Government spending in New Brunswick is about to hit a wall

Author: 2021/07/15

This piece first appeared in the Telegraph-Journal.

Based on the mood in government offices in Fredericton, you would think everything is rolling along smoothly with the top down.

Yet, the province’s finances are headed straight for a brick wall.

According to the independent Parliamentary Budget Officer’s latest report there’s a $600 million gap between what New Brunswick currently spends and what it can afford to spend without increasing its debt load faster than the size of its economy.

That means the province is set to spend much more in the future than it has the ability to pay for.

The PBO is like a mechanic for our budget, and that mechanic is warning us that this accelerated spending will make our economic engine seize up down the road. And $600 million is quite a big gap.

The problem is, it’s tough to convince Fredericton politicians that we need a tune up because things don’t seem so bad right now on paper.

The government of New Brunswick balanced its last three budgets before COVID hit. And last year’s pandemic budget was much closer to balance than any other province’s with a projected $13 million deficit.

But when one considers the province’s aging population, we get a very different picture.

We can see the wall when we look into the future.

According to estimates from Statistics Canada, the ratio of seniors as a proportion of New Brunswick’s population will increase from 21 per cent in 2018 to roughly 31 per cent by 2043. That’s a 48 per cent increase in older folks.

This means fewer people will be a working age, which reduces economic growth and thus reduces the growth of government revenue in turn. If people aren’t working and making good money, they aren’t paying the income taxes and business taxes into the government.

A higher percentage of seniors means a sharp increase in spending on health care, which already accounts for roughly one third of Fredericton’s spending each year.

The province will be under a lot of health care spending pressures in the coming years.

In 2018, New Brunswick was spending around $2,700 per year on health care for a 40-year-old adult. That number climbs to $6,400 per year for a 65-year-old, and $10,800 per year for a 75-year-old.

So, the more 65 and 75 year-olds there are, the more expensive health care spending gets.

As a result, program and interest spending is projected to grow 25 per cent faster than government revenues by 2043 unless the government grabs the wheel and heads in another direction.

The good news is that there is still time to bring the government back to financial sustainability.

First, we need more fuel in the tank.

The government should make it easier for businesses to set-up shop in New Brunswick, by reducing red tape. The easier it is for entrepreneurs to make their start-up ideas a reality in the province, the faster the economy will grow and the more revenue the government will get.

Second, we need to know if the fuel is being spent efficiently.

The government needs to do a full diagnostic and go through its spending line-by-line to make sure taxpayers are getting the best bang for their buck. That means ending the 12 per cent wage premium that provincial bureaucrats enjoy over their private sector peers, as well as blending the two health networks together to reduce administrative costs.

The government of New Brunswick knows where the wall is, and the good news is there’s still enough road to avoid it without slamming the brakes too hard.

All it takes is the right level of political will in Fredericton and it can feel like nothing more than a bump in the road.

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