Auditor general flags concerns around sustainability of P.E.I. government finances
P.E.I. Auditor Basic Darren Noonan is elevating issues over the sustainability of the province’s funds — suggesting providers may ultimately be affected if the province does not enhance its backside line.
The provincial authorities has projected P.E.I.’s web debt will attain $2.9 billion by March 31, 2025. As of March 31, 2021, it stood at $2.3 billion.
In a presentation to MLAs on the province’s Public Accounts committee Tuesday, Noonan famous that within the 2020-21 fiscal 12 months P.E.I.’s web debt grew quicker than the economic system and quicker than the inhabitants — regardless that P.E.I. has proven a number of the strongest financial development within the nation in recent times and led all provinces in inhabitants development between the 2016 and 2021 census counts.
“Rising debt ranges and rising rates of interest ought to be a priority,” Noonan informed MLAs.
“Not that it has a huge impact on as we speak, however in 20 to 30 years, it is going to have a big impact on the state of affairs.”
Every P.E.I. resident’s share of the province’s debt grew by $325 within the 2020-21 fiscal 12 months to $13,993, marking the second consecutive 12 months of development.
In 20 to 30 years, it is going to have a big impact on the state of affairs.— Darren Noonan
In his most up-to-date annual report, Noonan referred to as that “a damaging and worrying development.”
But the identical report exhibits P.E.I.’s per capita debt and debt-to-GDP ratio stay the bottom of any province east of Saskatchewan — a undeniable fact that bodes nicely for provincial funds, in comparison with most Canadian jurisdictions.
On March 1, the bond ranking company DBRS Morningstar famous P.E.I.’s rising debt however mentioned it “seems manageable, although it stays contingent upon sustained financial development and deficit elimination over the subsequent few years.”
In its most up-to-date forecast, TD famous that P.E.I.’s inflation fee, the best within the nation, would “eat into actual incomes and certain sluggish consumption in coming quarters.”
Companies to endure ultimately?
P.E.I. is projecting a finances deficit of $92.9 million within the present fiscal 12 months. However the Dennis King authorities, similar to the Wade MacLauchlan authorities earlier than it, has a historical past of considerably overestimating finances deficits, whereas underestimating anticipated surpluses.
The deficit for 2020-21 was initially pegged at $173 million. Thanks partially to federal COVID-19 funding, the precise deficit got here in at a modest $5.6 million.
However with rates of interest now rising and federal transfers anticipated to fall after a pandemic increase, Noonan informed MLAs the province may quickly wrestle to keep up its present stage of providers.
“Well being-care amenities, long-term care amenities, social housing — the calls for on extra spending [are] going to proceed,” Noonan mentioned. “It’ll change into a burden, I imagine.”
P.E.I. budgeted $131 million within the present fiscal 12 months for curiosity funds in opposition to its debt.
A rise of 1 proportion level within the rate of interest the province pays to service its debt would push that value up important;y, mentioned Noonan. On a debt of $2 billion, it could imply curiosity funds of an additional $20 million a 12 months; with P.E.I. debt at $2.3 billion, the additional proportion level would imply $23 million extra per 12 months.
Noonan mentioned his workplace is getting ready a particular report on the sustainability of presidency funds, which he mentioned may very well be launched within the spring of 2023.
