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Financial and Economic Update 2001-2002
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Internet: www.gnb.ca/fin November 2001
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ISBN 1-55236-795-9 Printed in New Brunswick |
Mr. Speaker, “Securing our Financial and Economic Future” is a key theme of this year’s Speech from the Throne. At a time of increased uncertainty about the state of the Canadian and global economies, New Brunswickers are looking for assurances that their government is planning ahead. Today I am presenting a financial and economic update that sets out the fiscal and economic situation facing our province and outlines some of the steps we have been taking and will continue to take to secure New Brunswickers’ future.
Let me begin by setting out four key facts.
First, New Brunswick is not immune from a global slowdown. As the second-most trade dependent province in Canada and with over 80% of our exports going to the United States, we are affected when the United States economy slows down, as it is now doing.
Second, all provinces, not just New Brunswick, are facing the same situation to varying degrees. All are facing tightening financial circumstances. All are taking steps to manage their finances.
Third, September 11th clearly worsened an already weakened economy. Particular industries, notably travel and tourism, and financial markets, all lost ground as had the manufacturing and information technology sectors prior to it. This has created even more economic uncertainty.
Fourth, forecasts for the length and depth of the current national and international economic slowdown vary. It is not yet clear how long it will last or how deep it will be. Most forecasters are predicting the current slowdown will continue well into next year.
We knew this could be the case. That is why the government’s March 27, 2001 budget stated: “The economic slowdown being experienced in the United States and other parts of the world is having an impact here in Canada. While its ultimate effect remains unclear, we must not plan our economic future wearing rose-coloured glasses.”
Mr. Speaker, we have not done so and will not do so. Our planning is realistic, focused, and long-term. Despite the significant financial and economic challenges ahead, we are determined to meet them squarely and fairly.
In fact, we began in our first budget when the Minister of Finance stated: “…the time to fix your roof is when the sun is shining”. We knew that it was important to take steps to begin to address the basic structural problems we were facing as a province. That meant taking steps today to plan for tomorrow.
Those problems were set out clearly in the independent Grant Thornton audit undertaken during our first 200 days in office. That audit outlined a structural financial deficit facing the province if no corrective steps were taken.
Mr. Speaker, this could not stand. We did have a choice. We could have chosen the easy path. The path which had been chosen before us. It was the path to use creative accounting and hide the debt off the books. Hide the debt today, and pay for it tomorrow. That was not and is not the choice of this government, Mr. Speaker. It is not the legacy we want to leave to our children and grandchildren.
This government chose a different path. We have chosen to take today’s challenges and turn them into an opportunity to do what is right today and for the next generation. We charted a new course to embrace change and build a balanced approach to create greater opportunity for New Brunswickers now and in the future.
Change takes commitment and change takes a plan. That’s why, beginning with our first budget and followed through once again with our second budget, this government took steps to manage smarter and focus on clear public priorities like health care and education. This balanced approach has led to balanced results. Two balanced budgets, record investments in health care and education, income tax relief for people and businesses, reductions in the Province’s net debt, and the creation of a special Fiscal Stabilization Fund.
Mr. Speaker, we will continue our balanced approach to public finances and public priorities. It’s right and it’s working. But the job is not yet done. That is why we will continue to exercise strong fiscal discipline on behalf of all taxpayers.
Let me summarize three key conclusions from today’s financial and economic update.
First, economic growth this year will come in at about 1%, down from the projected 2.1% in the budget. Next year, we are currently expecting growth of only 1%, presenting significant revenue challenges to the government.
Second, New Brunswick will record a budget surplus this current fiscal year - the only province east of Ontario to do so. That surplus will be $8.7 million, a decrease of $26.1 million from the budget forecast.
Third, based on lower economic and revenue growth, coupled with higher expenditure pressures, without corrective measures New Brunswick could face a deficit of approximately $180 million next fiscal year.
I would now like to turn to the specifics of the financial and economic situation for this fiscal year and next.
Mr. Speaker, while the events of September 11th shocked and horrified the world, the global economy did not suddenly lurch to a halt. Prior to these events, the economy had already begun to weaken globally with the marked slowdown in the United States, a stalling recovery in Japan and moderating growth in Europe and most emerging countries.
In March, private sector forecasters estimated growth in real Gross Domestic Product for 2001 of 2.8% for Canada and 1.9% for the United States.
