NO NEWS IS GOOD NEWS
- Budget balances: +$35.3 mn (+0.1% of nominal GDP) in FY24 (+$40.3 mn, +0.1% in 2023 Budget), which builds on a final surplus of +$1.0 bn (+2.2% of GDP) reported in the FY23 Public Accounts (chart 1).
- Net debt-to-GDP: revised up by 1.7 ppts versus Budget to 26.6% for FY24 (chart 2), mainly due to the increase already reported for FY23 due to the adoption of new accounting standards.
- Economic assumptions: real GDP growth forecast increased to 1.1% in 2023, up from the 0.8% assumed in the March 2023 Budget. Population growth revised up from 1.8% in the Budget to 3.1%.
- The update confirms the province’s commitment to maintaining a balanced fiscal path. Continued prudent planning allows the government to remain flexible in a highly uncertain environment, and also avoids immediate impact on the ongoing effort to bring inflation down to its target.
OUR TAKE
New Brunswick is on track to keep its book in the black for a seventh year despite diminishing fiscal tailwinds and mounting spending pressure. Following a hefty surplus in FY23, the province continues to project a modest surplus of $35.3 mn (0.1% of nominal GDP), slightly down from the $40.3 mn estimated in March. Program spending was lifted by 2.1% from the projections in the Budget, mostly offset by an increase in own-source revenue, but also a downward revision in debt service costs. Net debt is expected to remain largely flat as a share nominal output in FY24, but from a higher starting point—due to the adoption of new accounting standards, FY23 net debt-to-GDP came in higher than anticipated at 26.8% instead of the 25.1% projected in the Budget.
The improvement in the province’s revenue outlook is anchored by the resilience of its economy and its tax base expansion. The update maintained nominal growth assumption of 2.3% and raised real growth forecast from 0.8% to 1.1%. The province’s population is projected to grow at a record speed of 3.1% this year, a major improvement from the 1.8% at Budget time. We share this constructive view on New Brunswick’s growth prospect this year, but caution that it is unlikely to buck the trend of a slowdown. Despite these positive developments, revenue is still set to decline by -0.8% in FY24.
Total expenses in FY24 are expected to be above what was forecast in the Spring budget by $161.2 mn, or about 1.3% higher than previously estimated. Of the revised spending plans for FY24, most of the increased spending is towards big ticket items, as higher operating costs add to spending on health (+$162.0 mn, +4.5%), post-secondary education, training and labour (+$53.0 mn, +7.9%), and social development (+$30.0 mn, +1.8%). Meanwhile, the fall update projects lower public debt servicing costs (-$78.6 mn, -12.5%) owing to higher short-term interest earnings, savings in long-term borrowing, and lower Sinking Fund Earnings resulting from the adoption of a new accounting standard.
The net debt outlook for FY24 has been revised up to 26.6% of nominal GDP, noticeably higher than the forecast of 24.9% presented in the Budget. This strong upward revision is almost entirely attributable to a higher starting point, as FY23 ended at $12.4 bn, above the $11.6 bn previously projected. In line with the largely unchanged budget balance projection, the province is keeping its long-term borrowing requirement at $1.2 bn for FY24, with $500 mn completed as of October 27, 2023.
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