Newfoundland and Labrador Premier Andrew Furey listens as Finance Minister Siobhan Coady delivers the provincial budget in St. John's on March 21. The PBO forecasts for Newfoundland and other provinces are worrisome, with projected net debts in 25 years’ time exceeding 50 per cent or even 70 per cent of GDP.A decade or so ago Europe was in the throes of a political and economic crisis over the finances of a single, tiny country: Greece.
A government in a unitary state can readily ensure its fiscal policy remains consistent with its monetary policy. But a federation like thefaces a serious collective action problem. How much any individual state borrows would clearly affect all the rest, so far as it added to the total. But absent any external constraint, it would have every incentive to load up with debt. In the short run, it could free-ride on the credit rating of the stronger members.
Yet spending has been growing even faster under Alberta’s United Conservative government, already among the highest-spending governments in the country, per capita. The only reason it is not running deficits is because of an enormous windfall in expected revenues, notably from oil and gas royalties – the same roller coaster the province has been on for decades. As the richest province in the country, Alberta can amply afford to spend more than other provinces.
Neither are the pressures on the provinces’ spending likely to abate – especially for health care. As it is, the provinces are typically spending nearly half their own-source revenues on that one department. True, they have succeeded in– but at the cost of much longer wait times: At an average of 27.
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