The provincial government finds itself facing a better financial position than it has in more than a decade. The Auditor General has pegged the forecast budget surplus for 2004-2005 at $72 million and the province appears to have reached an agreement on off- shore oil and gas. With the debt stabilized and the economy growing the province has an opportunity to put in place the foundations for future social and economic development.
For the most part the change in government finances is the result of the federal government increasing funding after the drastic budget cuts it implemented in the 90s. Increased federal equalization, and health and social transfers will add to the province’s revenue. Provincial government tax revenue has been increasing due to moderate but steady economic growth. Nova Scotia can also look forward to increased oil and gas revenues resulting from the recent negotiations with Ottawa and because royalties from the Sable gas project are forecast to increase from 2007 onward. The ratio of debt relative to the size of the provincial debt economy is falling and making the debt more manageable.
Good news to be sure, but the province also has a deep hole to dig itself out of. Nova Scotia is facing a huge ‘social debt’ left after years of failing to maintain the social institutions that bind our society together. We also need to start reinvesting the infrastructure that keeps our economy going.
Among all the provinces, Nova Scotia has the distinction of having spent the least on its citizens for most of the past 15 years. This goes a long way to explaining why we have the highest tuition fees, insufficient affordable housing and public transport and high rates of poverty. Just to catch up with the other Atlantic provinces in terms of spending on citizens, local and provincial government in Nova Scotia would need to increase expenditures by more than $500 million per year.
We are also facing costly new challenges that need to be addressed. For example, developing an environmentally sustainable economy can no longer be put off. We also need to deal with the challenge of a “new economy” that is producing too many low wage jobs, and thereby increasing demand for affordable housing and income assistance for the working poor. As the province with the largest economy in Atlantic Canada, Nova Scotia should be taking the lead, rather than lagging behind, in terms of investing in the future.
These are big cost items and the province will need to balance debt management with addressing its other responsibilities.
The Hamm government will face obstacles in doing what is best for Nova Scotians. They will have to look beyond the market knows best approach that is still being promoted by business lobbyists and conservative ‘think tanks’. But the “free market” model is increasingly looking bankrupt. Sure some individuals and corporations have thrived, but most of us are left to deal with decreased and deteriorating government services, and less social and economic security. A report released by the Canadian Imperial Bank of Commerce (CIBC) last week, confirms that there has been no significant increase in real wages over the past decade. It concludes that the “almost chronic inability of the Canadian economy to generate high-paying jobs is behind the structural slowing of income growth.” Let’s hope that lessons are learned and that governments move on to a more pragmatic approach to public policy.
Some interest groups are still clinging to the wrong headed notion that income tax cuts are the key to solving our economic and fiscal challenges. But they seldom talk about the cuts to public services that are required to finance the tax cuts. Not only have massive tax cuts in Canada and the US not produced broad based economic prosperity, polls have repeatedly shown that Canadians reject tax cuts if it means cuts to public services like health care and education. Nova Scotians didn’t buy into the income tax cuts the last time around and I don’t think they will go for it now, especially given the need to get government services to an acceptable standard. But tax reforms that decrease the provinces’ dependence on revenue from gambling and user fees would be welcome.
Nova Scotia is in need of a political agenda that focuses on social and economic development and protecting the environment. There are some encouraging signs. Investments that increase economic productivity appear to have once again caught some politicians attention. We can expect to see more investments in programs that support economic development such as transportation, and education and training. But the provincial budget also needs to inject desperately need cash into Community Services Department. Income assistance rates are no where near the level needed to support those most in need in our society.
Whether the Hamm government takes up the challenges of social development and environmental sustainability in the Spring budget remains to be seen, but a failure to do so now will only increase the future costs.
John Jacobs is director of the Nova Scotia office of the Canadian Centre for Policy Alternatives (www.policyalternatives.ca), an independent public policy research institute.
A version of this article was published in the Chronicle Herald.