News Article

Deficit reduction the name of the game

Posted: April 18, 2012
Across Canada, provincial governments are cutting spending in a concerted effort to reduce deficits generated during the recession-fighting years. But as one after another present their Spring budgets, it is clear the challenges are greater for some provinces than others.
 
Saskatchewan is the only one of the eight provinces that have presented their budgets ó Prince Edward Island and Newfoundland & Labrador are due later this month ó that is in the black. For the fiscal year ended Mar. 31, 2012, it reported a surplus of $56 million; that is expected to grow to $95 million in fiscal 2013.

The rest are battling deficits but British Columbia, Alberta, Manitoba, Quebec and Nova Scotia forecast balanced budgets in 2013/14. New Brunswick is back in the black in fiscal 2015 but Ontario ó with a chart-topping deficit of $15.3 billion in 2011/12 ó does not expect to see a balanced budget until fiscal 2018.

Provincial budgets 2012 ($mil.)

11/12 est.

12/13

13/14

14/15

15/16

16/17

17/18

British Columbia

-2,497

-968

154

250

Alberta*

-1,318

-886

952

5,193

Saskatchewan*

56

95

131

146

168

Manitoba

-1,120 -460 23

Ontario

-15,283

-15,153

-13,300

-10,700

-7,800

-4,200

0

Quebec*

-2,452

-589

1,041

700

1,155

1,629

New Brunswick

-471

-183

-99

6

Nova Scotia

-261

-24

15

20

23

* The figures are net transfers from the three provinces' surplus or rainy-day funds.
Source: Bank of Montreal and provincial budgets

Certainly the western-most provinces have the rosiest outlook. Even given governments' conservative estimates, resource-rich B.C., Alberta and Saskatchewan can look forward to healthier growth in GDP than their eastern counterparts. Alberta expects growth of 3.8% this year; Ontario and Quebec, by contrast, are looking at growth of 1.7% and 1.5%, respectively.

That translates into healthier revenues. Thanks in part to the oil sands, Alberta can expect to outpace the other provinces with a 4.6% increase in government revenue to $40.3 billion. According a Bank of Montreal report entitled, "Provincial Budgets: Fiscal Repair Underway,î combined provincial revenue growth will be 3.9% in 2012/13, a modest "pick-upî from the previous year.

"Across the provinces,î say the report's authors Michael Gregory and Robert Kavcic, "revenue outlooks are based on starkly different economic climates, with high commodity prices fuelling strong growth in the West, while depressed manufacturing and fiscal restraint weigh in much of Central and Atlantic Canada.î

Lacking burgeoning growth in revenues ó except, perhaps, Alberta ó provincial governments have turned to cost cutting to reduce deficits and, generally, increases in program spending have been low to moderate with the average in fiscal 2012/13 at 1.9%. The outliers are Alberta at 3.3% and Nova Scotia at 3.2%.

It an all out effort to tame its deficit, Manitoba's April 17 budget froze or cut spending in 10 departments while putting money where it perceived it was needed ó health, education, family services and infrastructure ó a trend that is apparent in a number of provinces.

Deficit-fighting is one thing ó assuming the provinces continue on their prescribed paths. But it doesn't address the provincial governments need for funding and their accumulated debts. Report the BMO economists: "Net debt ratios are proving slow to stabilize overall. Provinces tend to account for their capital spending programs ëoff budget' and the financing of these programs leads to net new debt issuance.î

In fact, borrowing requirements for the provinces surpass the aggregate deficits. Ontario, alone, will add another $22.8 billion in net debt in the 2013 fiscal year.

Debt reduction is still to come and while the provinces may be addressing their deficits, there is still a lot of heavy lifting to be done if provincial governments are to pay down their debts.