Arming for the Fight of its Fiscal Life

Those who had assembled on a chilly November afternoon in downtown Saint John to witness the first major speech of New Brunswick’s freshly minted Finance Minister could hardly believe what they were hearing. It wasn’t the content of Blaine Higgs’ message that caught them off guard. As business leaders and members of the city’s Board of Trade, they were well aware of the Province’s desperately poor financial condition. Indeed, only a month earlier Standard & Poor’s bond-rating agency revised its official outlook for the province to “negative”, from stable.

No, what raised eyebrows around the room was the exceedingly rare spectacle of an elected official bluntly and candidly confirming the bad news with no sugar to coat the truth. “As a government, we are spending more money than we receive,” he said. “Our fiscal circumstances are unprecedented and simply unsustainable. We need to ask ourselves some tough questions and, in return, receive honest answers. It is time for politicians to be brave enough to admit that we’ve been building bigger, but not necessarily better for decades. Mostly what we’ve bought ourselves is a bigger problem and bigger debt.”

In fact, for the fiscal year 2010-2011, New Brunswick’s annual deficit is projected to be $800-million – up from $749-million only six months ago. Its total accumulated debt is forecast to exceed $8-billion. If things don’t change dramatically for the better, the yearly shortfall will rise to $1-billion on debt of $10-billion by 2012. Just as troubling, perhaps, the rolling deficits have become structural, rather than cyclical – the distinction being the former is largely immune to the normal cycles of economic recovery. All of which firmly places the province near the very bottom of Canadian fiscal performance.

The culprits in this conspiracy are predictably difficult to finger with absolute certainty. But most politicians, business leaders and economists blame an unprecedented rise in the cost of health care as the population ages more rapidly than it has in previous decades. Other factors include the increasing expenses of maintaining a modern and efficient public school system for a dwindling base of children; safe and durable transportation corridors and municipal infrastructure; and a precipitous rise over the past nine years in the number of public sector workers (some estimates suggest government or government-based employment has increased by 14.3 per cent, compared with private-sector job growth of only 4.3 per cent).

On the revenue side of the ledger, New Brunswick’s stagnating head count has played havoc with the tax base: The province’s population increased by less than one percentage point between 2007 and 2009. Meanwhile, industrial growth (and the levies it supplies to public coffers) has slowed to a snail’s pace due, in no small measure, to the recent Great Recession, which has kicked the stuffing out of the province’s export sector and undermined the fortunes of several, traditionally important industries, including the once-mighty forestry.

As brutal as these challenges are for policy makers, an even tougher one may be overcoming the natural limits of human apprehension. Simply put, a billion is a number so vast it can only be understood through metaphorical sleights of hand. After all, if we’ve never actually seen a billion of anything, does it really exist? Who can get worked up about a debt no one can actually enumerate in the span of a normal life? If we don’t peek behind the curtain, we tell ourselves, but merely go about our lives as we always have, nothing terrible will happen to us.

Of course, at some point, the curtain always springs open as it did in Ireland in November, when International Monetary Fund officials combed through that country’s books and demanded sharp budget cuts and brutal retrenchments as a condition of their multi-billion-euro bailout. All at once, the inconceivable became starkly real and tangible: Foreign bankers were now running the show, making policy, cutting programs. The “Celtic Tiger” was declawed and left mewling for its handlers’ table scraps.

New Brunswick is nowhere near befalling such a calamity; and the good news is the current crisis is generating an unprecedented degree of collaboration and engagement at least among those who have no difficulty counting to a billion.

“The government needs to do three things,” says Donald Savoie, a Canada Research Chair in Public Administration and Governance at the Université de Moncton. “It needs to promote growth and see greater revenues from this. That’s what we all hope for, but it depends on so many circumstances that are difficult to predict. It then has to look at cutting spending in a very serious way, the way that we have never experienced in the province. And then, it has to increase taxes.”

Or as David Ganong, president of St. Stephen-based Ganong Bros. and a leading business light in New Brunswick, told the Saint John Telegraph-Journal in November: “We need to learn lessons from the best people we can and then we have to put our best talent to work out a strategy going forward. It’s not the tactics that will be important. It’s developing the strategy. If we can’t do that, then somebody else will start making decisions for us. [Having said this] I don’t see how the provincial government can work its way through this without some tax increases.”

This, however, is a non-starter, at least for the time being. In an interview with Atlantic Business Magazine, Finance Minister Higgs stipulated, “We’ve been pretty clear about that in our platform. We have a lot of other areas to pursue. Premier David Alward has made it very clear in relation to the HST, and that is our platform and we will stick to that. There are so many other areas to look at.”

Indeed, he said: “In this situation, we are starting slowly with one or two per cent cuts [in government spending], with a commitment of two per cent annual cuts after that. We need to have people thinking differently, to create a different culture. The best successes are derived when everyone is rowing in the same direction. What we’re not going to do is spend $300,000 on an external audit, which would typically be done by a new government. Within the public sector, we’re holding people accountable to their budgets in the new year.

“If people take this situation seriously, and they recognize the urgency of the situation we’re in, then there will be enough savings. But this sense of urgency has to be felt by every citizen. Every drop is what we are looking for.”

Those messages came through loud and clear in the new government’s November 23 Throne Speech when it declared, “This situation is clearly unsustainable. Your government has come forward with a comprehensive plan to change the culture of government and to address the challenges facing our province through responsible fiscal management, citizen engagement and focused leadership. This plan details the actions your government will take to put our province back on the road to prosperity while addressing New Brunswickers’ priorities, including jobs, education and health care.”

This plan, the speech promised, “contains many measures to put New Brunswick first in job creation and promote economic development throughout our province. These include the introduction of a new, 21st-century economic development model for New Brunswick. This model seeks to change the culture of economic development in our province.”

It will, in effect, “ensure full transparency in the decision-making process; the use of private-sector knowledge and experience in evaluating applications; opening up the regulation-making process; more opportunities for partnerships between government and experts; and seamless access to programs and services offered by the Province.”

And it will “result in the establishment of a new economic development vehicle for our province called Invest NB. This Crown Corporation will bring private and public sector knowledge together to foster real economic growth throughout New Brunswick.”

To be sure, the plan remains scantily clad at this early stage in its development. Still, the words used to describe it are both brave and blunt – a hopeful, if rare, occurrence among a crop of freshmen politicians arming themselves for the fight of their fiscal lives.

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