N.B. government projects $285M deficit, blames global economic turmoil

Finance Minister Victor Boudreau is projecting the global economic crisis will force New Brunswick to run a $285-million deficit in 2008-09, a significant turnaround from the $19-million surplus he planned last March.

Boudreau unveiled his fiscal update in the legislative assembly in Fredericton on Wednesday, detailing the extent of the damage inflicted by the global economic crisis on provincial growth in 2009.

"While our economy will grow in 2008, it is anticipated that the New Brunswick economy will experience marginal, if any, growth in 2009, with the strong possibility of contraction," Boudreau said.

"The fallout from turmoil in world financial markets, the length and depth of the United States recession and the winding down of major energy construction projects will all affect our economy. This is the economic reality we are now facing."

The dramatic fiscal reversal is being led by the equity market crash that has added $133 million in pension costs to the province. In addition, regional health authorities overspent their budgets by $40 million, the Department of Social Development spent an additional $19 million for long-term care and children services and the assistance distributed by the province after the St. John River flood in the spring hit $29 million.

As well, the Regional Development Corp. is spending an additional $17 million to help spur economic growth, Boudreau said.

In total, the finance minister said spending is $302 million above its 2008-09 budget forecast released in March.

Boudreau said the department is also projecting a "potentially large" deficit for 2009-10.

A 'shocking' revelation

Conservative MLA Bruce Fitch, the opposition's finance critic, called the projected deficit "shocking." He also said the Liberal government should have seen the warning signals of the potential downturn by independent economic forecasts released in recent years.

Fitch said the government is blaming the new deficit figure on spending that would have occurred anyway.

"When it comes to good financial planning and good economic sense, wouldn't it make sense if you know there will be [an economic] crisis … that you would stop spending money. That just makes sense," Fitch told the legislature.

The finance minister said the province is putting the brakes on new initiatives and programs and freezing MLA salaries for one year. Boudreau said the Liberal government will announce a stimulus package, including a two-year capital spending plan topping $1.2 billion.

Prepared to live with deficits for now

Boudreau said the Liberal government is prepared to live with short-term deficits and increases in net debt if it helps the economy recover from the global turmoil.

"I want to assure New Brunswickers that we are doing this to lead the province through this difficult economic period and position New Brunswick for a return to economic growth as soon as possible," he said.

"In that regard, it is our firm objective to avoid ongoing and unsustainable deficits and increases in net debt. It is our full intention — and it is government policy — to return our province to surpluses as soon as possible."

Along with the two-year capital spending plan, the fiscal update announced other ways to kickstart economic growth. Boudreau said Business New Brunswick will provide small- and medium-sized businesses "with solid business plans" access to capital.

As well, the finance minister committed to overhauling the province's tax system over a four-year period, starting with the release of an all-party committee report on tax reform next week and the government's initial response.