Deficit Déjà Voodoo: Austerity Absurdity again in New Brunswick

Shortly after being elected last October on a platform to boost growth and create jobs, the new Liberal government of Brian Gallant in New Brunswick embarked on another round of alarmism about the province’s deficit.

On short notice they started province-wide consultations on a “strategic program review” about addressing the province’s fiscal challenges, including about reducing and eliminating government programs.  Their public material and sessions play up the fiscal challenges facing the province, say they will have to look at reducing and eliminating some government programs and asks what three things the government could stop doing to save money.  No questions about what the government could do to grow the economy and create jobs, which is what they were elected to do.

This is extremely disturbing because the Gallant government resoundingly defeated the Conservative government of David Alward that had engaged in exactly the same type of deficit alarmism shortly after they were elected four years ago.  In fact they had Don Drummond help them by preparing very pessimistic forecasts of the province’s fiscal situation.  I thoroughly refuted Drummond’s pessimistic projections at that time, summarized in this Better Alternatives but it didn’t prevent the government from using Drummond’s pessimistic forecasts to justify significant cuts to program spending the following year.  In fact, New Brunswick was the only province to cut program spending that year.  And how did that turn out?

The spending cuts may have reduced the deficit in 2011/12, but they also helped drive the province’s economy into the ditch and into recession.  As a result, unemployment in New Brunswick increased to rates well above what it was during 2008-10, it had the worst economic record of any province in Canada during the 2010-14 years and experienced its worst slump in 30 years. And, with unemployment up and the economy down, the province’s revenues declined and its deficit doubled.

If Greece and Spain are cautionary examples for the failure of deep austerity policies in Europe, New Brunswick should be the poster child for the failure of austerity policies in Canada.

And yet the deficit doomsayers are at it again warning of fiscal apocalypse. It emerged again last year with the sensationalist and slippery “Over the Cliff” book by Richard Saillant of the Université de Moncton suggesting that the province could go bankrupt.

The deficit and debt was barely discussed during the provincial election in the fall, where the discussion was about jobs and growth, but now they’re heavily back at it again.  In fact, while the province’s deficit for this year is now expected to be $255 million and be eliminated in a few years, they claim “the provincial government continues to face a $400 million structural deficit”.  Really? How does that compute, when its economy is clearly operating below capacity with the unemployment rate in the province at 10% and the current deficit is considerably less than $400 million?

Unfortunately, it seems that if you repeat something often enough, people might to believe you, even if there’s no evidence behind it and if it is terrible and damaging economic policy.

To counter this We (me and the indefatigable Daniel Légère, president of CUPE-NB) held a press conference yesterday in Moncton, released a paper I wrote entitled Deficit Deja Voodoo, and had an excellent session with members of the public and activists in the province.

The material demonstrates that the deficit and debt situation in New Brunswick really isn’t bad.  Net debt per capita is about average for Canadian provinces, debt servicing  costs are close to historical lows, program spending as a share of GDP is slightly below its historical average, but the province’s revenues are at least a full percentage point below their historical average.  Much of this was caused by the previous Liberal government’s truly dreadful and regressive set of tax reforms introduced in 2008 just before the financial crisis and recession struck.  See the analysis I did of these proposals, entitled Pig in a Poke.

Clearly unless New Brunswick doesn’t have a deficit, debt or spending problem.  But one remains really concerned about the deficit (or better yet, want to raise more money to support more public spending and reduce inequality), increasing revenues to their historical average as a share of the economy could generate an extra $320 million.  This would be more than enough to eliminate its deficit and provide additional funding to improve public services and create jobs.  And that revenue could be raised by just a few progressive fair tax measures outlined in the paper and presentation.

Here are links to the Deficit Deja Voodoo paper (also in French: Le sempiternel épouvantail du déficit?), my Powerpoint presentation Time to Choose in New Brunswick  (and in French: L’heure des choix est arrivé au N.-B.), some notes NB Notes I prepared for that session and the press release.

I was asked if these austerity policies are so clearly bad for the economy, why is the government so intent on implementing them?  The most charitable explanation I could offer (outside of them being economically ignorant, ideologically blinkered or focused on suppressing public services and wages in order to benefit a select few) was crassly political: that they were trying to build up a surplus so they would have extra money to spend to help them get elected just prior to their next election.   But if so, that plan didn’t work out too well for their predecessors in office, or for the people of New Brunswick.

As a number of people have said (paraphrasing former President Clinton’s campaign slogan) the problem isn’t the economy or deficit, it’s the politics, stupid.

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