PEI fiscal situation

No cause for alarm
February 11, 2004

(Halifax) A report released today by the Canadian Centre for Policy Alternatives (CCPA) finds that the current and anticipated PEI deficits are manageable and well within the capacity of the province's finances. Assessing Prince Edward Island's Fiscal Situation examines the province's current finances and fiscal trends.

The authors of the report, Wimal Rankaduwa (UPEI, Economics) and John Jacobs (CCPA Director) find that while all provinces, other than Alberta, are having difficulties balancing their budgets, PEI is in a better position to carry the current deficits than the other Atlantic provinces. Its debt relative to the size of the economy (debt to GDP) is at about the average of all other provinces and is the lowest in Atlantic Canada. "PEI's fiscal situation," according to the Rankaduwa, "does not justify cuts to program expenditure."

The study finds that the major cause for the size of PEI's current deficit in 2002-03 is the decrease in federal transfers. According to Rankaduwa, "most of the deficit is the result of a 16% decrease in federal transfers. Expenditure only increased by 1.87% over 2001-02-- less than the rate of inflation. For some time federal transfers have been decreasing relative to the size of the provincial economy and relative to total provincial revenue."

According to Jacobs, "some of the current difficulties are related to fiscal policies of the 1990s. While per capita program spending is currently close to the average of other provinces, for much of the 1990s investments in programs and infrastructure were well below the average." Overall, according to Jacobs, "program spending has not kept pace with economic growth, decreasing from 29% of GDP in 1990 to 24% in 2002-03. So, while the demand on many public services & infrastructures has increased, financial support has not kept pace."

The study finds that on the revenue side PEI has also lagged behind other provinces. According to Jacobs, "Currently and for most of the past decade PEI has raised less revenue relative to the size of the provincial economy than the average of other provinces. The data show that the PEI economy is not over-taxed and in fact appears to have some room to increase revenue to bring the level of taxation more in line with the level in other provinces."

PEI, according to Rankaduwa, "needs a fiscal management strategy that works with other provinces and the federal government to ensure adequate federal transfers, and examines ways of generating sufficient own-source revenue, to invest in programs and infrastructure. These investments are essential to increasing the overall well-being and productivity of PEI."

Assessing Prince Edward Island's Fiscal Situation is available on the CCPA web site at

Attached Documents: