Friday, March 23, 2007

Budget retrospective IV and concluding remarks

In this last response, I will cover the points "did the Liberals *really* budget for all of their promises and what was the Grant Thornton report talking about when it said there would be a $300 million shortfall." Following that, I will have some brief comments on the premier's speech in closing the budget debate and my overall thoughts on the budget as a whole considering all of the previous analysis.

Part Four

As I mentioned in a post some months ago, the Liberal promises were priced at $200 million for year one, including some one-time big ticket items like Saint John Harbour, the Marysville Bypass, Task Forces on self-sufficiency, the non-profit sector and post-secondary education, capital construction of a number of new projects, etc.

The $200 million gets spread out over two fiscal years, one presumes, because the government took office half way through the fiscal year.

As I mentioned in the earlier post, based on fiscal transfer figures revised by Ottawa after the 2006 budget, New Brunswick should have been heading for a $320 million surplus in 2006-07 if the books had been properly done. Therefore, even if the Liberals delivered on their full $200 million, there should have been lots of fiscal flexibility left over.

Some things, however, like the HST rebate, were not properly budgeted for by the Tories when they presented their last budget in March 2006. The Liberals mistake was not promising too much, but instead believing in the financial statements made public by the Tories which proved to be flase.

The Grant Thorton report showed that there were major financial challenges however, including the $500+ million final payment for the TransCanada from Woodstock to Grand Falls which the Tories had failed to budget for.

The result - the Liberals could have gone a wholesale promise breaking spree, ran a deficit, raised taxes through the roof, cut programs to death, or some combination of these.

I think they made the best choice of these options, in general, by abandoning and modifying some promises, raising taxes - by-and-large - moderately, and undertaking some program cuts.

Shawn Graham said something that really resonnated with me in his budget speech today:

I am not prepared to hit the pause button on our province's progress while we wait for someone else to determine our fate. So we have to look at what changes we can make here in New Brunswick.

Rather than hiding the challenges, our government is being open and transparent with New Brunswick residents. We are being open about the challenges and we are being open about how we are going to address them.

We have been upfront about the 5 factors that contributed to addressing the fiscal challenge: eliminating the HST rebate on home energy fuel costs, implimenting new revenue measures, directing departments to acheive program administration reductions, constraining overall government spending growth and revenue improvements since the release of the Grant Thorton report this past December.

Choosing these measures was difficult but necessary and I have to say that no government looks forward to raising taxes. But if our province is committed to standing on its own two feet, we must be able to pay for the services that we provide as a province. The tax reductions that had been made previously were not sustainable.

We cannot have amongst the lowest tax base and the lowest tax rates in the country and at the same time expect to provide our citizens with quality public services that are comparable to elsewhere in the country.

It is important to point out that even with the modest increases, New Brunswick still has the lowest personal income tax burden in Atlantic Canada, the small business corporate income tax rate remains the third lowest in Canada and our income threshold matches all other provinces except Alberta and the general corporate income tax today is the fourth lowest. Our government is committed to being competitive and we will remain competitve but most importantly we will become self-sufficient.

That's why we're being upfront with these tax increases and that has not always been the case with previous governments. Governments who raised revenues by not indexing tax thresholds, or through fee increases that went through cabinet behind closed doors. We are not interested in taxation by stealth, we are bringing these changes here to the floor of the legislature for debate. It doesn't get more transparent than that.
I remain very upset by the Small Business tax hikes and I think that other taxes or program cuts should have been found instead, however, I would vote for the motion that passed today which reads "that this House approves, in general, the budgetary policy of the government" (emphasis added) and I certainly prefer balancing the budget in this fashion to the doubling of fees that happened twice under the Tory government without debate or public or legislative input.

8 comments:

Anonymous said...

i agree with you completely!

nbpolitico said...

I should have mentioned that I am upset with the Business New Brunswick and IGA-Trade cuts in addtion to the Small Business tax hike.

Still overall, I do support the budget.

Robert Jones said...

PNB:

I've been thinking of preparing a report on the whole Grant Thornton issue. It's dominated a lot of the back and forth in the legislature and I think it deserves a closer look.

I'm curious what you mean when you say the HST rebate was not properly budgeted for by the Tories in March 2006.

nbpolitico said...

I am not PNB, but I am humbled by your asking me a question on my analysis and look forward to your report.

The 2006 budget news release said:

In addition, effective July 1, 2006, residential customers from all brackets will benefit from a rebate of the eight per cent provincial portion of the harmonized sales tax (HST) on home energy costs. This will apply to all types of home energy, including heating oil, electricity, natural gas, propane, wood and kerosene.

This rebate is expected to save New Brunswickers $45 million in 2006-07, with an estimated full-year saving of $55 million.

For a household which pays $3,000 per year for energy (electricity and heating) the rebate amounts to $240.

The New Brunswick Department of Finance will process applications and issue refunds to qualified applicants. Further details on the rebate application process will be released in the near future.


Looking through the Main Estimates for 2006-07, there is no reference whatsover to this rebate. If you look at estimated revenues from HST you see that $13.3 million dollars less than was estimated for 2005-06, nowhere near the $45 million the government said it would save New Brunswickers.

