Ted Mallett, Vice-President & Chief Economist
The economic adjustments arising from the downward adjustment of resource prices are beginning to moderate. Balanced budgets are becoming more common among the provinces, with some notable exceptions in the resource regions, but overall debt levels are still climbing rapidly. The following charts show total revenues, expenditures and net debt levels for each government, expressed as a percentage of total economic output (GDP). Projections are based on current economic forecasts, government budgets and mid-year updates. We extend projections to 2022-23 based on steady-state assumptions on tax and program spending policy.
The economy grew faster in 2016 than baseline assumptions in the previous federal budget. However, spending levels are higher as well. Deficits equivalent to 1.2 per cent of GDP are expected for the next few years, and no balanced budgets are in the projection horizon unless there are spending or revenue policy changes.
|Both revenues and GDP in Newfoundland and Labrador are highly influenced by world oil prices. Price reductions,pushed finances deepinto the red and, despite large tax increases and a near freeze in spending, billion-dollar deficits will persist for the next few years.|
A small deficit is still expected in PEI this fiscal year, but surpluses are planned in the next two. Demographic pressures will keep economic expansion and own-source revenue modest, but if spending growth is restrained to the same levels, federal transfers will permit the run of balanced budgets to continue.
The Nova Scotia government is expecting a string of balanced budgets or modest surpluses this year and for the remainder of their forecast horizon. Steady-state tax and spending policy assumptions should allow these conditions to continue--which would then begin to bring down debt levels. Government, however, will remain a much bigger share of the economy than in past decades.
Deficits in the neighbourhood of $200 million are still expected in New Brunswick for this year and next, but planned spending restraint should bring finances back into balance by 2020-21. Debt levels, however, climbed rapidly and the government occupies a bigger share of the economy than it had 15 years ago.
Quebec has begun to make progress in reducing its debt overhang, which is now below 48 per cent of GDP. Balanced budgets or modest surpluses are expected for the duration of their forecast horizon. Both revenues and expenditures as a share of GDP, however, are about 2-to-3 percent higher than pre-recession norms.
Ontario has taken eight years to close the fiscal gap caused by the 2008-09 recession. In the process, debt levels ballooned from 26% of GDP to more than 40% this year. If spending is kept in line with economic growth, balanced budgets are easily achieved through the forecast horizon.
Manitoba has been running deficits for eight consecutive years, and the past two have been by record margins. There are no official details on future fiscal plans, but achieving a balanced budget by 2023-24 would require nominal spending growth limited to 2.8 per cent per year.
Saskatchewan had been planning to return to balance in 2017-18, but harsher-than-expected economic conditions this year may require an updating of assumptions into the future. Debt levels, while climbing recently, remain well below that of most other provinces.
Alberta has opened the spending taps wide open in the past couple of years, driving up the deficit to well past $10 billion this year. Plans are to moderate spending growth in the future, but not enough to close the gap. The province is now in a net debt position for the first time since 2000.
BC's fiscal profile has been by far the most stable and balanced in the country. After a string of modest deficits following the last recession, surpluses were restored in 2013-14. Higher-than-expected revenues this year give the province some additional room to make positive moves on tax rates in the future.