New Brunswick's rapidly falling debt triggers debate on whether to save or spend

The New Brunswick government's focus on reducing its debt has been so successful, it's on track to set a national fiscal record later this month. 

But the achievement is not without critics who contend too much money is being banked when it could be used to fund struggling public services, such as housing and health care.

Last month, New Brunswick Finance Minister Ernie Steeves updated the province's current budget year and projected that by the end of March the province's debt will have declined to $11.6 billion.  

That is down $2.3 billion — 16 per cent — in the last three years.   

With one exception, it's the largest reduction in debt, in percentage terms, recorded by a Canadian provincial government in at least 40 years. The exception is a 100 per cent reduction achieved by Alberta in the 1990s when the province eliminated its $13.4 billion debt entirely over seven years.)

"We are able to make progress in assuring the long-term financial health of our province," said Steeves in a statement released with the update.

Economist Richard Saillant, whose 2014 book Over a Cliff? warned that New Brunswick's dismal and deteriorating financial condition at the time risked ending in bankruptcy, said in an interview the turnaround from those days has been "dramatic" and for multiple reasons.

Increased transfers from Ottawa along with exploding tax revenues from population growth and high inflation have generated hundreds of millions of dollars in new provincial revenue. But Saillant said a decision by Premier Blaine Higgs to save much of that money, rather than spend it as other provinces have done, has to be recognized as a central cause of the shrinking debt.

"Higgs did achieve a dramatic fiscal turnaround," said Saillant.  

"It's undeniable. We are in a much better position than we have been in a very long while. If someone has a single-minded focus on fiscal outcomes, this is indeed quite an achievement."  

New Brunswick's debt became a concern more than a decade ago following the 2008 financial crisis that occurred during the then-government of Shawn Graham. Spending increases and stagnant revenues grew the debt for 12 straight years between 2007 and 2019, and eventually it more than doubled in size to $14.0 billion.  

In 2016, the debt reached 41 per cent of the size of New Brunswick's annual economic output. That so-called "debt to GDP ratio" was the worst in Atlantic Canada at the time and the second highest among all provinces after Quebec.

At the end of this month, according to estimates by the Royal Bank of Canada, New Brunswick's debt is expected to recede to 25 per cent of the size of the provincial economy. That would rank as the lowest ratio in the Atlantic provinces and best in Canada, east of Saskatchewan.  

It's among the single largest improvements recorded in any Canadian province's fiscal condition over any period since at least the early 1980s and perhaps ever.

Michael Yake is an associate managing director with Moody's Investors Service in Toronto. 

The agency upgraded New Brunswick's credit rating last year based on a number of factors, including the downward trajectory of its debt levels which he said has impressed the financial community.

"It's quite the achievement," said Yake.

"That's why New Brunswick has the positive outlook, because we do see that the credit risks are decreasing there."

But the reviews are not entirely positive.  

Every Canadian province, other than New Brunswick, is projected to post a higher debt level this year from levels posted three years ago, and New Brunswick opposition parties have been calling on the Higgs government to be less stingy on using some of its higher revenues to boost spending on services such as health care, housing and poverty reduction.

The morning after Steeves delivered his latest update, economist Pierre-Marcel Desjardins told Information Morning Moncton that reducing the debt is an important objective but so are other public needs that would benefit from more money.

"It's not a bad idea to reduce the debt, absolutely not. It's a question of balance," said Desjardins.

In neighbouring Nova Scotia and Prince Edward Island, which have also been flooded with new revenues, debt has risen over the most recent three years as they spend more aggressively than New Brunswick to accommodate some of the consequences of their own sudden growth in population.

For example, this year Nova Scotia, which has about 30 per cent more people than New Brunswick, budgeted to spend $629.5 million on capital improvements to its health-care infrastructure, about four times more than New Brunswick put in its budget.

Saillant said it will be up to the New Brunswick public to decide which approach it prefers going forward.

"This is a debate that we need to have a society," said Saillant.

"The issue for voters is whether New Brunswick right now is getting the mix right."