Published in the Telegraph-Journal 30th March 2012
New Brunswick’s Finance Minister Blaine Higgs received mostly complimentary reviews on this week’s provincial budget. The deficit numbers are encouraging. His government has forecast $471.1 million deficit for the 2011-2012 fiscal year and is projecting a deficit of $182.9 million for 2012-2013, a distinct improvement over the government’s last budget.
Reviewing these numbers, the provincial budget reflects the priorities that Mr. Higgs has underscored since he was given responsibility for the government’s finance portfolio 18 months ago. His commentaries, in the Legislature and in speeches across the province, have consistently focused on key themes: balancing the books, maintaining taxes at a low level and rationalizing government operations to reduce cost. And there is every sign that Mr. Higgs will continue to pursue those goals for the balance of this government’s mandate.
There is no doubt that cost-cutting was necessary. For a small province with a substantial reliance on federal equalization and transfer payments, and with persistently flat economic growth, achieving fiscal stability must be a high priority. This is not an ideological proposition. The crowding-out by the fiscal pressures associated with escalating deficits placed real restrictions on the capacity of the New Brunswick government to achieve other objectives including investment in innovation and research, investment in training and infrastructure and the sustainability of social programs. As it is, Mr. Higgs has admitted that “fiscal consolidation at all levels of government will serve to weaken overall economic growth.” He has also warned that “reduced levels of public sector capital spending along with the absence of any new major projects in the private sector will limit the contribution of capital investment to economic growth.” New Brunswick can expect no large government-sponsored initiatives to create jobs and spur economic development.
That places greater responsibility for job creation and economic growth in the hands of the private sector. The budget revealed its support for what it considers priority industries: aerospace and defence, biosciences, information and communications technologies, industrial fabrication, value-added food and value-added wood. But many of firms in these industries lack the necessary critical mass to be serious export drivers in the New Brunswick economy and will need hand-holding and support to survive.
A substantial amount of that assistance has come in the past from key federal government programs. Prime Minister Harper has branded his government’s Economic Action Plan 2012 as a vehicle to create jobs, foster growth and create long-term prosperity with supporting entrepreneurship, innovation and world-class research earmarked as priorities. How that will be supported by funding remains to be seen. Federal Finance Minister Jim Flaherty has stated that his budget will clarify his government’s strategy for supporting economic development including modifications to the Scientific Research and Economic Development tax credit. Changes are also expected to have an impact on the Atlantic Canada Opportunities Agency, a mainstay of stimulating economic development in New Brunswick. These and other federal government programs are important cornerstones of support for small-business creation and growth. If the federal government advances or retreats on historic commitments to backstop entrepreneurship is a critical question whose answer will have a heavy impact on prospects for economic vitality across Canada.
Mr. Higgs has one dragon at bay, even if it has not yet been slain. He has other pressing concerns as well. The province’s net debt is expected increase to $10.1 billion before the end of this fiscal year and debt service payments increasingly consume a substantial portion of the province’s budget. He will need to weigh in on how his government will manage burgeoning pension entitlements in order to make them self-sustaining. But the most intimidating dragons will not respond to measures such as making government smaller or to budget reductions. Education and health care consume much of the financial oxygen in the room and these challenges cannot be sidestepped. The lights will be burning late for Mr. Higgs for some time yet.