Wednesday, March 19, 2008

Budget '08: A few things that the press missed

I practically hit the floor this morning when I gazed at the front page of the Telegraph Journal to find the Finance Minister getting such a free ride on what I believed to be a poorly delivered budget. It's almost like the press and so-called experts would rather engage in the fluff of the platitudes and future promises that were offered up under the wire instead of properly vetting the budget that was tabled by Victor Boudreau yesterday.

Anyway, since the press seem to be unwilling to analyze anything but the so-called green paper (whatever that is?), then I thought I would add a few last words on this budget and what I think it means for the future of NB. Here goes (I'll add a grade at the end of each section):

Boudreau hasn't controlled spending thus far. So when will he?

Well, this year's budget proposes that spending will exceed the 7 Billion mark in the next fiscal year, which (by government projection standards) is a modest 2.7 per cent increase. But before you get all hot and bothered by what appears to be a modest expenditure increase by any standard, let's take a look at the Liberal governments record on spending since they entered office back in September 2006.

Since taking over the reigns of government (about a year and a half ago), the Liberals have failed to control spending at any level. When the Progressive Conservatives left office total spending in New Brunswick stood at $6.2 Billion (2005/06 fiscal year). In fiscal year 2006/07, the provincial government's first budget called for Fredericton's expenditures to grow by 2.8 per cent. However, at the end of that year provincial government receipts had pilled up even further where it ballooned to an astounding 5.5 per cent.

Under Boudreau, the size of government has quickly grown by an astonishing 14 per cent in just under two years. To mildly put this into context, the previous government under Bernard Lord reduced spending by 3.2 per cent in their first year and a half in government. Not only that, the size of government in Lord's entire tenure as premier grew by a total of 25 per cent. A number that this camper thought could have been much lower if they had of kept with their earlier motto of cutting spending.

Although, to be fair, if the Graham government keeps on their reckless spend-thrift ways, they will exceed Bernard Lord's total growth in government spending in just under 3 years. In other words, they are spending at approximately twice the clip. I don't know about you, but the last thing I want to see is another government reverting back to the old, irresponsible social spending days of the 1970s, 80s and 90s. As I see it, spending are way back into deficit will not only mean that less money will be free to allocate to other important priorities because of higher debt repayments, it will ultimately be a mortgage on future generations who will end up footing the bill (that is, if they stick around?). Grade F

Cut taxes, don't study them

The Premier recently told the Economic Club in Toronto a few weeks ago that: "We have embarked on an aggressive review of our taxation system; we have brought in some of the leading experts from around the world. We’re going to be launching a discussion with New Brunswickers on how our taxation system can be more competitive."

These sentiments were echoed by the finance minister yesterday as he said: "But if we can restructure our tax system differently based on what may have worked in other jurisdictions so that we can generate more wealth here in the province, then we can look at maybe some overall tax reductions."

What the two gentlemen are talking about above is a discussion paper on tax competitiveness, known as the green paper, which the government will release sometime in late April. Furthermore, as quoted in the TJ today, it "will offer a range of options for tax changes and then seek public input from a select committee of the legislative assembly. The committee of MLAs will hand in its findings in the fall, giving Boudreau the opportunity to incorporate those changes in next year's financial plan."

Now I wouldn't have a problem with this, but given the track record of the government on these types of studies, not to mention, on taxes, it gives me reason to be very concerned. Moreover, I heard Premier Graham pleading that New Brunswick must follow the lead of the federal finance minister, in that, we should be looking to have a combined 25 per cent corporate tax rate. Now this is an excellent goal, but I am very surprised that the premier is the one setting it.


Well, let's look at his record on business taxes both big and small. For starters, in his very first budget, the premier rescinded the tax cut implemented by the previous government. What exactly does this mean? Well, if his government hadn't of interfered with the good corporate tax legislation in place the rate would have dropped to 12 per cent in fiscal year 2007. Instead, they raised it to 13 per cent and kept the line in this budget. So if the premier was really serious about bringing down our corporate tax rate (to 10 per cent), then he should never have raised it in the first place. By doing so, he may have cost our province the precious time needed to position ourselves as a competitive tax jurisdiction in a 21st century global economy.

Furthermore, if he thinks hiring a bunch of consultants and doing a study is a "discussion with New Brunswickers", then we have bigger problems other than just the tax hikes, don't we? Secondly, he raised the small business rate from 1.5 per cent to 5 per cent. And because he believes in spurning on growth through government subsidization, this basically means he is willing to put the interest of a few ahead of the well-being of SMEs since their profits are going to their subsidized competitors via higher taxes. Grade D-

Lack of debt relief a mortgage on future generations

As the Provincial Auditor's report pointed out in February, the problem with the current approach to debt reduction is that there is absolutely no longterm reduction target, no plan to retire the debt and no strategy to keep it from growing incrementally. And let's face it, debt retirement can only happen if it becomes deliberate, in that, it becomes part of the overall budgeting process.

So you can see why I was upset that the finance minister decided to keep debt on the books as it has two deleterious effects on New Brunswick's budget. Firstly, 9 cents of every dollar sent to Fredericton is wasted. It goes entirely to paying off interest from the projected $7.1 billion provincial debt (a net debt which cost about $9,500 for every man, woman and child in the province), thus eroding the government’s ability to spend where necessary and to provide meaningful tax relief. Secondly, deficit financing is risky as it leaves future generations of New Brunswick taxpayers on the hook for current spending. As a result, that's about $600 million which isn’t available for health care, education or the environment. So not only is it important to pursue a downward trend in the debt-to-GDP ratio and public debt servicing costs, it is essential that the government look at a ways to eliminate the province's overall debt. Grade F

Btw, I doubt you'll read these types of budget criticisms in any of the big three newspapers. So I ask my readers, am I being too harsh or is the press giving Boudreau's budget a free ride? whadaya think?