Recent data confirms the global economic slowdown, with the manufacturing sector and information technology sector leading the way. The Canadian economy stalled by mid-summer 2001. Growth estimates for Canada have fallen to approximately 1.4% today. For the United States, the present consensus is about 1.1%.
Measures taken by the Bank of Canada will help to soften the blow of the economic slowdown. Since January 2001, interest rates have been cut eight times, from a high of 5.75% to 3.0% at the end of October.
At the time of our budget, private sector economic forecasters projected real GDP growth for New Brunswick would be, on average, 2.2% in 2001. The Department of Finance projected 2.1% growth for the New Brunswick economy.
The average forecast for growth in New Brunswick in 2001 is now 1.0%. That is less than half of what had been predicted last March, but it is important for New Brunswickers to understand that growth remains positive.
Mr. Speaker, overall, our economy has been performing relatively well. For example:
It is this government’s intention to build on these positive fundamentals to ensure continued growth this year and next. In concert with low inflation, low interest rates, and lower income tax burdens on individuals and businesses, New Brunswick is well positioned to weather the uncertainty we are experiencing.
Looking ahead to 2002, the outlook remains cloudy. Across North America, economic uncertainty is significant. Generally speaking, economic forecasters indicate that the recovery in the United States and Canada will begin in the second half of 2002. When it occurs, they think growth will accelerate relatively quickly. Current predictions for Canada show average economic growth of 1.5% for 2002, mainly in the last half of the year.
We now anticipate real GDP growth in New Brunswick will be roughly 1% in 2002. The Atlantic Provinces Economic Council recently released a report, indicating the same percentage increase.
I would now like to turn to the current fiscal situation. With a little over four months left in fiscal 2001-02, Mr. Speaker, today I am confirming that, as things now stand, the Province will end the current fiscal year with a small surplus.
Last March the government tabled a budget containing record investments in health care and education, as well as lower taxes for New Brunswick families, workers and businesses. The government estimated budgetary revenues of $5.0272 billion and budgetary expenditures of $4.9924 billion. The net result was a projected budgetary surplus of $34.8 million.
Mr. Speaker, our investments in health care and education, as well as the announced income tax cuts, are secure. Based on the latest data, we now expect budgetary revenues of $5.0491 billion and budgetary expenditures of $5.0404 billion. This will result in a revised budgetary surplus of $8.7 million for 2001-02, a reduction of $26.1 million from the budget projection.
As things now stand, New Brunswick’s fiscal performance in 2001-02 exceeds that of the other eastern provinces. In fact, we are the only province in eastern Canada currently projecting a budgetary surplus this fiscal year. This has been achieved without drawing upon our Fiscal Stabilization Fund. New Brunswick’s fiscal performance this year compares favorably with every other province which has released a recent financial update.
Mr. Speaker, we expect that, on balance, budgetary revenues will remain on track for 2001-02. Revenues are currently projected to be $21.9 million higher than at budget.
Provincial property tax revenues, lottery revenues, tobacco revenues and federal transfer payments are among those revenue sources anticipated to exceed budget forecasts.
There are revenues that are now anticipated to be lower than projected at budget. The shortfalls are in personal income taxes and the Harmonized Sales Tax, as a result of economic growth being slower than anticipated. In addition, return on investment and capital recoveries are anticipated to decline. On balance, our revised estimates show that revenue increases will offset revenue shortfalls.
On the expenditure side of the ledger, spending is up $48.0 million over budget.
The principal reason is that Department of Health and Wellness spending is $42.3 million higher than budget due to increased expenditures in Medicare, Hospital Services and the Prescription Drug Program, reflecting this government’s strong commitment to renewing health care. Health care now represents 34.3% of budgetary expenditures.
These projections, Mr. Speaker, are based on the information we have today. While we are optimistic that we will remain in the black this fiscal year, there remains some uncertainty. Much is outside of our control. Revenues and expenditures will continue to be affected in the coming months, including payment flows from Ottawa and pension expenses.
Mr. Speaker, governments across the country will face considerable challenges to meet their fiscal targets in 2002-03. There is no doubt that the task of delivering a balanced budget in the coming fiscal year will require choices.
The reality is that slower economic growth will translate into slower growth in revenues. At the same time, the demand for public services continues to increase, particularly for health care.
Factoring in the impact of recent economic developments, and what we know today regarding revenues and expenditures, unless corrective measures are taken, the Province could be looking at a deficit of approximately $180 million for 2002-03. Left unchecked, this could grow even larger in subsequent years.
