Advice to the premier

Be honest about your choices
April 3, 2000

Since an image of honesty is an important asset for any government, it would be a mistake to pretend in the budget speech that the government has no choice but to cut program spending.

One option is simply to freeze program spending. The current deficit has been hugely inflated by the addition of one time, never to be repeated costs such as the closing of Sydney Steel [ $379 million] and the programming costs of Y2K. [$40 million]. The underlying deficit is less than $350 million. This is a serious problem, but to put it in context, one must remember that the revenues of the province of Nova Scotia grew by $212 million this past year alone. Since sales tax revenues increase with consumer spending, and income tax revenues increase as income grows, revenues can be expected to grow with GDP growth in future years. With a consensus private sector national forecast of 5.5 percent growth for this year and 4.9 percent growth in 2001, provincial revenues can be expected to grow by well over $200 million per year.

With revenues growing at well over $200 million per year, and an underlying deficit of less than $350 million, a freeze on program spending implies that the deficit is eliminated in two years. After that, a budget surplus is available to restore services, to cut taxes or to pay down debt. It is this fundamental arithmetic of growth which is crucial to the long run solution of the province's debt problem. Both the Royal Bank of Canada and the federal Department of Finance have forecast that Nova Scotia will be in a substantial surplus position by 2004, without any program cuts.

A more radical option, which would eliminate the deficit more rapidly, would be to raise provincial taxes to the level of the other maritime provinces. In New Brunswick, for example, provincial government revenues as a fraction of GDP have been higher than Nova Scotia for some years. Contrary to the fears of tax cut ideologues, New Brunswick has also had faster growth than Nova Scotia throughout much of the 1990s. New Brunswick may be cutting taxes now, but it is able to do so now partly because New Brunswickers have in the past paid more of the cost of public services from current revenues.

Programs that have outlived their usefulness should be cut. Programs that serve ongoing public needs should be funded. Whether or not a particular government program should be abolished, cut back or expanded is an issue that should be decided on its own merits.

It would simply be dishonest to say that the Nova Scotia government has no choice but to cut programs. It is much better to be truthful and to say frankly that budget choices reflect the values of the government of the day. Nova Scotia has a serious deficit problem, but there are a number of possible ways of dealing with it. The choice on Budget day will ultimately be one of priorities.