Page 6
Fixed Income Quarterly—Provincial Perspectives
Another Bevy of Budgets
(by Robert Kavcic)
The FY14/15 provincial budget season is winding down, with three still to table their documents—Ontario, PEI and Nova Scotia. The combined deficit is pegged at $10.5 billion versus $15.3 billion now estimated for FY13/14, or a relatively modest 0.5% of GDP (we’ve plugged in the most recent update for the three Provinces yet to table their budget). However, there is some downside risk as we await budgets from Ontario and Nova Scotia, both of which have hinted at deeper deficits for this fiscal year. The improvement elsewhere has been largely driven by Alberta and Quebec, even though the latter back- tracked on prior plans to balance the budget this fiscal year. In fact, 6 of 7 provinces who have tabled their budget to date are expecting a year-over-year bottom line improvement. On the policy front, major revenue measures have been sparse this year, netting out to a roughly $100 million net decrease, or less than 0.1% of GDP. That compares to last year’s more aggres- sive moves that aimed to raise $1.1 billion in revenues through various tax increases. On the spending side, the provinces con- tinue to hold the line, with most targeting spending growth at or below the combined rate of inflation and population growth. Here is a recap of the budgets tabled in March:
The Province of Alberta is projecting a $2.6 billion opera- tional surplus for FY14/15, with the oil price environment much healthier than expected at this time last year. Surpluses are projected right through FY16/17, which will allow the Contingency Account to hit its $5 billion ceiling this coming fiscal year, and grow the Heritage Fund to $17.2 billion by FY16/17, from $15 billion this year. The change in net assets is pegged at $1.1 billion for FY14/15, or 0.3% of GDP, after a much better-than-expected showing in FY13/14—that would be the first consolidated surplus in seven years. There were no major tax-related measures in the budget, with new policy initiatives centred entirely on the spending side, including a heavy dose of capital investment in the coming years. Indeed, while operational spending control will remain in focus, at least in real per-capita terms, the bulk of new spending flows through the capital budget—think flood prevention and road/ infrastructure building. Much of this will be funded through new borrowing. In a nutshell, a rapidly growing population is putting demand on infrastructure, and the Province is going to borrow at historically low rates to satisfy it.
The Province of Saskatchewan is projecting a $71.4 million surplus on a summary basis for FY14/15 (which includes the activities of government organizations and business enterpris- es), or a small 0.1% of GDP, down from $591 million expected in FY13/14—a drop in GBE net income accounts for much of the decline. On a General Revenue Fund basis, the surplus is pegged at $105.4 million (0.1% of GDP) in FY14/15 before transfers to the Growth and Financial Security Fund (GFSF), improved from the $127.8 million deficit expected in FY13/14. The latter is unchanged from the most recent update—recall that weaker-than-expected resource prices and sales forced the Province to cut its estimate from a $64.8 million surplus in the original budget plan. The Province is also projecting pre-transfer surpluses through the 4-year forecast horizon averaging just under $140 million per year, which will build up the GFSF to $706 million by the end of FY16/17 from $531 million at the end of FY13/14. As expected, there are no major revenue initiatives in this budget, and the Province is keeping spending growth in check.
The Province of Manitoba is projecting a $357 million bud- get deficit in FY14/15 (a very manageable 0.6% of GDP), a moderate improvement over the prior-year shortfall of $432 million, which is unchanged from the prior fiscal update. Overall, there is precious little change to the fiscal plan—and that’s not a bad thing—with the Province still aiming for a bal- anced budget in FY16/17, a year ahead of Ontario and New Brunswick. Additionally, cumulative deficits between FY13/14 and FY16/17 are now just a touch smaller ($30 million) than they were forecasted to be at this time last year. After raising revenues in each of the prior two budgets—expanding the sales tax base, lifting the rate, and various other small tax/fee measures—taxpayers come out clean this year.
The Province of Newfoundland and Labrador is projecting a $538 million deficit (1.4% of GDP) in FY14/15, deeper than the $349 million shortfall now estimated for FY13/14. The latter, however, marks an improvement over the $451 million deficit expected in the Fall update, and the two-year (13/14 and 14/15) combined shortfall is now pegged at $887 million versus $1.2 billion in last year’s budget. So, while the Province is slipping deeper into the red, the fiscal position is still slightly improved overall versus last year, at least for these two years. There are a few new tax measures in this budget, with reductions largely offset by an increase in tobacco taxes. On the spending side,