Tag Archives: New Brunswick debt

And now for something completely different: good news for New Brunswick. . .sort of

 

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New Brunswick may be drowning in debt. In fact, practitioners of the wooly science of fiscal forensics may have already pronounced this province dead on arrival. But don’t we just do a bang-up job reporting our woes to the rest of the world?

The C.D. Howe Institute says we deserve a little praise for a change. Specifically, Colin Busby of The C.D. Howe Institute tells the Saint John Telegraph-Journal that, according to his annual study on government spending overruns in Canada (also known as “The Pinocchio Report”), this province does “reasonably well” predicting its financial condition. We are, in a phrase, “middle of the road”, which is better than road kill, I suppose.

What’s more, we’re brutally honest with ourselves and the rest of the country about the hobo clothes we’re forced to wear. “New Brunswick is one of the jurisdictions where you can clearly find comparable numbers,” Mr. Busby says. “You simply find what the budget promises were and then find the numbers in the public accounts and compare them. That’s a positive story for New Brunswick.”

Still, he adds, “When it comes to spending overruns and the ability to hit budget targets, either overshooting or undershooting (New Brunswick) is not in the range of Ontario and the federal government who have done a significantly better job in terms of holding to what they promised in their spring budgets.”

Here’s how the numbers shake out: Over the past 10 years, cumulative overruns, expressed as fractions of 2013/14 budgeted spending, were highest in Saskatchewan (36 per cent), Alberta (26 per cent) and Manitoba (22 per cent), lowest in Canada, overall (one per cent), Ontario (five per cent) and Nova Scotia (seven per cent).

New Brunswick overspent by $1.2 billion over the past decade, which is bad. On the other hand, averaged out over the period, we came in less than 15 per cent off our annual targeted goals, which is good. Sort of.

For a finance minister, there is, I’m guessing, a certain comfort in knowing, with any degree of accuracy, just how badly off your jurisdiction is in the scheme of things. It’s a little like being sentenced to an indeterminate jail term. At least you know you have a cot; let’s just hope your bunk buddies in the bond market aren’t complete psychos.

But, in the larger context, how instructive or useful are these sort of statistical parlour games?

That New Brunswick manages to “present well” is vastly less important than its moribund economy, the structural instability of which makes accurate budget forecasting a near impossibility (a fact which suggests that the province’s reasonably fair reporting record is more a function of good luck than good prognostication).

Meanwhile, the Conference Board of Canada forecasts continued stormy economic weather for the province. “Prospects for New Brunswick’s economy will remain dim for at least one more year,” it said in its revised winter outlook earlier this month. “Cuts in the potash industry, and the closing of the Maple Leaf Food plant in Moncton, will limit economic growth to 0.8 per cent in 2014.”

How will this affect the next round of budget promises?

An even more intriguing question is whether a fully functioning shale gas industry, which should make us all filthy rich, will also make our elected officials filthy liars, though through no fault of their own.

The C.D. Howe Report notes the paradox common to provinces rich in natural resources: Their budgets are even farther from target than are those of patently poor provinces, such as New Brunswick. Economic instability, it seems, cuts both ways.

“Jurisdictions that are more dependent on natural resources showed sizable positive revenue biases: Saskatchewan, Newfoundland and labrador and Alberta all had biases of eight to 10 per cent,” the Institute noted. The natural-resource dependent jurisdictions that more affected by commodity-price swings also had low accuracy scores.”

So, then, the more money a jurisdiction has sloshing around in oil and gas wells, the less veracious are its budget forecasts.

What a delicious irony.

Still, if I had to choose, I’d rather the province I call home be recognized for the power of its industry, than the accuracy of its numbers-crunchers.

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Burning down New Brunswick’s fiscal house

New Brunswick is surely on the horns of a dilemma

New Brunswick is surely on the horns of a dilemma

 

We’ve knelt around this bonfire before, watching the flames grow higher, hungrier. The kindling is the first to go, then the wild alder branches, and finally the great stumps of driftwood, charred black, vanish in the inferno.

Inevitably, we reach the point of knowing that time is short and we’re running out of fuel. Still, we can’t seem to move. Our feet and hands are stuck in the sand, to be followed, any day now, by our heads.

“Net debt is one of the most important measures of the financial position of the province,” New Brunswick Auditor general Kim MacPherson reminded us, with the patience of a camp counsellor, last week in her annual report. Although she’s led this sing-a-long for months, we still can’t remember the words.

“For the year ended 31 March 2013, net debt increased by $931.8 million to $11.1 billion. Net debt has increased $4.3 billion since 2007. The 2013-2014 Main Estimates budgets for an increase in net debt of $594.4 million for the year ended 31 March 2014. Based on 2013-2014 Main Estimates, net debt of the province could be in excess of $11.6 billion for the year ended 31 March 2014.”

We interrupt her just long enough to toss another log from our dwindling stash onto the fire. Excuse us, Ms. MacPherson, you were saying. . .

“This continued increase in net debt represents a very disturbing trend. An even higher demand will exist on future revenue to pay past expenses. Such continued negative trends impacted the Standard & Poor’s decision to downgrade the province’s bond rating from AA- to A+ in 2012. This rating change will ultimately result in more

expensive borrowing costs. As well, New Brunswick’s increased borrowing may constrain future borrowing capacity and affect future provincial operations and delivery of services. The A+ rating remained unchanged in 2013.”

That does sound serious, Ms. MacPherson. Do go on. . .

