With economies that are dominated by the public sector and government spending that's out of control, the Maritimes may be heading into rough waters…

It's an unseasonably warm February day and more than 100 people are tucked into Halifax's Neptune Theatre for a noontime performance. But this isn't Neptune's latest theatrical production. On stage stands Peter Moreira. The hulking journalist is running through a series of slides summarizing his recent book, Backwater: Nova Scotia's Economic Decline - currently in its second printing, a somewhat remarkable feat for a book about local economics. Each stat - filled slide, projected on a large, glowing screen, hammers home his sobering thesis: the Maritime provinces face a less-than-rosy future.

A greying workforce, stagnating population, high taxes and mountains of public debt are combining to hamper the region financially, he says. And Moreira, an experienced business reporter who previously worked in Hong Kong, Seoul and London, says many of the region's woes stem from an addiction to government. Simply put, the Maritime provinces are over-governed - their bureaucracies are too large, their taxes are among the highest in Canada, their economies are dominated by the public sector and their government spending is out of control. As Moreira notes in his book, government program spending in Nova Scotia grew by an "obscene" 97 per cent in the decade between 1998 and 2008. That runaway spending, the region's "massive debt" and the looming demographic crunch will quickly erode government coffers and weaken the local economy, he argues. "Our standard of living is threatened. Without economic improvements we're going to continue to bleed young people. We will, in short, become an economic backwater."

He's not the only Maritimer sounding the alarm. In fall 2009, Premier Darrell Dexter's Economic Advisory Panel concluded that Nova Scotia is on an "unsustainable fiscal path," facing a $1.3-billion deficit by 2013. And a recent report card from the Atlantic Provinces Economic Council revealed a similar trend throughout the Maritimes. Across the Tantramar Marsh, in New Brunswick, government spending has grown by an average of 6.5 per cent over the past five years. If unchecked, that rapid growth could cause the province's deficit to expand to $2 billion by 2015. On PEI, the picturesque scenery is similarly offset by a dreary fiscal landscape: a 13.5 per cent increase in federal transfers in 2009-10, a decade-long string of large deficits and a mere four surpluses in the last 25 years. Government spending has continued to grow to the point where the deficit could reach $100 million by 2015. And as a recent Fraser Institute report pointed out, provincial government spending on PEI between 2006 and 2010 made up 30 per cent of the Island economy. That was the highest level in Canada, well above Alberta (13 per cent of the economy) and Saskatchewan and Ontario (both 17 per cent).

Saskatchewan, with a population comparable to Nova Scotia, appears more skilled at managing its spending and debt load than its Maritime cousins. According to the federal finance department, the prairie province posted only surpluses between 1995 and 2010. And between 1994 and 2010, Saskatchewan's net debt dropped from $7.7 billion to $3.6 billion.

Over that same period, meanwhile, New Brunswick's net debt climbed from $5.8 billion to $8.3 billion. Similarly, Nova Scotia's net debt increased from $8.1 billion to $13.3 billion, while PEI's debt load expanded from $772 million to $1.5 billion. "Any way you look at it, we have a problem," Moreira tells the assembled crowd. "Government policy is not reflecting the demographic and fiscal challenges we face."

A few days later, over dinner at an Irish pub in downtown Halifax, Moreira outlines his proposals for reducing government's pervasive presence in the region. First up? The p-word: privatization. Between sips of Kilkenny, Moreira says the Maritime provinces should raise cash by selling government assets, like Nova Scotia's resorts, including Digby Pines and Liscombe Lodge - an option the Nova Scotia government is now considering. New Brunswick's public electric utility, NB Power, could be handled in a way similar to the privatization of Nova Scotia Power back in the 1990s.

But more importantly, he argues, the provinces must start merging many of their departments and agencies to realize efficiencies and save money. As Moreira sees it, the region simply can't afford to support three versions of everything, nor does it require every government department and agency in triplicate form. The provinces' energy conservation agencies should become one, as should their utility review boards and workers' compensation boards. And, the successful New Brunswick Investment Management Corp. could manage public sector pensions for all three provinces.

A native Bluenoser, Moreira grew concerned about the region's future after returning home from 13 years working abroad. He is now convinced that the large, expanding role of government is not sustainable in a region that will soon have fewer taxpayers to shoulder the bill. Moreira's concerns don't extend to Newfoundland and Labrador, however - he argues it is insulated from such problems by its bounty of resources, such as gas, nickel and hydroelectricity. Once a poor cousin of confederation, Newfoundland hasn't received a federal Equalization transfer since 2007-08, meaning the province is in "immeasurably" better fiscal shape than the Maritime provinces.

And aside from a few sparse examples - like New Brunswick's decision to merge its eight regional health authorities into two - Moreira sees little evidence of action from the Maritime region's current leadership. "I'm not overly optimistic. That's why the book is called 'Backwater' and not 'A New Tomorrow,'" he says before taking the last swig of his brew. "Reform is long overdue. We have these little fiefdoms that are impoverishing all of us. We're happier to all sink together than actually swim. In my ideal world the Maritimes would just be one province."

