Pandemic turmoil caused surprise budget surpluses, says province's top civil servant

The province's top civil servant says two surprisingly large budget surpluses in the last two years were caused by COVID-19 turmoil and were not the result of accounting sleight-of-hand by the Progressive Conservative government.

Cheryl Hansen, the Executive Council's clerk and chief operating officeras well as the deputy minister at the Department of Finance, faced questions from the Liberal opposition over the two stunning budget turnarounds, which totalled more than a billion dollars.

The province had a $408 million surplus in the 2020-21 fiscal year and said this week it's projecting a $487.8 million surplus for this year.

"We saw the forecast jump last year by hundreds of millions of dollars in a matter of days between forecasts, and we're seeing the trend continue," Liberal finance critic Rob McKee told Hansen during a meeting of the legislature's public accounts committee.

"Can you understand why economists and New Brunswickers are growing skeptical of the financial picture your minister is presenting?"

Last year's final surplus figure represented an improvement of $316 million over the initial budget while this year's projected surplus would be a $733 million turnaround.

Hansen answered that government accounting can easily confuse people and the huge fluctuations in numbers is due to the COVID-19 pandemic.

"That has had serious consequences both on our economy and on our predictions of individuals' behaviour," she said.

She pointed out private-sector analysts were predicting the New Brunswick economy would shrink by 5.5 per cent in the early months of the pandemic.

Finance Minister Ernie Steeves projected a $92.4 million surplus in the budget he tabled in March 2020, just days before COVID-19 forced the province into lockdown.

Widespread layoffs and a steep drop in purchasing led him to revise his budget projection to a $343 million deficit.

An unexpected rebound

But as cases declined and the province reopened, the economy rebounded unexpectedly with New Brunswickers spending more than expected on goods and services, leading to a $408 million surplus.

For the current 2021-22 year, Steeves projected a $244 million deficit.

But last October things were improving enough for him to predict a surplus of $37.7 million thanks to a projected $241.6 million in extra revenue.

Then, just 30 days later, he upped his projected surplus to $89.1 million, attributing it to $487 million in unanticipated revenue.

And this week Steeves's third-quarter update said revenues will be $832 million higher than budgeted, resulting in a $487.8 million surplus.

That's just what McKee predicted would happen lastfall when he said the province was lowballing its revenue and surplus numbers so it could reject demands for more spending in areas like health care and long-term care.

Economist Richard Saillant said on Twitter this week that it's beyond belief that the province has only recently discovered an extra $600 million in revenue "under its mattress."

He called the lower projections "an inexcusable act of bad faith" by the province or an example of incompetence.

"It knew the economy was booming," he tweeted.

"If a back-of-the-envelope calculation by an outside observer turns out to be much more accurate than official projections, this needs to be looked at."

Hansen told the committee that the federal government, which collects sales and income taxes on behalf of the province, provides "administrative data" on the revenue several times throughout the year.

Early in the fiscal year, there's little tax data to go on, with precise numbers only becoming clear in January, she said.

That's why this week's third-quarter update saw such a dramatic increase in revenue projections, she said.

This year Ottawa also adjusted tax revenue estimates for previous years which saw New Brunswick get an additional $300 million dollars as part of that $832 million windfall.

Hansen called that an unprecedented adjustment. "We have never seen that before."

On Tuesday,Steeves said it was now too late in the fiscal year to use some of the newly enlarged surplus on programs to help New Brunswickers.

He said the government"quite frankly is not nimble enough" to come up with even one-time spending programs just six weeks before the end of the fiscal year.