The four Atlantic Provinces have a lot to learn before they table their next budgets in a few weeks time. This is the conclusion of the latest AIMS paper “Could Do Better: Grading Atlantic Canada’s 2004/2005 provincial finances” by UNB economist Dr. David Murrell.
With a population that is hardly growing at all, the Atlantic provinces ought to be trying hard to promote an economic environment that attracts business capital and skilled labour. At the same time, each of the four provincial governments finds itself having to address voters’ demands for public goods and services — a balancing act requiring a degree of budgetary skill that, on the whole, they have failed to display.
By any yardstick, the Atlantic Provinces faced considerable financial difficulties in the 2004/05 fiscal year. Slower economic growth in 2003/04 put a crimp in the provinces’ own-source revenues. Economic growth in the region is expected to decelerate noticeably in the current fiscal year. All four provinces face increasing health care cost pressures because the region’s population is aging disproportionately faster than the rest of Canada. In addition, the region’s slow population growth threatens to limit per capita federal transfers.
These are just some of the factors considered in Could Do Better which grades the public finances of the Atlantic Provinces relative to each other and to the Canadian average.
The region doesn’t do well. Its overall grade is a mere C, which is below the average of C+ for all the provincial governments in the country.
While New Brunswick comes in the highest of the four provinces with a grade of C+, the province’s spending is increasing much faster than its revenues. The grade reflects the state of the province’s finances in 2003/04 and the accuracy of its 2003/04 budget predictions.
In Nova Scotia, although the province ended 2003/04 in reasonable good fiscal health, its grade is reduced by a high-spending, tax-raising 2004/05 budget that is hardly conducive to promoting a healthy environment for economic growth. For that reason, Nova Scotia earns an overall grade of between C and C+. However, the province does deserve credit for announcing it will use the recent windfall from offshore petroleum royalties to pay down its debt.
Prince Edward Island continues to see high levels of pending which rates the province an overall grade of C-/C. PEI also scores a failing grade for its 22 public administration employees per 1000 population, more than three times the national average and nearly twice the average for Atlantic Canada.
Newfoundland and Labrador may lead the region in economic growth, but its overall budget grade is at the bottom of the class with a C-. The grade reflects the province’s fiscal woes, and the current constructive, though perhaps insufficient, attempts to address them. The province has the opportunity to do better if it resists the urge to use the royalty money from the renegotiated Atlantic Accord to increase program spending.