Left, right warn against provincial deficits

A right-leaning think-tank and left-leaning politician are issuing surprisingly similar warnings about the pitfalls of Atlantic Canada’s heavily indebted governments bringing in deficits to battle the economy’s ills.

Nova Scotia NDP Leader Darrell Dexter is seldom on the same side of any issue as Charles Cirtwill, a policy analyst with the Atlantic Institute of Market Studies, a think-tank that pushes the virtues of market-based economics.

But in the past two days, both have categorically come out against running in the red — a possibility floated this week by Premier Rodney MacDonald.

“It is a recipe for additional hardship for years to come, and we are in the position in the Confederation of being in the worst position for further deficit spending,” Dexter said Thursday.

MacDonald has said he won’t “close the door” on a deficit and that he faces an “uphill battle” to balance the books, even though the province already carries $12.1 billion in debt — the second highest in the nation after Newfoundland and Labrador.

All three other Atlantic provinces have already signalled deficits are likely.

Dexter said in an interview that “it is unreasonable for the federal government to ask provinces that are already disadvantaged to further disadvantage themselves by driving themselves further into debt.”

He argued his province can combine existing budgets for public roads and buildings with federal spending announcements expected to come in next Tuesday’s federal budget.

Meanwhile, Cirtwill cited recent recommendations from the International Monetary Funds that western governments restrict themselves to temporary spending increases of about two per cent of the annual output of their economies, usually measured as the Gross Domestic Product.

In the case of Atlantic Canada, he argues the region’s share of Ottawa’s increase in spending will fulfil that goal.

“Ottawa is probably going to make that spending increase target without us having to run a deficit,” Cirtwill said.

The East Coast provinces are generally too small and too indebted to risk going further into debt on their own or to match the federal spending, he added.

Cirtwill also argued that the public forgets that several Atlantic governments have been on spending sprees in recent years.

“They could have lots of money to toss around in the economy just by stopping the existing growth in their programs,” he said.

Cirtwill, though, doesn’t expect his warnings will be heeded.

“Nobody will listen to me,” he predicted, saying by 2011 taxpayers on the East Coast will be paying the price for deficit financing with tapped-out public credit lines and through higher taxes.

“It’s deferred taxation. It means that my children and your children will be paying higher taxation within a few years.”

Many economists and businesspeople in the region are urging their provincial treasurers to open the coffers.

Elizabeth Beale, president of the Atlantic Provinces Economic Council, said the bottom line is that the region’s governments may have little choice but to project deficits due to plunging revenues.