In addition to that shortcoming, on the March 28 budget day they said there would be "further details" but there were no details except an announcement on June 28 that one was to apply to Finance by Novemeber 30; no form of application was never released. According to the Liberals, when they took office on October 3, there was still no process developed to process the hundreds of thousands of applications that could have been forthcoming, so in addition to the $45 million of savings to New Brunswickers, there would have been a massive administrative cost, however the program is not listed in the estimates.

In addition to the $45 million home heating rebate, other HST savings were to be passed on in the form of $0.5 million for home renovations. So, there was to be $45.5 million in HST savings for New Brunswickers + administrative costs to deliver these savings yet the revenue from HST was to drop by just over $13 million.

Robert Jones said...

Sorry for the name mixup nbpolitico.

I like you couldn't find the HST rebate accounted for in the estimates, but later discovered it was simply subtracted from the expected HST revenue.

HST revenue is budgeted to grow every year, so the $13.3 million reduction takes into account a $32 million increase in the HST. The rebate took $45 million off that hence the drop in HST revenue.

If you look at Boudreau's budget documents it shows that revised HST revenue from 2006-07 is up $57.6 million from Volpe's estimate. That's directly from the cancellation of the rebate and some unexpected growth.

I agree this is a poor way to budget, but I do think it was accounted for.

There's no question Tories had not developed any reasonable way to run the program, but that is why Liberals promised an at source rebate...because the Tory plan was so awkward and disorganized.

I'm not sure you can use the mess as an excuse to cancel the program if you knew it was a mess and promised a better system.

nbpolitico said...

I like you couldn't find the HST rebate accounted for in the estimates, but later discovered it was simply subtracted from the expected HST revenue.

HST revenue is budgeted to grow every year, so the $13.3 million reduction takes into account a $32 million increase in the HST. The rebate took $45 million off that hence the drop in HST revenue.

If you look at Boudreau's budget documents it shows that revised HST revenue from 2006-07 is up $57.6 million from Volpe's estimate. That's directly from the cancellation of the rebate and some unexpected growth.


That doesn't quite add up to me. Boudreau is adding $55 million back in to the HST pot (the Tory proposal was to cost $45 million for the first year and $55 million in subseqent years). So if HST revenues are only having net growth of $2.6 million this year, how did they have growth of $32 million the year before!?

Let's look back over the HST revenue in the budget in the years proceeding this scheme:

1999-00 $641.7 million
2000-01 $653.0 million (+11.3)
2001-02 $660.0 million (+7.0)
2002-03 $699.0 million (+39.0)
2003-04 $801.2 million (+102.2)
2004-05 $722.8 million (-78.4)

That is an average annual increase of $16.2 million with the most recent year seeing a considerable drop in HST revenue. I don't think it is fair to say that it was properly budgeted for, especially when looking at the estimates, we see that HST revenues are very unpredictable in the 8 budgets that are online, only in one case was the estimated HST revenue even close to the what actually came in that year. The budget documents also show the Tories usually way overestimated how much HST revenue they would have in a year which seems to be the case here.

There's no question Tories had not developed any reasonable way to run the program, but that is why Liberals promised an at source rebate...because the Tory plan was so awkward and disorganized.

I'm not sure you can use the mess as an excuse to cancel the program if you knew it was a mess and promised a better system.


I don't know that that is the case. The Tories in June 2006 announced that this would be an at source rebate beginning in 2007, however no plans for that had been initiated either. The Liberals did not promise a "better system", they promised to continue with what the Tories began, however they came to office to find the Tories had nothing.

The Liberals are not totally in the right here by any means, however the Tories misbudgeted this and did not administer it and that was my answer to your question.

Robert Jones said...

nbpolitico, I appreciate you taking the time to discuss this with me. We may be the only two people on the planet interested in the numbers here but that's one more person than I used to think was interested.

First of all let me make it clear I'm not arguing for or against the HST rebate as a policy. I don't have a position on that. My interest is only in whether the promise was made and, if it was, the veracity of the excuse used to cancel it.

The Charter for Change did promise an at source rebate on the HST for heating costs on page 16. And for emphasis it was repeated on page 17. Liberals never said they were just agreeing to follow through on what Tories started. In fact when Lord first proposed the rebate Shawn Graham accused the Premier of stealing the idea from an identical resolution Liberals had passed at a previous party convention.

Liberals said a) it was a good idea b) they thought of it first and c) they had a better way to deliver it.

Your listing of the previous budget numbers on the HST sent me back to the documents as well. What I see there is that in the 2006-07 budget documents Volpe published revised HST revenue expectations for 2005-06 of $837.9 million. He then budgets for a $23.6 million reduction in 2006-07 of $814.3 million.

This year Boudreau revises the 2006-07 HST revenue to $871.9 million. This figure is $57.6 million higher than Volpe budgeted last March.

In December when Grant Thornton updated the province's budget situation it noted HST revenue was running about $5 million ahead of Volpe's estimate, nowhere near the $57.6 million extra Boudreau reported three months later.

There is nowhere for that much money to come from since December other than to add back in the $45 million Tories had budgeted for the rebate.

In fact even Boudreau acknowledges - once to me personally - that the $45 million had been budgeted for by Volpe.

nbpolitico said...

In fact even Boudreau acknowledges - once to me personally - that the $45 million had been budgeted for by Volpe.

Well, if that is the case, I don't have any ground left to stand on. I can't see that in the numbers, but I am not an accountant.