Small deficit is big problem for pricey PC and Liberal promises

For a few short days, it looked like the two main parties in the New Brunswick election were offering voters a clear choice.

The Progressive Conservatives under Blaine Higgs were selling their sound fiscal management a record that, after six years of budget surpluses, would allow them to cut the provincial sales tax if re-elected.

The Liberals, meanwhile, vowed to spend $115 million,starting next year, to open 30 new collaborative-care clinics, implicitly telling voters what might be possible if they rejected the PC tax cut.

"We do have a choice to make in this election," Higgs said at a PC nominating convention in Bathurst last week.

"I don't think there will ever be a time where there'll be an election with a clearer definition. The distinction will be very clear."

But in that same Bathurst speech, Higgs acknowledged the prudent fiscal management at the centre of his re-election campaign now includes a caveat.

Health-care costs, including pricey travel-nurse contracts, "will throw us into a little negative position," he said, previewing a new first-quarter fiscal projection for the 2024-25 year.

The next morning, Finance Minister Ernie Steeves revealed the number: a $27.6-million deficit, based on revenue and spending data from April to June.

It's "pretty small," Steeves argued just two cents per $100.

Still, the opposition Liberals, long accused of fiscal irresponsibility by Higgs, gleefully threw the accusation back in his face.

"Blaine Higgs has been so worried someone else would take NB back into the red," Fredericton North candidate Luke Randall said in a social media post.

"We knew it would be him all along."

The deficit figure results mainly from $164 million in unforeseen health-care costs, including an additional $97 million on travel-nurse contracts.

Those contracts have proven to be a troublesome story for the PC government, which the Vitalit health authority accused of having rejected other, less costly options.

But equally problematic is what the numbers mean for election commitments premised on a flood of tax revenue like the ones that produced billions in surpluses over four years.

That revenue is levelling off, Steeves said last week, while the pressure to spend more on health care remains "very high."

Higgs told the Tories in Bathurst that if revenue growth has peaked, he'll have to be careful on spending.

"You don't want to get caught when the bottom falls out of the whole thing all at once," he said.

The sudden fragility of the province's budget surpluses isn't a one-year phenomenon, either.

Steeves's budget in March projected a $41-million surplus this year, but even smaller surpluses of $39 million in 2025-26 and $30 million in 2026-2027.

That's when the PCs have pledged to cut the sales taxby one point each year eliminating around $225 million in revenue in each budget.

The PCs can't forego that much revenue and run surpluses, according to Liberal finance critic RenLegacy.

"If he feels that he can still do that [tax] cut, and he's projecting a deficit, either he's going to cut somewhere where money is needed, or he anticipates that there's revenue coming," Legacy said.

Steeves was vague about what spending a PC government might cut.

"We will make the right investments, the right investments of our money in the right places, and we will move this province forward," he told reporters last week.

"As we head into this election, we will tell you the truth. We'll tell you what we can afford and what we can't affordand how we're going to do it. Trust us. We are working on it."

The awkward questions stemming from the deficit projection cut both ways, though.

It also underscores the fragility of Susan Holt's primary care promise.

The Liberal leader has, like Higgs, pledged to deliver balanced budgets.

Most of the $115 million she is promising to spend on primary care would be amortizedover 25 years, but would still add $11.5 million a year to governmentspending by 2027.

That would make it easily affordable if the province were forecasting surpluses in the hundreds of millions of dollars.

But it's tougher if a Liberal government takes office having to claw its way out of a $27.6 million deficit.

Steeves argues that the deficit projection "highlights the importance of maintaining strong financial management practices," implying only the PCs can fix it.

And Higgs described the figure as a blip that may be smoothed out by the end of the fiscal year.

"I know we can recover from that," he said in Bathurst.

He pointed out that the first-quarter projection is always pessimistic but that sales and income tax remittances from Ottawa later in the fiscal year often improve the picture.

But whether that generates the $225 million to offset a one-point sales tax cut or to fund the first part of Holt's $115-million expense on collaborative-care clinics is another question.

And regardless, voters won't know if things are looking up before election day on Oct. 21.

That means Higgs and Holt must bear the deficit into the campaign a small handicap financially, but a potentially large asterisk politically.