New Brunswick budget predicts growing economy and deficit

The Higgs government says the economy will rebound in the coming fiscal year as COVID-19 wanes, but it won't be enough for the province to avoid a large deficit.

Finance Minister Ernie Steeves is projecting the provincial economy will grow by 2.9 per cent this year, after shrinking 3.5 per cent in 2020 because of pandemic restrictions.

But government spending will still outpace revenue, leading to a deficit projection of $244.8 million for 2021-22.

"It's not the budget I want to deliver but it's the budget New Brunswick needs," Steeves told reporters.

"It's a different world. The pandemic has changed things completely for everybody."

Increasing vaccination rates and easing of public health and travel restrictions later this year should spur the economy but "there remains a high level of uncertainty in the forecast, and a return to pre-COVID levels of economic activity will take time," Steeves said in his budget speech.

Increased spending

Overall, spending will be up 3.4 per cent in the coming year while revenue will grow only 1.2 per cent, an imbalance that runs contrary to the Progressive Conservative's frugal instincts but that Steeves said is necessary after an extraordinary first year of the pandemic.

"This budget takes us further into debt," Steeves said. "We don't want debt, but you know what? Now is the time. We have to spend money this year."

The large deficit projection is based in part on federal funding for a range of COVID-19 programs expiring at the end of the fiscal year on March 31.

Conditional grants from Ottawa jumped from $324 million to $599 million this year, with almost all of the extra money to support the province's pandemic response. Those grants are budgeted to drop back to $357 million in the coming year.

Steeves said the provinces would push the federal government to continue the funding.

"You just can't cut it off. It can't be a hard stop."

Ottawa hasn't yet said precisely how much it will fund in 2021-22, but if there's a new influx of money after April 1 it could lower New Brunswick's deficit figure. A massive influx of federal dollars this year brought a once-ballooning pandemic deficit down to $12.7 million.

"At this point, given the number of unknowns, this is what we see as the reality," Premier Blaine Higgs said when asked about the deficit.

Opposition Liberal MLA Rob McKee said despite the red ink, the PCs are still not spending enough in sectors hit hard by the pandemic, such as small and medium-sized businesses, tourism and the arts.

"There's nothing there," he said.

McKee said it's possible Higgs will not actually spend the money laid out in the budget.

"We're going to see at the end of the day that he's not going to spend where it's needed and he might turn this into a surplus or a balanced budget at the end of the year."

Pandemic spending

The budget includes $64 million for specific pandemic spending, including $30 million for the vaccination program now underway.

"New Brunswickers will see a fiscal plan that demonstrates our commitment to providing the necessary supports to address the pressures that the pandemic will continue to place upon the province," Steeves said.

There's also significant increases in some non-COVID-19 areas.There's an increase of about $7 million for mental health across several departments, including $3 million to deal with increased demand for addictions and mental health services.

There's also $10.8 million in new spending on affordable housing and $12.4 million for wage increases for home support workers, community resident workers, special care home workers and family support workers.

The budget forecasts an even larger deficit of $296 million in 2022-23 before it will start to decline the following year to $220 million.

Carbon tax

The government will raise the provincial carbon tax that drivers pay at the pumps by about two cents to 4.21 cents per litre in the coming year. But that announcement was lacking some key information on how revenue will be spent.

Officially, the national climate plan requires a carbon tax rate on gasoline of 6.6 cents this year. The PCs went along with that a year ago but cut the gas excise tax by more than four cents to leave the consumer paying about two cents per litre at the pumps.

This year the national plan requires an 8.8-cent-per-litre tax, so the province would have to reduce the gas excise tax again to keep the net tax stable at the pumps.

But there's been no decision yet to do that.

There will be about $28 million in leftover revenue if the province keeps the excise tax where it is.

It wasn't clear Tuesday what other options the government is considering, but Steeves said four choices are on the table and all would see the money returned to New Brunswickers.

"I don't know if I want to discuss all of them. I have my favourite," he said. "In one form or another, it will get back to the people."