P.E.I. projects biggest-ever deficit as spending increases during pandemic

The P.E.I. government is projecting the biggest budget deficit in its history, expecting to go $173 million into the red.

It is boosting spending across almost every department in response to the COVID-19 pandemic.

Finance Minister Darlene Compton tabled the province's operating budget for 2020-21 in the legislature Wednesday. A great deal has changed in the last four months, Compton said in her budget address, when the government was projecting a budget with a small surplus.

"The fiscal picture I present today is very different," she said

"We were prepared for some rainy days. None of us expected the economic storm brought on by the COVID-19 pandemic."

COVID relief spending

Compton didn't spell out how COVID-19 specifically contributed to the deficit forecast. However, government hadalready put forward an accounting of its COVID-19 relief spending.

According to that document, the province hadbudgeted$44.7 millionin direct supportto individualsspread across a variety of departments.

The province had also earmarked $39.4 millionin COVID-19 relief funding for businesses, including $4.7 millionto pay for shipping and storage of processed potatoesand $9.8 millionfor a loan program to support the tourism industry.

Revenues up

While private sector forecasts are projecting P.E.I.'s economy will shrink anywhere from three to eight per cent this year, the province is projecting a slight increase in taxation revenues despite the pandemic.

The province is projecting overall revenues will be up this year, thanks in part to an expected boost of $185 million in federal transfers compared to 2019-20.

Without the expected boost from Ottawa the province's projected deficit would be twice as large.

The province expects its three biggest tax sources will remain largely unchanged: income taxes, sales taxes and property taxes.

And the province is projecting an increase in corporate taxes of $9 million, even while committing to further lower the small business tax rate from three to two per cent as of Jan. 1, 2021.

Spending up

Spending by the province is projected to increase $258 million in the current fiscal year, which started on April 1, up 12 per cent compared to the year before.

The biggest year-over-year increase in spending is in the Department of Transportation, up $58 million over the previous year. Federal transfers for provincial and municipal infrastructure projects make up most of the increase.

Total spending on health care is expected to be up $58 million over the previous year, an increase of eight per cent.

The additional health care spending includes an additional $1.25 million to expand dental coverage for seniors and low-income Islanders; $1.23 million to pay for new psychiatric positions; and $416,000 to increase access to home care during evening hours.

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