N.B.'s tax cuts hurting fiscal health: APEC

New Brunswick's economy is witnessing the sharpest economic drop of the Atlantic provinces in the last two years, according to the Atlantic Provinces Economic Council.

The Halifax-based think tank released a new report that assessed the fiscal situation of the four Atlantic provinces.

Fred Bergman, a senior policy analyst at the Atlantic Provinces Economic Council, said the provinces are among the most indebted in Canada and are facing immediate budget problems.

"New Brunswick has faced the most rapid deterioration in fiscal performance of all the Atlantic Provinces over the past two years, in part due to an ill-timed plan by the previous government to lower personal income taxes," the report said.

Shawn Graham's Liberal government passed a law that would lower the corporate income tax rate of 11 per cent to eight per cent by July 2012.

'To avoid the prospects of a crippling structural deficit in the future, the province will need to increase revenues.' Fred Bergman, APEC

The David Alward government has indicated it would halt the corporate tax cuts at 10 per cent.

The Liberals also planned to move to two tax rates by 2012. People earning more than $37,893 would be taxed at 12 per cent and those earning less than that at nine per cent.

The Tories have indicated they would not follow through on the tax cuts on citizens in the top tax bracket. New Brunswick taxes people earning more than $118,427 at a rate of 14.3 per cent.

Those Liberal tax cuts came under fire by a former cabinet minister on Thursday.

Kelly Lamrock, who was a senior cabinet minister in the Graham government,said he believes it is a mistake to cut taxes for wealthy New Brunswickers during times of fiscal restraint.

Lamrock said he had to go along with some decisions he didn't like when he was a cabinet minister.

The New Brunswick government is facing a $820-million deficit in 2010-11. Finance Minister Blaine Higgs has also said the deficit could hit $1 billion in the upcoming fiscal year unless immediate cuts weren't imposed.

The report said the Alward government's plan to reduce departmental spending by one per cent in the current fiscal year and by another two per cent next year is not enough to balance the budget.

"To avoid the prospects of a crippling structural deficit in the future, the province will need to increase revenues," the report said.

"Big steps are required perhaps starting with atwo percentage point increase in the HST which could increase provincial revenues by $250 million. Other measures can also be considered considered including introducing or raising user fees."

The New Brunswick finance minister has said he will revisit the idea of highway tolls, which has been raised in many public meetings.

But Bergmansaid in the report the provincial government and the public need to be realistic about the amount of money those tolls may collected.

He said Nova Scotia has recouped only $19 million in toll revenues, before expenses,on its only toll highway in 2009-10.

Other provinces critiqued

The APEC report also offered critiques of the fiscal situations of the other Atlantic provinces.

The report said Newfoundland and Labrador has witnessed strong growth in resource revenues, but its revenue outlook is tied largely to commodity prices.

The Prince Edward Island government is the most dependent on federal transfers of all the Atlantic provinces, accounting for almost 43 per cent of its total revenues.

Nova Scotia's consolidated revenue fund has also taken a hit of $282 million in the last two years because of lower production and soft prices for natural gas.

The APEC report also raised the fact the three major federal transfer programs, equalization, the Canada Health Transfer and the Canada Social Transfer, must be renegotiated at the end of 2013-14.

When those deals expire, the report said, it could create an additional burden on provincial revenues. Further, the report said, an ageing population will place continued pressures on provincial health care spending.

"As provinces face growing fiscal pressures from an older population, this points to the need to bring provincial budgets back to balance in a structured fashion as quickly as possible," Bergman said in a statement.

"Although it will not be easy, it is essential to strengthen the region's foundation for growth in the future"