Update - Is Jack Mintz now the go to guy because Boudreau dropped the ball in his first budget? I mean, it looks like the Premier tied his finance minister's hands on this budget.

I applaud this effort (although, I'm a bit biased since I read all his stuff on tax competitiveness). But before you go off thinking I'm all for striking studies, commissions and task forces (which I'm not), just remember, much like other studies struck by this Liberal government (and administered by unelected academics, business people and consultants), in the end, many of these recommendations and reports can be found collecting dust somewhere in bureaucratic wasteland. So it could end up being an expensive exercise which will be all for not?

Which is why I have always felt that leadership and policy initiatives should start, or better yet, originate from our elected officials, not unaccountable academics, consultants and so-called experts. Isn't that exactly why we elect guys like the member from Shediac–Cap-Pelé ?


At Mar 19, 2008, 5:42:00 PM , Anonymous Anonymous said...

Pretty weak coverage in the Irving rags!!!

At Mar 19, 2008, 7:21:00 PM , Anonymous Paul said...

My feeling is you did not read these things in the paper, or hear them on the news because, for the most part, these young journalists don't have the skill sets to be able to understand the implications of something like this budget.

Even worse, most taxpayers don't understand it. So we get the spin that the journalists are given, and lobby group response, who have their own spin and the important stuff....the kind you are talking about, doesn't get covered.

"Under Boudreau, the size of government has quickly grown by an astonishing 14 per cent in just under two years. "

This should be a big deal, but no journalist knows to ask the question. Tax reform is not going to answer any questions on more spending. No matter how they overhaul the tax system, they still have to collect 7 billion dollars from us. We all can't have tax breaks, so while reform might shift the tax burden around, it will still be a burden.

At Mar 19, 2008, 8:10:00 PM , Blogger Kit said...

I agree with most of your assessment... and probably the grading. I don't run my household nor my business with continuous deficit financing - and I use my own money. I cannot see how more and more government spending and less and less private business is the path to self-sufficiency. Governments do not generate income... they tax it and then they spend it. It may look good but all that is happening is a redistribution of an increasingly smaller pot of existing money...

And for Pete's sake... What New Brunswicker is going to tell a consultant that he would welcome more taxes? (OK... I heard one say he'd gladly have more taxes...) Reduce my tax burden and I will spend more and create more wealth, and the government need not raise a finger to help...

At Mar 20, 2008, 6:25:00 AM , Blogger Monctonite said...

Good analysis NBT.
You are giving Boudreau a harder time than the Opposition has managed to muster. However, your points could be raised today in the Opposition's official response to the budget. We'll see. Maybe the press will cover if another spin doctor explains it to them in quotable lanaguage.

At Mar 20, 2008, 2:52:00 PM , Anonymous bill said...

Exceptional analysis NBT!!! Maybe we'll see these spill into the PC's talking points when the criticize the budget?

At Mar 20, 2008, 3:56:00 PM , Anonymous Anonymous said...

Victor should definitely step down if the study contradicts the tax policies of his first two budgets. Such findings would indicate he doesn't have a grasp of the file.

At Mar 20, 2008, 5:37:00 PM , Anonymous nbt said...

paul: I agree with your assessment that, "Tax reform is not going to answer any questions on more spending." I see Dalton McGuinty, a spend-thrift himself, rejected Flaherty's suggestion to bring down business taxes on the premise that spending (and not cutting it) should take precedent in Ontario:

"Seventy-five per cent of all the money we spend around here goes to health and education and supports for the vulnerable, so you can't take $5.1 billion out and not close hospitals, and not fire nurses, and not make cuts to education, and not give rise to dramatic increases in tuition, and not fire water inspectors and not make cuts to social assistance,"

Will the same excuse (not cutting taxes) be used in our neck of the woods by another Liberal premier? Only time will tell.

kit: I wholeheartedly agree. But I worry that good guys like you (with your outlook) may have no other option then to flee to other jurisdictions when the going gets much rougher in a few years. And let's just say, with property taxes through the roof, high personal income taxes and a very bleak outlook for business, I wouldn't blame you.

monctonite: thank you. My gut hopes that most MLA's are listening, but my head tells me otherwise. Although, I do commend the work of Volpe and Betts on the file lately. It seems like this issue (and the bilingual decision) woke up the sleeping giant know as the New Brunswick tories.

bill: much appreciated. I can only hope that NBers, in general, will run with these ideas. That is why I started this blog, in hopes that people would become more informed on tax issues since they often don't reach the mainstream media or the opposition benches.

anon: with a poor first budget which unilaterally raised taxes for no clear reason, a second budget with more of the same (health care spending and no benchmarks to speak of on how, or if?, we are on our way to being self-sufficient), there is no question that passing most of the duties over to Jack Mintz should be a bad sign for the NB finance minister. It basically sends a message that NBers don't trust you with the publics purse strings, or at least the management of it.

At Mar 20, 2008, 8:21:00 PM , Blogger Kit said...


I have the option to move and relocate. I'm not going to exercise it. I am originally from Upper Canada (never going back!!!!) and I have come to like this place and I want to "be in this place" (period, no ... )
In fact I shall retire here eventually - God willing.
So I figure I have a vested interest in how the place is run... I just think the old boys club (pick one... provincial, municipal, political, sports...etc) and the graft bandits who populate it should move over and let some of us outsiders from away have a go... heck we couldn't do much worse...

At Mar 21, 2008, 10:23:00 AM , Anonymous nbt said...

You can say that again, kit! I

At Mar 23, 2008, 4:33:00 PM , Anonymous Anonymous said...

nice analysis nbt!


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