Provincial budget season kicked off Tuesday with an austerity document that sets the tone for what is to come nationwide, as jurisdictions across the country struggle with sluggish growth or even contraction.
New Brunswick increased taxes, cut spending and shrunk its civil service in a $8.9 billion budget.
“We have a message here that governments can do difficult things when pressed,” said Finn Poschmann, CEO of the Atlantic Provinces Economic Council.
“The message for provinces to come, especially to the west, is that this in an ‘eastern early warning system,’ and this could be you.”
In the first provincial budget tabled this year, New Brunswick raised the harmonized sales tax by two percentage points to 15 per cent while increasing its general corporate income tax to 14 per cent from 12 per cent.
And even though about 1,300 civil service jobs will be eliminated over five years, budget deficits are expected to continue piling up until balance is reached in 2020-21.
The get-tough budget was tabled as every other province looked back on a weak economic year, amid signs worse may be to come.
Ominously, a forecast from TD Economics, released last week, included downgrades to 2016 growth prospects from coast to coast.
“The bulk of economies are still expected to expand this year, but at a slower rate than we had earlier envisaged,” the report said.
Ontario and British Columbia are expected to lead the way with growth pegged at above two per cent, mainly because of their strong housing markets and increased exports associated with a weak Canadian dollar.
While B.C. is expected to balance its 2015-16 budget when the final numbers are submitted this spring, Ontario isn’t there yet.
“The biggest cuts are yet to come for Ontario,” said Pedro Antunes, deputy chief economist at the Conference Board of Canada.
“Over the past decade, Ontario went from a ‘have’ to a ‘have-not’ province. It’s suffered a significant restructuring in manufacturing … The fiscal situation isn’t all that rosy.”
The TD study said plunging commodity prices — oil is near a 12-year low at around US$30 per barrel — will continue to hurt resource-rich Alberta, Newfoundland and Labrador and, to a lesser extent, Saskatchewan.
“The oil shock has been deeper, more prolonged and farther reaching than was originally anticipated.”
In Newfoundland and Labrador, the fiscal situation is particularly grim.
The province depends on offshore oil earnings for about one-third of government revenues. Provincial finances have been gutted in the 18 months since the price of Brent crude fell from US$115 a barrel.
The province’s projected deficit for 2015-16 is expected to hit $1.96 billion — 79 per cent higher than originally forecast.
Economic growth in the other provinces — Quebec, Nova Scotia, P.E.I., Manitoba and New Brunswick — is expected to slowly expand at less than two per cent in 2016 and into 2017, TD said.
“All provinces are having a difficult time with the current economic environment,” said Antunes.”The (New Brunswick) government is putting in a plan that is reasonable.”
He said the decision to raise the province’s sales tax — mirroring a move taken by Nova Scotia in 2010 — is a good way to increase revenue, even though it’s never a popular choice.
Along with its Atlantic neighbours, New Brunswick’s economy has been hobbled by a static, aging population and slumping commodity prices.
As a result, the province hasn’t had a balanced budget since 2007-08.
Employment shrank for the second year in a row in 2015, and New Brunswick’s economy took another hit two weeks ago when the Potash Corporation of Saskatchewan announced it would close its Picadilly mine, eliminating more than 400 well-paying jobs.
The cut-heavy New Brunswick budget came as a number of other provinces are set to unveil spring budgets containing ambitious infrastructure spending programs.
The Alberta government, in its first budget last October, ramped up infrastructure spending to $34 billion over the next five years despite the low price of oil.
All the provinces, meanwhile, are banking on a big infusion of cash from the federal government.
Prime Minister Justin Trudeau has pledged to divide $60 billion among public transit, green projects, and social infrastructure like affordable housing over 10 years, with $17.4 billion earmarked to flow during the party’s first mandate.
Two weeks ago, Infrastructure Minister Amarjeet Sohi said the money will start flowing after the federal budget is passed this spring.