MORE SURPLUSES AHEAD
- Budget balance forecasts: +$488 mn (1.2% of nominal GDP) in FY22, +$35 mn (0.1%) in FY23, +$21 mn (0.05%) in FY24, and +$39 mn (0.1%) in FY25 (chart 1).
- Net debt: expected to decline steadily from 31.9% of GDP in FY22 to 28.2% by end-FY25 (chart 2).
- Real GDP growth forecast: +3.4% in 2021, +2.2% in 2022 and +1.6% in 2023 — slightly lower than Scotiabank’s projections for the outer years.
- Borrowing program: $1.9 bn in FY23, of which $1.6 bn is allotted to long-term borrowing, and $150 mn is associated with the New Brunswick Municipal Finance Corporation.
- After projecting sizable surpluses at the height of the pandemic, New Brunswick’s government shifts to focus on long-run economic growth. The budget outlines a concrete plan to cautiously boost key spending coming out of the pandemic era while maintaining a balanced budget.
OUR TAKE
New Brunswick is set to continue its streak of black ink, pencilling in stable surpluses of under 0.1% of GDP from FY23 to FY25. This builds on the sizable surplus anticipated in FY22 ($488 mn, 1.2% of nominal GDP)—underpinned by the province’s strong own-source revenue gains—providing a solid starting point for the new multi-year plan. Total revenue growth is expected to moderate in the medium-term at an annual average of 1.6% from FY23 to FY25, reflecting easing economic growth as activities normalize. Federal transfers will continue to play an important role and are projected to grow by 3.2% in FY23, contributing to almost all of the revenue gains that year. Debt levels are expected to be on a steady downward trend as a share of output throughout the planned horizon.
In addition, the tax relief measures confirmed in this budget will weigh on revenue growth, but also provide some offset to near-term inflationary pressures. These mainly include the increased basic personal amount and the low-income tax reduction threshold, as well as a come-back of the property tax cuts proposed in their last budget before the pandemic (-50% for rental properties and -15% for other).
The multi-year spending plan is also lifted since last year’s budget. Total spending is expected to rise by 5.5% in FY23, before growing at an average of 1.5% from FY23 to FY25. This is in contrast to the spending restraint planned through FY24 in the last fiscal blueprint. Big-ticket spending measures include education (10.3% increase in FY23), long-term care (10.3%) and health (6.4%)—all key areas of spending in light of Brunswick’s aging demographics and stronger population growth projections supported by recent migration trends. The province also tabled a capital plan in December last year, which raised its FY23–FY24 infrastructure spending by $250 mn (19% increase) versus the last plan to address priorities in transportation and infrastructure. This level of investment could boost GDP by an estimated $550 mn (1.5% of 2020 nominal GDP).
New Brunswick’s FY23 borrowing program is estimated at $1.9 bn, up from the $1.25 bn funding requirements projected for FY22. The FY23 figure includes $1.6 bn related to long-term borrowings, and $150 mn for the New Brunswick Municipal Finance Corporation.
Overall, while risks to economic prospects continue to linger, the province outlined a plan that largely contains new spending to revenue windfalls and gradually reduces debt burden.
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