- P.E.I government projects a slight increase in its deficit to $98 million in FY 2023-24.
- Growth in debt charges (+24.2%) to put added pressure on the province’s bottom line.
- Revenues (+16.6%) and program expenditures (+15.7%) to soar by almost equal magnitudes.
- Influx of migrants brings healthcare and housing to the forefront.
- Net debt-to-GDP ratio anticipated to creep up from decades low, reaching 29.3% by FY 2025 – 26.
While growth in revenues (+16.6%) is projected to barely surpass that of program expenditures (+15.7%), a steep increase in debt charges (+24.2%) will widen the province’s deficit to $98 million in FY 2023-24 from $93 million in FY 2022-23. To meet the needs of a fast-growing population (up 3.6% in 2022), the government delivered a plan to grow capacity of its most essential services. Targeting healthcare and housing, P.E.I. plans to add 100 front line positions to medical homes across the province and establish a Faculty of Medicine to train doctors on the island. On the housing front, the government is rolling out funding programs for developers to spur housing construction and develop construction-ready lots outside the urban centre. While the province’s deficit is headed to its deepest level in nearly 20 years, solid expected economic growth will keep the fiscal balance as a share of GDP in line with its historical average.
|Interest & Amortization||234||283||302||319|
|Source: Prince Edward Island Department of Finance, RBC Economics|
Interest charges bring expenditures over the edge
Representing 34% of expenditures, health-related expenses accounted for a large chunk of this year’s budget. Making notable increases to community health and policy (+46.4%), the P.E.I. government will top up salaries (+14.1%) for its health department as well as funding for travel and training (+62.2%). While a funding boost to reduce stress in the healthcare system will be welcome news to many Islanders, a sharp rise in interest charges (+24.2%) may elicit a different sentiment. All in all, plans for program and interest-related expenditures are expected to keep expenses as a share of GDP (31.8% in FY 2023-24) at the highest rate in Canada.
Population growth boosts provincial revenues
The wave of newcomers to the Island is projected to bring in a staggering $187 million (+14.8%) in additional taxation revenues this fiscal year. Despite providing some tax relief by raising personal income tax brackets over two consecutive years (2023 and 2024), strong jobs growth is expected to boost taxation revenues from personal income by 19.7% from FY 2022-23. And that won’t be the only lift for the province. Strong retail sales are poised to increase revenues from sales tax (+18.1%), and corporate income tax (+33.0%) as well. All in, P.E.I is projecting a huge 16.6% rise in its revenues—the fastest growth of all provinces.
Investing in housing and healthcare
With more than $120 million dedicated to housing and healthcare, Budget 2023 makes funding for growth a clear objective this fiscal year. In an effort to boost housing supply, the government announced a $50 million Housing Challenge Fund, providing private developers with 2% financing for construction ready projects. Alongside this effort, Budget 2023 includes plans for a $25 million Infrastructure Fund to develop construction-ready lots outside the urban centre. To address affordability struggles, $20 million has been pledged to continue the Heat Pumps, Hot Water & Insulation Programs; offering free heat pumps to households on the island, the program is intended to address rising home heating costs while making homes greener. An additional $22 million for a new medical school on P.E.I. and $10 million for a prescription drug co-pay program will account for the bulk of the province’s spending.
Debt-to-GDP creeping up from 28-year low
In the absence of a GDP forecast produced by the province, we’ve used our own in-house outlook to trace P.E.I.’s net debt-to-GDP trajectory. Assuming nominal GDP will slow significantly in 2023 (+3.1%), before making a recovery in 2024 (+4.3%), P.E.I.’s debt burden is expected to get worse before it gets better. Creeping up from a near 30-year low, the province’s net debt-to-GDP ratio is projected to peak at 29.5% in FY 2024-25 before coming down slightly the following year (29.3%). That said, P.E.I.’s indebtedness still fares comparatively well to other provinces.
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