February 27, 2021

Atlantic Canada’s finances are unsustainable; Expenditure cuts are needed in the upcoming provincial budgets

Halifax, Nova Scotia, February 17, 2021 (GLOBE NEWSWIRE) – Public finances are stable in all four Atlantic provinces and facing many risks, according to a new study released today by the Fraser Institute, an independent, non-discriminatory Canadian public policy thinker.

“The Atlantic states were in a difficult financial position before the COVID, and the shock of the COVID-recession has exacerbated their precarious financial position,” said Ben Eisen, senior member and co-editor of Fraser. Advance Public Finance of Atlantic Canada.

The study found that the fiscal position of the four Atlantic provinces was unsustainable, meaning that in the absence of policy changes or improved economic growth they would face GDP growth rates in the coming years. While other provinces face challenges regarding financial stability, there are a number of economic and statistical factors that could further affect the position of the Atlantic provinces. These are:

  • High dependence on financial transactions from Ottawa: Prince Edward Island (37.2%), New Brunswick (35.4%) and Nova Scotia (31.8%) account for the largest share of provincial revenue from the federal government, making them particularly vulnerable to any change in their financial federal transfers.
  • Older population: Atlantic Provinces has four very high share of people aged 65 or over compared to other provinces. With an average of 21 percent of the population over the age of 65 in the region, this puts pressure on health care costs and lowers labor contribution rates.
  • Higher tax rates: The four Atlantic states have relatively high tax rates in key areas, including personal and corporate income tax. With the region’s already high levels, there is little room for raising tax rates in the future to meet debt service obligations.
  • Higher interest rates: The current debt rates of the four Atlantic provinces (compared to own source income) are four of the highest five rates in the country.
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The study also shows that in 2019-20 (before the recession) PEI, Nova Scotia and New Brunswick accounted for the largest share of government spending as a percentage of GDP (Newfoundland and Labrador 6).Th Max).

One strategy that regional governments can adopt to meet these challenges is to initiate a process of bringing spending together with other provinces across Canada (as a share of GDP). Achieving this goal will significantly reduce the pressure on provincial finance in the region.

“As the four provinces prepare for the upcoming budgets, spending cuts are an immediate step for governments to take to improve finance and sustainability,” said Alex Velan, policy analyst and co-author of the study.

“In order to stabilize provincial finances in Atlantic Canada, policymakers must face the financial challenges that existed long before the epidemic. Bringing costs up to the size of provincial economies is the most promising strategy to solve these problems. ”

Media Contact:
Alex Whelan, Policy Analyst
Fraser Company

Ben Eisen, senior colleague
Fraser Company

To arrange media interviews or for more information, please contact:
Drew McPherson, Fraser Company
Phone: (604) 688-0221 Extension. 721
Email: [email protected]

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Fraser is an independent Canadian public policy research and education organization with offices in Vancouver, Calgary, Toronto and Montreal, and is connected to a global network of think tanks in 87 countries. Its purpose is to improve the quality of life of Canadians, their families and future generations by studying, measuring and interacting broadly with the effects of government policies, entrepreneurship and choice in their well-being. To protect the independence of the company, it does not accept grants or research agreements from governments. Visit www.fraserinstitute.org

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