Atlantic Provinces’ Spending Growing Faster Than Own Source Revenues
HALIFAX — Increased spending, inflation, and higher interest rates on debt are all contributing to budget imbalances in Atlantic Canada, according to the latest report from the Atlantic Provinces Economic Council (APEC).
The Fiscal Monitor says that budget balances in the region are getting worse, describing the trend of higher spending outpacing revenues as “unsustainable”.
Nova Scotia and PEI are forecasting several years of deficits the monitor says, with only New Brunswick looking at a surplus for 2023/2024. Even so, all four Atlantic provinces are expected to have a worse fiscal balance by the end of the year. This is due to several factors including increased spending caused by a combination of an aging population and an influx of international and interprovincial migrants who are putting more demands on infrastructure.
“A greater percentage of our population is getting older, and also putting some pressure on the healthcare system…. And we’re having better population growth,” says report author, senior economist Lana Asaff. “It can help give a boost to tax revenues, which is good, but it puts some pressure on funding, in terms of additional infrastructure. I’m thinking of transportation needs as well as housing.”
“That’s kind of like two sides of the coin. We definitely want to be bringing more people in to help out with our labour needs….they can help out with a lot of those major projects that are going on right now like the transition to the clean economy. There are going to be some pressures on our systems due to population growth, but also a great opportunity.”
The monitor does not break down the spending in each sector, but Asaff notes that Nova Scotia’s decision to prioritize and fix healthcare may be making it more difficult for that province to balance the money going in and the money coming out.
The monitor says government may be out of runway for revenue generation via federal transfers or by increasing taxes, noting that at 15 per cent Atlantic Canada joins Quebec with the highest sales tax rate in Canada, as well as the highest corporate income tax rates in all of Canada. At 16 per cent in PEI, 15 per cent in Newfoundland and Labrador, and 14 per cent in both Nova Scotia and New Brunswick, increasing taxes higher would put Atlantic Canada at an even steeper competitive disadvantage as compared to the rest of Canada.
PEI in fact has recently proposed income tax cuts that will help the poorest in the province to keep more money in their pockets, recommending to lift the basic personal amount to $12,750 in 2023 and to $13,500 in 2024. There are also tax credits for seniors and children.
The cuts come in response to inflationary pressures and interest rate rises, and that government said it would commit to renewing tax brackets annually.
“Tabling these amendments just one day after presenting the operating budget demonstrates the government’s commitment to act quickly to ensure Islanders get the support they need to live a more affordable and comfortable life,” said PEI Finance Minister Jill Burridge.
“There’s definitely pros and cons to doing that because, as we know, Atlantic Canadians and Canadians more broadly, are struggling with a lot of affordability issues,” Asaff says, acknowledging the increased spending power of individuals via tax relief. “But that does create a fiscal challenge where, if you’re already in a situation where your spending is increasing faster than your revenues, and in particular your own source revenue….you need to be looking for other ways to balance your budget out.”
Asaff says that while the Fiscal Monitor does not make recommendations as to how governments should deal with these issues around balancing the books, reducing the amount of red tape and harmonizing regulatory processes between the Atlantic Provinces could make it easier for individuals to come to Atlantic Canada to start businesses.
“It’s just so much easier for them to do so for operating within a framework that’s consistent across four jurisdictions.”
As for moving forward regarding budgets, Asaff says Atlantic Canadians would benefit from increased clarity from the government.
“Governments need to be focused on the medium to long term economic and fiscal projections,” she says. “The more transparent they can be about what their central planning is…more accountability in terms of public scrutiny and reporting on those measures on a regular basis.”
Alex Graham is a Huddle reporter in Saint John. Send her your feedback and story ideas: [email protected].