P.E.I. budget 2016-17: should the government try to balance it?

For eight years, a P.E.I. Liberal government has been promising a balanced budget in 2007, Finance Minister Wes Sheridan said it would soon happen but it never has.

In the spring of 2015, RobertGhiz'ssuccessor WadeMacLauchlancampaigned on a promise to balance the budget one year after being elected in the spring of 2016.

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Inthe throne speech and subsequent budget address, there was much talk about "living within our means," but the first budget delivered byMacLauchlan'sFinance Minister Allen Roach presented no radical departure from the plans put forward by Sheridan.

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Balancing the budget in that first year would have caused "undue hardship for Islanders and disruption to government services and programs," according to last June's Speech from the Throne.

The projected deficit for 2015-16 was $20 million, a figure that grew to $33 million by the time the province released its mid-year fiscal update last fall.

There are a couple of big questions as a new session of the P.E.I. Legislature gets underway this spring: Will theMacLauchlangovernment follow through on its pledge to balance the budget this year? And how far is government prepared to go in order to do that?

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Financial challenges

Back in the Sheridan years, the plan to achieve fiscal balance was to keep spending increases to a minimum to allow the natural growth of revenues a chance to catch up. Not even the influx of cash that came with the introduction of the HST in 2013 allowed that to happen.

This year, there are some troubling indicators on the revenue side which will make it challenging for government to achieve balance. The biggest is on the employment front P.E.I. was down 2,200 jobs in February 2016, compared with the year before.

Income taxes represent the single biggest source of provincial income, and last year's budget predicted income tax growth of more than five per cent. But even with P.E.I. wages growing faster than anywhere else in the country, it's hard to imagine how government will reach that target.

For the coming year, government will face another blow to its balance sheet: for the first time since 2009, there will be no increase in property tax assessments. Assessments rise in concert with the consumer price index, but the index for P.E.I. dropped last year by 0.6 per cent.

'We are good fiscal managers'

MacLauchlan isn't about to reveal whether the coming budget will be balanced.

"This is what it comes down to," he said. "How much will our revenues grow? What can we count on? What can we do to align our expenditures with our priorities? That's exactly the job we're undertaking now."

It has not escaped MacLauchlan's notice that the federal Liberals came to power on a promise of deficit spending to promote growth.

"As we look across the country, starting with the federal government, there's an acknowledgement that this is a time when government can play a part in leading and stimulating economic growth, and that's very much part of what we're committed to," MacLauchlan said. "

"I think Prince Edward Islanders, and in turn Canadians right across the country, are going to see that we are good fiscal managers."

Government shouldn't try to force a balanced budget, but rather wait it out if necessary, said UPEI economist Jim Sentance.

"I think projections are that we'll be in surplus territory soon," he told CBC News.

"So I don't see a need to make painful cuts or hike taxes to hurry the day by a year just because they promised it. Modest restraint has allowed us to make good progress towards balance and I think we can just stay the course on that," said Sentance.

Don't increase HST: Opposition

Interim Opposition Leader Jamie Fox expects government to honour its commitment to balance the budget this year, but doesn't want to see an increase in the HST to allow that, he said.

Increasing the HST from 14 to 15 per cent would net the province an estimated $28 million in additional revenue.

"We have great people on the Island, and we have great small businesses, and we have to capitalize that. But we've got to stop taking money from their pockets, give them the money to allow them to spend it in the economy," said Fox.

Green Party Leader Peter Bevan-Baker said he wants to see a balanced budget as soon as possible, but added a caution.

"It's critical that we don't do so on the backs of the most vulnerable Islanders," said Bevan-Baker.

Bevan-Baker likes government's plan to try to control spending while allowing revenues to catch up, but said he worries recent revenue estimates may have been overly optimistic.

"Balancing the budget may require other actions," he said.

"We may also need to make cuts, and it's here that we will clearly see what this government's priorities are. Will they cut front-line or administrative positions? Will they cut supports for big businesses or for low-income Islanders?"