New Brunswick Budget 2024: Planning a surplus for the seventh year in a row

• New Brunswick projects a $41 million surplus in 2024-25-marking the seventh year it's kept the books in the black.
• It will sustain rapid expenditure growth (6.4%) before slowing spending in the out years of the fiscal plan.
• Revenue growth is set to more than double (4.7%) from the previous fiscal year due to robust income from taxation and higher federal transfers.
• The budget anticipates a higher net debt burden over the course of the fiscal plan relative to Budget 2023 but will keep the net debt-to-GDP on a downward trajectory.

No surprises to the bottom line

New Brunswick's 2024 Budget kept expectations for a modest $41 million surplus in 2024-25-marking a seventh consecutive surplus year in the province. Its latest estimate for the 2023-24 surplus was upwardly revised to $247 million-seven times higher than the $35 million expected in the Q2 fiscal update released last quarter. That's the fourth year in a row that the province has exceeded its fiscal surplus projection.

High inflation, economic uncertainty, and robust population growth have tested the precision of provincial forecasts-including those put out by the government. But we see provincial budget estimates capturing expenditures and revenues more accurately as these trends normalize.

Healthcare and housing funding take a backseat to debt charges

Total expenditures are set to rise $744 million (6.4%) in 2024-25 with half the increase coming from education-both post-secondary and early childhood learning ($226 million), and general government ($148 million).

Increased funding for social development will account for an additional $109 million in the upcoming fiscal year and includes greater investment for seniors and long-term care ($126 million) and income security ($40 million). Other programs such as child welfare and youth services, however, are set to see a funding decline (-$9.5 million).

Public debt charges are also expected to take up a relatively large share of the expenditure increase ($66 million). Save for the above-mentioned expense categories, public debt charges are set to see the largest dollar increase in 2024-25-outpacing the combined funding increase for housing ($62 million) and healthcare ($1.7 million).

The budget kept healthcare spending virtually flat from 2023-24 despite expectations for the population to increase another 2% this year. Healthcare funding increases are still set to lag the inflation rate and population growth over the last two years, even with a sizable 13% funding increase in last year's budget.

Consumer resilience sustains strong revenue growth

New Brunswickers hold the lowest ratio of household debt to disposable income in the country-a point of strength that will cushion the province from a sharp economic downturn, boding well for provincial revenues too.

Indeed, own-source provincial income (largely from taxation) is poised to grow another 4.8% in 2024-25. Federal transfers are also expected to pick up another 4.4% in the upcoming fiscal year as its population takes up a larger share of Canada's demographic pie. This should give total provincial revenue a boost to $13 billion-matching expenditure growth in the upcoming fiscal year. The province plans to keep up revenue and expenditure over the remainder of the fiscal plan, delivering small surpluses in 2025-26 and 2026-27.

Infrastructure enhancements to support a growing province

The latest capital plan includes $3.6 billion over three years-a third of which ($1.2 billion) is set to be spent in the upcoming fiscal year. This marks a $200 million increase from the 2024-25 capital expenditure announced in last year's capital budget, reflecting elevated costs due to unusually high inflation as well as the need to accommodate a growing population.

Education is set to see the largest funding increase in absolute dollar terms-$62 million. About $50 million will go to improvements and land acquisition for schools, and another $10 million will be invested to begin construction on six new schools in the province.

Transportation and infrastructure will eat up another $60 million in new costs. About $50 million will be invested in maintenance and improvement of public infrastructure while the remaining $10 million is set to accommodate higher prices for material and labour of existing projects.

Public health will see a funding increase of $37 million in 2024-25 compared to spending intentions set out in last year's capital budget. The extra funding will support ongoing renovations and improvements to the healthcare facilities.

On track for longer-term fiscal sustainability

New Brunswick has made remarkable efforts to better its fiscal position over the last decade, and Budget 2024 seemed to keep that agenda rolling. New Brunswick's debt burden is still expected to fall middle of the pack relative to other Canadian provinces despite a planned increase in net debt-to-GDP.

It now expects its net debt-to-GDP to reach 26.7% in 2024-25 (up from 24.2% in budget 2023), inching lower to 25.6% in 2026-27. We continue to see this as a sustainable path forward despite the heavier debt load.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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