“Another way to assess the significance of the size of the province’s net debt is to compare it to the net debt of provinces with similar populations as New Brunswick in absolute amount, per capita and as a percentage of GDP.  Comparable provinces include Nova Scotia, Manitoba and Saskatchewan. . .Over the last five years, within this comparable group, New Brunswick has had one of the highest increases in net debt (45 per cent) The rate of Net Debt growth has also increased in the past year (growing by nine per cent).”

You don’t have to be Finance Minister Blaine Higgs to realize that all is not well in the purple violet province, where the annual deficit now looms large at $538.2 million. But, it helps. He may be the only citizen of New Brunswick who isn’t stoking the all-consuming fiscal fire.

“While it is true that our expense reductions have prevented a much larger deficit, we cannot turn a blind eye to the revenue challenge that our province now faces,” he said following Ms. MacPherson’s report to the Legislative Assembly. “No one is immune to the fiscal situation we are facing in this province and we are asking our stakeholders to be prepared to discuss how we can get back to balanced budgets.”

Translation: Hey stakeholders, be prepared for more cuts.

In Higgsian terms, is New Brunswick’s infrastructure “bigger than it needs to be”? Is he correct when he says “we need to work on that”?

Is the solution, effectively, to downsize our infrastructure and with it our appetites and expectations?

Says Mr. Higgs: “When you look at he situation we have in the province with declining enrollment in our schools and the number of schools we have. . .if you look at the number of hospitals we have for a province our size. . .you look at the roads we maintain for a province our size. . .we have to look at serious changes in how we do business and how we can deliver services on a continuous basis in a more effective way. . .How do we give the best education unless we have the critical mass there to do that and do that reasonably?”

Of course, right-sizing the province would be the antithesis of “politics-as-usual”.

Then again, this is the one highly combustible commodity that we, in New Brunswick, should be happy to see finally go up in smoke.

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A grim fable for the fiscally frightened

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“No fairy tales, please” – New Brunswick policy specialist Donald Savoie, a long-time advocate for debt reform in government, on public attitudes towards political promises during the run-up to next year’s election, Saint John Telegraph-Journal, Sept. 21, 2013.

Once upon a time, not so long ago, in the land between the rising and setting sun, there lived a troll under a covered bridge, next to Perdition Highway, known locally as The Road to Nowhere.

Unlike most trolls, who are fierce and lean, this one was lazy and fat. He spent a good deal of his time, days and nights, fantasizing about his next meal, which was, in fact, never very far away. So bottomless was his appetite that the villagers in the area called him Poor Black Hole.

“Look how hungry he is,” they would say. “He must have a tape worm.”

But no matter how much or how frequently they fed him, Poor Black Hole was never full. Indeed, he grew so big his bulk threatened to break the deck of the bridge above him; still, he couldn’t get enough to eat.

“I need more,” he would cry. “Can’t you see that I am wasting away.”

Clearly, Poor Black Hole had body image issues. But the villagers were too polite to mount any sort of intervention. So, they continued to empty their pantries and drain their cupboards in the hope – vain though it was – that he would finally shut up.

Eventually, the people’s plight came to the attention of the king, who worried that his subjects would soon run out of the staples they needed to survive.

“We must do something about Poor Black Hole,” he told his chancellor of the exchequer. “He’s sucking the life out of my tithe-payers. At the rate he’s going, there won’t be anything left for roads or schools or hospitals.”

The chancellor, a pragmatic sort of fellow, agreed. “It is a serious problem, o sire,” he said. “The circumstances are drastic and they require drastic measures. I suggest that the royal court stop giving the people their special dispensations whenever they demand. They only hand them over to the troll, anyway. Then, we should increase the levies on every adult man and woman in the kingdom and use the money to raise an army with which to vanquish the filthy beast.”

The king pondered awhile and then turned to his faithful servant and said, “I’ll get back to you,” whereupon he promptly fell into a deep slumber.

Days passed, then months, then years. And as the king slept, the people grew poorer and the troll grew fatter. Eventually, the bridge over Poor Black Hole’s head cracked and tumbled to the ground. He didn’t mind, just as long as his meals came fast and furious, which, of course, they did.

Meanwhile, other bridges cracked and tumbled to the ground. Schools closed. Emergency rooms shut down. Roads became impassable. Perdition Highway, long the most heavily travelled thoroughfare in the realm, failed under the weight of its traffic.

When the king finally awoke, he was dismayed and a tad rueful.

“I guess I should have gotten back to you earlier,” he told his chancellor, to which the weary factotum replied in a voice that was barely audible: “You think?”

What, the king demanded to know, could they do now? The treasury had been emptied, the courtiers disbanded. Worse, perhaps, the villagers were revolting on rumours that their royal favours were about to be cut off.

Their land was a shambles and they were in constant danger from foreign carpetbaggers and moneylenders. But they were entitled to their entitlements. Weren’t they? Apart from anything else, these were how they fed the troll.

“Maybe,” the king ventured, “we should just tell everybody to move. . .you know. . .lock the gates, haul up the drawbridge, shutter the windows before things get really bad.”

The chancellor furrowed his brow and, pulling a parchment from his satchel, declared, “Sire, it may already be too late. I have a report that indicates that the villagers are willing to go to extraordinary lengths to protect their state perks. . .apparently, they’ve started to feed Poor Black Hole something new.”

The king raised an eyebrow. “What’s that?” he asked.

Sighed the Chancellor: “Their young.”

And they all lived. . .well. . .must I spell it out?

The End.

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