New Brunswick’s ‘unsustainable’ finances demand spending restraint from all parties

According to a new report from the Parliamentary Budget Officer (PBO), due to a mix of increased spending and other pressures, New Brunswick government finances are now “unsustainable.” With an election on the horizon and temptation for spending promises running high, New Brunswickers should demand restraint from all political parties.

The PBO deems provinces unsustainable when government debt grows at a faster rate than the economy as a whole. This simple definition makes sense. A government, like any business or household, cannot grow its debt continuously without eventually facing solvency problems. The relevance for New Brunswickers is that when the governments grows debt in relation to the economy, taxpayers are effectively paying for today’s programs through borrowing, likely resulting in future service cuts or tax increases.

The Higgs government has a well-earned reputation as being fiscally responsible, given its track record of debt reduction and balanced budgets. While it deserves credit for this approach, the PBO report reveals two key concerns.

First, despite the government’s fiscal accomplishments, the purse strings have been substantially loosened in recent years, a fact noted by the PBO. During the first three full budget years under this government, program spending increased by an average of 2.5 per cent. This means that after accounting for inflation and population growth, spending was nearly flat, which set the stage for balanced budgets and debt reduction.

However, over the past three years (from 2021/22 to present), program spending is projected to increase by a yearly average of 8.8 per cent, above the rate of inflation and population growth. Returning to the spending restraint of the 2018/19 to 2020/21 period would likely return New Brunswick to a sustainable financial position.

Second, the PBO report underscores the vast scope of the financial challenges in provinces such as New Brunswick. In addition to the increased spending described above, population aging and slow projected economic growth contribute to sustainability concerns. While all provinces face these challenges, New Brunswick is one of the provinces expected to age the fastest and grow the slowest, both of which will put pressure on provincial finances.

So what’s the solution?

Two words—spending restraint. Narrowly, restrained spending will be required to achieve sustainability. Broadly, lower spending levels can help spur growth by reducing the size of government in the province and providing an opportunity for tax relief, which would both boost the province’s prospects.

Despite the PBO’s finding of unsustainability, New Brunswick remains in a stronger fiscal position than many other provinces across Canada, where spendthrift governments have plunged into debt and deficit. But to return to sustainability, all parties in Fredericton should commit to spending restraint in the upcoming election campaign.