Provincial Budgets

March 22, 2022 | 13:58

A New Surplus for New Brunswick

Economist

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on U.S. regional economies. She also provides support ... (Read more)

Shelly Kaushik

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on U.S. regional economies. She also provides support ... (Read more)

The Province of New Brunswick released its FY22/23 budget following a year of relative stability, highlighted by a fast-growing population and strengthening labour market. The government has revised its FY21/22 estimate from a $244 million deficit to a $488 million surplus, though it will narrow to $35 million in FY22/23. Small surpluses persist through FY24/25. Net debt was estimated at 32% of GDP in FY21/22, revised down 4 ppts from last year's budget, highlighting the strong turnaround in the Province's fiscal situation.

The main story of this budget was the opposing impacts of stronger economic growth and higher inflation. We're likely to see the latter theme in particular highlighted in the remaining provincial budgets still to come. For now, the province of New Brunswick estimates that real GDP rebounded by 3.4% in 2021 and will grow 2.2% in 2022, which is more optimistic than our outlook (currently +2.6% and +2.0%, respectively). Major policy measures include:

An increase in the basic personal amount (from $10,817 to $11,720) and the Low-Income Tax Reduction threshold;
Additional details on previously-announced property tax rate reductions (by 50% on non-owner occupied residential properties and by 15% on non-residential properties) beginning on April 1st; and,
A one-year cap on rent growth of 3.8%, retroactive to January 1st.

Revenues are expected to rise a modest 1.2% in FY22/23 as the economic recovery cools and some of the tax reduction measures outlined above come into play. That small increase won't be enough to offset the 5.5% growth in expenses. Health care remains a key area of spending, as do climate-change related initiatives.

Consequently, net debt is forecasted to rise to over $15 billion, but the ratio to GDP will dip to 30% as the economy expands. Borrowing requirements are pegged at just under $1.9 billion for FY22/23, up from $1.2 billion in FY21/22. That reflects $486 million in new long-term requirements, $1.5 billion in maturities, with the remainder for NB Power and the MFC.

The Bottom Line: Strong population growth and a speedy vaccine roll-out have helped New Brunswick weather the pandemic storm. Now, the Province looks to capitalize on its improved outlook with modest budgetary surpluses as well as new tax support measures and additional spending.