worse?
Increasing taxes is bad, as are deficits, so that leaves the expenditures column. Was there really no more opportunity for restraint on the spending side? Let’s consider a few numbers.
Ordinary expenditures are forecast to increase by 2.9 per cent over last year’s revised figures and by more than 6.8 per cent over the numbers originally estimated in last year’s budget. Provincial GDP (the province’s gross income) is expected to grow by only 2.3 per cent. At the very least, the government should stay within that increase.
It’s like you and me expecting a three per cent increase in pay, but increasing our family spending by five per cent. How long do you think it would take before the bill collectors were hammering at the door and our credit rating was in the commode?
Restricting the rate of spending growth to the same rate as the provincial economy would have cut $36 million from spending. Or to be even more prudent, the bottom end of the GDP-growth forecast range (1.9 per cent) could have been used as the benchmark for spending growth, which would have cut $60 million.
Looking at spending from another angle, the province is seeking $25 million in administrative savings, equal to nine per cent of departmental “administrative” budgets. What many New Brunswickers may not know is that the province has more civil servants per capita than all other provinces except for P.E.I. and more than twice the national average. So what if the government had been a bit more bold and asked for, say, 15 per cent savings rather than nine? That would have saved another $42 million. A 20-per-cent reduction would have netted $56 million.
Then there’s the size of the surplus itself.
What if the taxing and expenditure plan had been designed to match the $22 million surplus that had been forecast in last year’s budget, rather than the $37 million announced Tuesday?
This would have left the same cushion for unexpected events as last year and freed up $15 million of budgetary room.
These are just a few examples of how tax increases could have been avoided: keep spending in line with economic growth, reduce the size of government towards the national average, and avoid excessively large budget surpluses (because another name for a surplus is “excess tax revenues”).
Making expenditure cuts is not an easy exercise, but we do not elect governments to do easy work – leadership is all about making the tough choices.
Ian Munro is the Director of Research with the Atlantic Institute for Market Studies, a non-partisan public policy think tank based in Halifax.