June 17, 2020 | 17:01
One More Deeper Into Deficit
The Province of Prince Edward Island is projecting a $173 million budget deficit for FY20/21, down from just under $4 million in FY19/20. That will mark a record high in dollar terms, and weigh in at just over 2% of GDP. By the latter measure, it will mark the deepest shortfall since FY03/04. Importantly, it also continues to fill in the fiscal-update void, with the 2%-to-3% of GDP range looking like a level that a number of provinces seem to be gravitating to. The Province has also taken a stab at a medium-term outlook, projecting that the deficit will fade to $70 million next fiscal year and then $38 million by FY22/23.
Total revenues are actually expected to rise solidly this year, despite the COVID-related economic weakness. Federal transfers will jump above $1 billion, more than offsetting a dip in own-source revenues. The Province will further reuduce the small business tax rate, to 2% at the start of 2021.
Meantime, total spending will jump 14%, including supplementary spending recently passed. The amount of COVID-related spending is still an area of uncertainty when looking across some of the provinces, and PEI appears to be quite aggressive in ramping up the measures—roughly $100 million in direct aid spending so far. Spending will be restrained in the following two fiscal years to help bring down the deficit.
The larger deficit will put upward pressure on net debt this year, which is pegged at $2.5 billion, or 35% of GDP. That's up from just under 31% of GDP in FY19/20. The good news is that PEI came into this downturn with a booming economy and steadily improving fiscal fundamentals, with the net debt-to-GDP ratio falling 6 ppts over the past five years.