FREDERICTON — New Brunswick's recently elected Liberal government defied advice from pundits and went ahead Tuesday with a budget loaded with tax hikes and higher debt.

Despite new census figures indicating New Brunswick's population is stagnant, Premier Shawn Graham is hoping higher taxes will pay for the kind of quality services that will keep people home and attract newcomers. The tax increases highlight the first budget since Graham's election in September.

The $6.6-billion budget projects a small surplus of $37 million for 2007-08. The net debt will grow by $356 million to just over $7 billion, meaning that every man, woman and child in the Maritime province owes about $9,700.

The tax increases dramatically reverse a long-standing trend towards lower taxes that previous governments had pursued in hopes of making New Brunswick more attractive for business and workers.

The last personal tax increase in the province took effect in 1994 when Frank McKenna was premier.

From the time he was elected in 1999 until his defeat last year, former Conservative premier Bernard Lord pursued a policy of low taxes for people and business.

New Brunswick Finance Minister Victor Boudreau said the Conservative policy was not sustainable.

"We all enjoy lower taxes," Boudreau said. "But when the level of taxation is insufficient to ensure the continued provision of essential public services, it needs to be addressed."

Personal income taxes will increase marginally to generate an additional $50 million for provincial coffers while increases to the general corporate and small business income tax rates will bring in another $52 million a year.

Small businesses will bear the biggest single increase with their tax rate jumping from its current 1.5 per cent to five per cent.

Boudreau said that even with the hikes, personal and business tax rates in New Brunswick remain among the lowest in Atlantic Canada.

"For a single-earner family of two with taxable income of $40,000, this represents an increase of $42 in New Brunswick personal income taxes for 2007 compared to 2006," Boudreau said.

Analysts have been warning the Liberal government against tax increases as New Brunswick struggles to stop the exodus of young workers leaving the province in search of higher paycheques and lower taxes.

Census figures released Tuesday indicate the province's population continues to hover at just under 730,000 people.

"Raising taxes wouldn't be helpful," said Ian Munro of the Atlantic Institute for Market Studies, an economic think-tank based in Halifax.

Munro said New Brunswick should move ahead with spending cuts and broad-based tax reductions for business and individuals.

"There should be personal tax cuts," Munro said in advance of the budget release. "That would help to increase take-home pay in New Brunswick and help keep workers in the province."

A recent study by the Atlantic Institute of Market Studies reported that Alberta alone had drawn nearly 13,000 Atlantic Canadians away in the year ending July 1, 2006.

Graham has promised to reverse the exodus and has set a target of attracting 5,000 immigrants a year by 2015.

There could be other, less obvious revenues hidden in the Liberal budget, the first in Atlantic Canada this year.

The New Brunswick Liquor Corp., always a big revenue generator for the government, has been ordered to boost its net income by $13 million. That likely will mean significant increases in the cost of liquor for consumers.

An independent review of the government's books earlier in the year by accounting firm Grant Thornton projected a possible $400-million deficit by the end of the fiscal year unless steps were taken to reduce spending.

Boudreau had raised the spectre of possible tax hikes, but critics slammed the idea of hitting New Brunswickers with higher taxes.

Highlights of the New Brunswick budget presented Tuesday:

-$6.6-billion budget with projected surplus of $37 million.

-Personal income tax increase for the first time since 1994.

-Small business income tax rate jumps from 1.5 per cent to five per cent. Corporate taxes increase from 12 to 13 per cent.

-Net debt grows by $356 million to just over $7 billion, or $9,700 owed by every man, woman and child in the province.

-New Brunswick Liquor Corp. ordered to increase net income by $13 million through any means possible.