RBC issues sobering NB deficit prediction

Robert Jones at the CBC has been doing some solid reporting on the data related to Covid-19 in recent weeks.  His story this morning on the forecasted NB budget deficit is sobering.  He is reporting the Bank of Nova Scotia is forecasting a $1.19 billion budget deficit for the provincial government this year.

The only quibble I have is that he doesn’t relate the deficit to the size of the budget (or revenue).  He cites the Bernard Lord deficit of $896 million in 1999 as the highest and Shawn Graham’s $695 million deficit in 2010.  The operating budget in 1999 was in the $4 billion range and in 2010 was around $7 billion.  Today it is over $10 billion.

So the projected deficit in relative terms – if BNS is right – will be around 11%+ of the operating budget (very large) actually below the Lord deficit and only slightly higher than the Graham deficit.  Of course both the Lord and Graham deficits were self-inflicted.

The big issue here is how fast government revenue recovers and this will have to do with a) organic economic growth and b) federal transfer payments.  Every time the federal government announces a big new spending program – eventually the provincial governments will likely pay a portion of that bill through lower transfers (don’t forget the lesson of the early 1990s).

It is true that Covid-19 is not the same as other structural economic shocks – but few, if any, are now predicting government revenues will go back to previous levels in the short term.