Such talk warms the heart of Donald Savoie, a long-time advocate of Maritime Union. These days, the Université de Moncton professor describes himself as "the lonely cowboy in the meadow" - advocating an idea with little support or future. But that will change, he says, because the Maritime provinces are heading toward a rough patch. "Our public sector is out of whack with our capacity to pay," says Savoie, perhaps Canada's foremost expert on public administration and government. "It's much too large for the economy to sustain it. We've built up a public sector we can't afford."

In a recent study, the Fraser Institute determined the size of government in each province, and perhaps not surprisingly, the Maritime provinces were at the top of the list. On PEI, total federal, provincial and local government spending made up 65 per cent of GDP in 2008-09. Nova Scotia and New Brunswick only fared slightly better, with about 60 per cent of their GDP coming from government spending. Those are huge percentages considering economists from the Fraser Institute deem 30 per cent of GDP to be the ideal size of government. In Saskatchewan, by comparison, total government spending represented only 34 per cent of GDP. Alberta, at 23 per cent, posted the country's leanest figure.

Maritime governments are not only large by Canadian standards. In 2003, the Fraser Institute ranked all the Canadian provinces and US states by the size of their government. The top performer? New Hampshire, where federal, state and local government spending represented only 23 per cent of the state's GDP. Not far behind, in second place, was Delaware. Alberta, with Canada's best ranking, placed eleventh. And at the very bottom of the heap was PEI, preceded closely by Nova Scotia and New Brunswick - all faring worse than states like Mississippi, West Virginia and Alaska.

So what explains the region's heavy dependence on government spending? Savoie says the answer is simple: 40 years of fattening federal transfers from Ottawa, which now account for between 36-44 per cent of revenues in the three provinces. Savoie calls it "guilt money" - cash meant to appease the region for programs tending to favour Ontario and Quebec. "Rather than show us how to swim, they threw us a life jacket in the form of federal transfers," he says.

These are strong statements from a man who helped shape the way Ottawa deals with the Maritimes. In the mid-1980s, at the request of Prime Minister Brian Mulroney, Savoie drafted a report that established the Atlantic Canada Opportunities Agency, one of Ottawa's main funding tools in the region. But the times, argues Savoie, are changing - quickly. With Ottawa now deep in the red, federal transfers are likely to shrink. And, there are plans to shift transfer payments to a per capita basis, which will benefit provinces with larger populations.

That means the big, bulky Maritime governments must contract quickly to adapt. For instance, Maritime cities must stop duplicating major health centres that already exist in Halifax. Instead, Halifax hospitals should belong to all of the Maritimes. Similarly, provincial government departments - like education and health - should be merged and divvied between the three provinces.

"We're going through an extremely difficult patch the likes of which we've never experienced before. We can't afford the level of competition we see amongst the three provinces," says Savoie. "We're three little dories floating in a large ocean. We need to link up our little boats and try to navigate the global economy together."

Back in 1861, Charles Tupper was making roughly the same argument, with about the same level of success. That autumn, Tupper - a Nova Scotian doctor and future prime minister - delivered a speech in Saint John calling for the three Maritime colonies to unify. Only such a union, Tupper argued, could save the colonies from "social and economic decline." Talk of Maritime Union helped Tupper secure victory in the Nova Scotia election two years later, notes historian D.A. Muise, but faced with indifference from New Brunswick and PEI, the idea remained just that.

Regardless, Tupper's Conservative government formally called for a conference to discuss Maritime Union in 1864. Perhaps envisioning major savings, the British Colonial Office endorsed the idea of merging three colonial legislatures and governments into one. But it was not to be. The plan was shelved at the subsequent Charlottetown conference, replaced with a plan for confederation.

The flames of Maritime Union were extinguished, but the ideological embers remained warm. Take the Mount Allison student, for example, who during graduation ceremonies in 1887, stated with conviction that, "a great saving would be effected by such an union, and it would be infinitely better if the three provinces were united under one government."

Despite such rhetoric, the examples of collaboration between the provinces remained few. Instead, inter-provincial rivalries - like those between Halifax and Saint John - only served to increase the provinces' "emotional distance," as former professor of Canadian social history at Dalhousie University, Judith Fingard, puts it. Still, cooperation did bloom in isolated patches of soil, like in Dorchester, NB, where in 1880 a new penitentiary opened to replace separate provincial prisons.

For decades, the power of indifference and warring parochial interests dampened calls for better Maritime cooperation. But the movement received a major boost in 1960 with the election of the vibrant Louis Robichaud. The first Acadian elected premier of New Brunswick, Robichaud was a strident supporter of regional projects. In 1964, he pushed even further. Faced with the threat of Quebec separation - and Maritime isolation from Canada - Robichaud called for a regional union.

By 1968, the century-old idea of Maritime Union was gaining momentum again. The three premiers commissioned a special Maritime Union Study - seen by some as a "means of salvation" - and eagerly awaited the findings. Delivered in 1970, the Deutsch Commission report recommended political unification of the three provinces. Public opinion on the matter, however, was tepid, and the premiers began to distance themselves from the idea. As historian John Reid writes in The Atlantic Provinces in Confederation: "The three provincial governments had been edging away from the notion of full political union, as their initially friendly reception of the Deutsch Commission's report had given way to the realization that it promised few political gains and many pitfalls." While the study did help launch the Council of Maritime Premiers and the Maritime Provinces Higher Education Commission, cooperation between the provinces would extend no further. For all practical purposes, the idea of Maritime Union was dead.