I can assure all New Brunswickers that we will act decisively to address this situation. We will not let this happen. Deficits today are taxes tomorrow. Difficult choices will be necessary but this government has never shied away from making the right choices. We will not roll back the gains that New Brunswickers have made over the last two years.
Mr. Speaker, I would now like to set out the steps we will be taking to secure our financial and economic future.
Our approach is a strategic, long-term one. It is confident and optimistic. It is realistic and focused. And it is competitive and compassionate.
As Premier Lord said recently, “For every financial downturn, there is an economic upswing. Those provinces and businesses that make the right choices today for the long term will be able to take maximum advantage of the economic upswing in the future.”
That is exactly what we will do, Mr. Speaker. We will take steps today that will secure our future. We will not let the short-term challenges take away from our long-term goals.
The legacy we leave to our children cannot be higher and higher deficits, and deeper and deeper debt. We must live within our means, manage smarter and invest wisely.
That is why we have set a goal of a balanced budget for the next fiscal year. Given the financial and economic update I have just presented, achieving our goal will be challenging. That is why we are setting the following parameters to control expenditures and invest in growth:
First, we will focus on clear public priorities. Jobs, health care and education will remain our most important investment priorities.
Second, expenditure growth in all other areas will be managed tightly to ensure we meet our overall financial targets.
Following these parameters will take hard work and cooperation. By working together, people, communities, stakeholders and government, we can achieve our common goal of a more prosperous, competitive, and compassionate New Brunswick.
These steps are necessary to ensure we meet our immediate objective of a balanced budget. But in doing so, we must also encourage long-term growth, by improving the competitiveness of our tax system, and making strategic investments. Today’s economic slowdown is tomorrow’s economic opportunity if we seize that opportunity.
Mr. Speaker, the recently tabled Speech from the Throne reiterates the government’s commitment to further income tax relief for individuals and businesses. This government has lowered both personal and corporate income taxes, and will continue to do so.
During the past two years, significant income tax reductions have been implemented, including those targeted to low-income individuals and families. The 2001-02 budget resulted in the removal of over 15,000 individual taxpayers from the tax rolls, and New Brunswickers are keeping more of their hard-earned income. Personal income taxes alone have been reduced by $88 million.
Mr. Speaker, I am pleased to announce today that the government is undertaking another initiative aimed at reducing the corporate tax burden, stimulating the economy, and securing existing jobs. Amendments to the Assessment Act will be introduced to freeze industrial property assessments for pulp mills at 2000 levels, and assessments for certain other heavy industries at 2001 levels, for the 2002 taxation year. Furthermore, government will undertake a comprehensive review of property tax assessments for heavy industrial properties to ensure that our property tax regime does not act as a barrier to job creation and economic growth in New Brunswick.
Mr. Speaker, the Speech from the Throne indicated the government’s intention to release a comprehensive ten-year Prosperity Plan to make New Brunswick more globally competitive. The plan will focus on four main building blocks. They are investing in people, embracing innovation, building strategic infrastructure and ensuring a competitive fiscal and business environment. Based on these building blocks, this plan will set out our priorities for sustained economic growth in today’s global, knowledge-based economy.
The ten-year plan will help us prepare for a prosperous future, in a competitive and compassionate New Brunswick.
Mr. Speaker, the projected $8.7 million surplus for the current year means that, at this time, we will not need to access the $100 million Fiscal Stabilization Fund. This is particularly significant given that many other provinces have had to use their contingency reserves this fiscal year.
The purpose of this fund is to assist in stabilizing the fiscal position of the Province of New Brunswick from year to year and to improve long-term fiscal planning.
Mr. Speaker, the forthcoming capital budget will outline new steps we are taking to build strategic infrastructure - one of the four building blocks of our Prosperity Plan. I am pleased to inform the House that I will bring down a capital budget for 2002-03 on December 6, 2001.
On March 26, 2002, I will introduce the 2002-03 budget, which will take further steps to address the building blocks of our Prosperity Plan.
Mr. Speaker, we are committed to fiscal responsibility, in order to secure our economic and fiscal future. Making the tough but correct decisions today ensures a prosperous future for our children and grandchildren. Working together with the people of New Brunswick, this government is up to the challenge.
We will turn adversity into opportunity. By doing so we will truly transform New Brunswick into a more competitive and compassionate province. A better place to live, work and raise a family.
Thank you, Mr. Speaker.
