Newfoundland & Labrador is facing a budget deficit exceeding $1.8 billion
Nova Scotia’s deficit is at $585 million, New Brunswick’s is at $245 million, and Prince Edward Island’s is at $112 million.
Net debt is rising in all four provinces, with Newfoundland & Labrador in particular adding $2 billion to its net debt this year. The province already has the highest debt per-person in Canada.
While certainly exacerbated by the COVID-19 crisis, these numbers reflect long-term fiscal and economic challenges in the Atlantic provinces. As a new report from the Fraser Institute outlines, three factors contribute to this worsening situation:
- Perpetually rising debt-to-GDP ratios due to a long-term tendency to run budget deficits more often than surpluses.
- A heavy reliance on federal programs.
- High rates on personal, corporate, and sales taxes, which leaves little room to raise taxes in an effort to tackle budget deficits.
This is reminiscent of Saskatchewan’s fiscal crisis in the 1990s, the report highlights. The province’s relatively quick, and more importantly lasting, fiscal turnaround represents a viable model for the struggling Atlantic provinces today.
First, Saskatchewan cut spending by almost 12 per cent over two years, in part by eliminating inefficient and unaffordable government programs.
“While difficult, the result of these reforms was a reduction in program spending from a peak of $9,098 per person to $6,963 per person in less than five years. The ultimate result was a remarkable turnaround from a deficit of $1.53 billion to a surplus of $184 million in just three years. Having brought spending under control, the province was able to later reduce taxes on personal income, corporations, and investment.”
As a result, the budget was balanced in three years, which allowed the province to focus on tax competitiveness as a way to attract investors, entrepreneurs, and skilled labour.