These days, the idea still rests six feet underground. For Charles Cirtwill, that's exactly where it should stay. Politically, Maritime Union is roughly the equivalent of nuclear waste: no one wants to go near it. The problem, says Cirtwill, is that the ghost of Maritime Union is scaring the current premiers away from measures that could save money and improve services.

Sitting in his downtown Halifax office, a view of the Citadel behind him, the energetic head of the Atlantic Institute for Market Studies rattles off a long list of government - slimming proposals. First off, just about every government department should be merged, particularly the big ones, like health, education and transportation. As well, the regional umbrella should only shelter one ombudsman, one auditor general and one freedom of information officer. And, the region's numerous health and school boards should be drastically pared down - or eliminated.

But Cirtwill wouldn't stop there. The native Haligonian would also claw away at the 16 Maritime universities. He says that government money should go directly to students, and universities should compete for funding. For inspiration he points to Atlantic Lottery, the money-making corporation owned by the four provinces. "Where have we used that model elsewhere?" huffs the think-tank president. "We haven't."

Cirtwill fully admits such ideas could prove unpopular, but asserts there is little alternative. The Maritime provinces, he argues, must shed their heavy government layers to swim against a strengthening economic tide, not to mention to be able to avoid the "demographic cliff" looming on the horizon.

In late 2009, researchers with the C.D. Howe Institute fired a warning shot about the region's transforming demographics. A greying population, low birth rate and outmigration, they warned, will soon leave the Maritimes with fewer workers and taxpayers to carry a growing tax bill. Maritimers, in particular, are facing a "fiscal squeeze," argued the researchers.

Among the report's recommendations: Maritime governments should make baby boomers put more money toward senior drug coverage - before they need to draw the expensive benefits. Otherwise, future taxpayers will be left shouldering an "unconscionable burden." That threat of steeper taxes is not a pleasant prospect for a region already leading the country in taxation. New Brunswick has lowered its general corporate income tax rate to 11 per cent, but Nova Scotia and PEI share the highest corporate tax rate in Canada: 16 per cent. By comparison, Manitoba, Ontario and Saskatchewan charge a corporate tax rate of 12 per cent, while Alberta has the lowest rate in the country, 10 per cent. Nova Scotia and PEI are also home to some of the country's highest personal income tax rates, and Nova Scotia charges the highest harmonized sales tax in Canada (15 per cent).

"We have a fundamental problem here that people need to wake up and recognize," says Cirtwill, leafing through research papers on his desk. "We have a huge public sector, creating a level of dependence that is unsustainable."

So far, this tale seems to be one tinged with despair - of a region unable or unwilling to escape the shackles of big government. But all hope is not lost, at least based on Elizabeth Beale's outlook.

Is the shadow of government longer in the Maritimes? Admittedly yes, says the long-time president of the Atlantic Provinces Economic Council. But that doesn't mean the region is over-governed - only that its economy is not as dynamic. "Perhaps another question to ask is: could we do things more efficiently?" she says, while outside her office a cold wind blows white caps down Halifax Harbour. "Absolutely we could."

With many government expenses outstripping our ability to pay, it's obvious more collaboration is needed, Beale says. At the top of her list: common plans for energy and the environment. And given the existing amount of cooperation, she's confident those deals can be brokered.

Beale points to a 2009 agreement signed by the premiers of Nova Scotia and New Brunswick, which harmonized trade and business regulations, and recognized the credentials of workers in both provinces. The idea, said the premiers, was to trim bureaucratic wrangling, save tax dollars and foster business.

Such efforts, Beale contends, contradict the vision of the Maritimes as a sinking ship - one loaded down with too much bureaucracy and hampered by a stubborn crew. "The reality is that provinces do compete, but when I look down below the surface I see cooperation all over the place. Is it perfect? No, it's not," she says. "But you've got to be optimistic. Things can improve in the Maritimes. We'll get there quicker than we might think."

Just how quickly Maritime leaders can chisel away at the region's government base isn't clear. But it's apparent they are at least growing cognizant of the tricky task ahead.

In its throne speech last March, Nova Scotia's NDP government acknowledged the massive and growing provincial debt - the second largest per capita among the provinces. The speech lamented that Nova Scotia's heavy "financial burden" threatens its ability to deliver vital services, like health care and education. "For too long provincial governments have simply reacted to events. They allowed short-term expedience to trump long-term vision," stated the speech, read by Lieutenant Governor Mayann Francis at the provincial legislature.

"Without a vibrant economy, a province stagnates. Its young people leave. Its future dims."

Yet the address also had a healthy dose of Maritime optimism: "Our ability to rise to any challenge is a defining quality of [our] people.

"Today we stand at a crossroads..... Now is the time for a new trajectory."