Sometimes my blogs here get a little esoteric but bear with me.

I just finished a wide ranging review of the NB economy over ten years.  I can’t share the data here – or my client might not cut me a cheque but there was one interesting stat I will share.

As we have talked about before, government spending has been rising faster than private economy spending by 2-3 times – depending on how far back you go.  As far back as the latter 1990s, government spending has been triple the rate of inflation and well over double the rate of GDP growth.

Common sense (and basic math) tells us that can’t continue forever.  At that rate of growth by about 2100 there would be no private economy left (impossible because of Laffer).   But was it a bad thing that government sector outspent the private sector for the past 15 years by a wide margin?

If you drill down much of the surplus revenue came from energy royalties and GST/PST increases.  That money was doled out to places like New Brunswick and spent.  There was a little debt reduction but very little.  Most of it went to fund 5,000 new positions in public administration, health care and education as well as to public capital spending.  There were some tax cuts but they were marginal.

So, let’s say the government back in 1995 said we are going to cap public spending at the rate of inflation.  Sounds reasonable given that the population was about to stagnate and drop into decline.  All that excess money would be put back into the hands of NBers and we would faithfully save it into our RRSPs.

And then the Wall Street boys would fritter it away by hiding the risk associated with over inflated U.S. housing prices and causing a massive stock market crash that lingers until today.  My very small RRSP holdings are lower now then they were nine years ago.

My point is at least this way we have new hospitals and nurses.   I guess this is the esoteric part – would tax cuts have stimlated private economic growth or attracted people and investment here?  Or was the government wise to just plough our share of Alberta oil revenues into health care?  Is our health care system 80% better today than 10 years ago because of the 80 % increase in spending?

I come down on the middle of this – maybe a good New Brunswick waffle – but I think we need to have proper investment by government in public infrastructure, the social safety net and hopefully economic development but I think there should be some logic to the spending.

The problem with blowing up the health care budget by 80% and thousands of new jobs with a stagnant population is that people now expect this rate of growth.  It’s going to be hard to reign in spending over the next 5-10 years.  Maybe we should have spent more time thinking about how to reform the system while the dough was pouring in.  Now it becomes harder because the funds that could have been used to change the system (say through upfront capital spending on technology) will not be there.

Enough rambling for now but I think Chris Baker is right (see previous post comment) about applying logic to government spending and, now, spending restraint.

2 thoughts on “Interdependence

  1. > Is our health care system 80% better today than 10 years ago because of the 80 % increase in spending?

    Probably. When I arrived here 10 years ago it was pretty bad. I couldn’t get a doctor, there weren’t clinics, the hospitals were like third world facilities.

    It took a while for things to get going, but we’re now to the point where we actually have some modern facilities, people can get doctors, and there are numerous walk-in clinics (well, not quite ‘walk-in’, because *nobody* in this province ever leaves the province to see how it’s done better elsewhere).

    I’m not sure there’s an 80 percent improvement in any particular statistic, though. Specialists are still playing games with waiting lists (oh, no, no appointments… we’ll call YOU). Clinics and hospitals are still using paper records. There are shortages in staff – Dumont blood testing is normally very efficient, for example, but if just one person is out, there’s no back-up, and it bogs down.

    That’s the thing with statistics – they don’t always report what you think they report, and very small things can make very large differences (and mask, in this case, a lot of improvement).

    That said…

    > I think there should be some logic to the spending.

    Well, who could deny that?

    The question is – what logic? The logic that protects entrenched business interests, allows people to keep doing favours for people, and says “oh well, there’s no growth, just cut spending?”

    Or, maybe something better?

  2. ” As far back as the latter 1990s, government spending has been triple the rate of inflation and well over double the rate of GDP growth.”

    Nationally, the share of GDP spent on health has risen from around 7% in the 1970s to about 10% now. That seems to be largely the result of drug costs, rather than infrastructure spending. There were a series of years in the late 80s and early 90s when health spending was suppressed; the resulting outcry has resulted in more dollars being spent on infrastructure but that seems like more of a rebound than a real change. Is the situation in NB that much different? CIHI data suggest that in NB spending was below inflation in the late eighties to early nineties – what goes around, comes around.

    When comparing spending rates to inflation and GDP, you have to take a very long timeline due to the nature of the system. Otherwise you get a distorted picture. When healthcare spending is increased to account for more costly drugs and a delayed replacement of facilities, and the economy dips, you can get a picture of spending re GDP that is out-of-whack. In NB, we have a decade or so of poor growth; if that continues then we are going to have some hard choices.

    You are correct that these sorts of increases are not sustainable in the long run. NBers get a false picture of finances due to the incoming transfer payments. We need more reminders re the differences between what we pay in taxes and what we receive in services.

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