N.S. finances in good shape; social debt in need of payment

March 23, 2007

Trying to make sense of Nova Scotia’s finances isn’t getting any easier. The timing of the provincial budget so soon after the federal budget ensures it will be difficult to get a clear sense of the province’s real financial situation. But the premier and his finance minister have already pretty much signalled the general tone of the budget.

Last year, heading into an election, the finance minister claimed that, "due to good fiscal management and an improved economy, the province is now in a position to make strategic investments to make life better for Nova Scotians."

Less than a year later, the message is, "Nova Scotians can expect a tough budget. Expenses are up and revenues are uncertain, so the focus will be on balancing the budget rather than launching new programs."

In other words, we can’t do what we told you we were going to do and it’s not our fault.

How bad is it? Even without the fallout from the federal budget, it is difficult to get a sense of the province’s fiscal reality. Part of the problem is that all we have to rely on are the government’s own estimates, contained in its budgets.

Unfortunately, the Conservatives don’t have much credibility when it comes to forecasting provincial revenue. This, and the Tories’ unhelpful habit of making finances look worse than they are, clouds our ability to fully examine the impacts on the province of the changes to federal transfers.

In the last fiscal year, they underestimated revenue by $164 million. In fact, the provincial government has made a habit of significantly underestimating revenues. Over the past seven years, the coffers have brought in close to $1 billion more in revenue than was forecast by the government in its budgets.

Unexpected revenue is welcome. But how unexpected was this revenue? Forecasted revenues are subject to close scrutiny by the opposition parties, the media and the public. But un-forecasted surpluses are not included in the provincial budget, and thus are not subject to public scrutiny and budget debates in the legislature. This provides the government with significant funds to allocate to meet its priorities, but such priorities are not necessarily shared by citizens. In some cases, these unbudgeted funds are used in pre-election spending.

Will we be facing the same scenario in this year’s budget? It’s hard to tell, but the focus on the impact of the federal budget is sure to be used by the province to curtail investments in programs.

The reality is that Nova Scotia’s finances are in much better shape than they have been in more than a decade. Revenue has been steadily increasing. The provincial debt is still high, but it is steadily decreasing relative to the size of the economy, faster than anticipated – a key indication that the debt is becoming more manageable.

Another measure of the province’s ability to manage the debt is the portion of government revenue going to cover interest payments on the debt, which now stands at the lowest level in 15 years. Over the past five years, the portion of government revenue absorbed by interest on the debt decreased from 17 cents of every dollar raised to 12 cents of every dollar of revenue in 2006.

While the province’s finances are in good shape, there is another side to this story: It still hasn’t dealt with the social debt. Nova Scotia shares with New Brunswick the distinction of investing the least, per person, of all provinces in the well-being of its citizens. This has been the case for well over a decade. Not surprisingly, the provincial government faces constant pressure from citizens to, for example, improve roads, increase supports for low-income households and improve health care.

By routinely depicting a gloomy financial situation in their pre-budget releases and budgets that low-ball revenue forecasts, the Conservatives have been deflecting pressure to make the investments Nova Scotians are demanding. Underestimating revenues means that surpluses will be higher at year-end than budgeted; these funds then get allocated to debt repayment with no debate as to whether this meets citizens’ priorities.

What are we to make of the premier’s comment that the "centrepiece" of "his government’s budget will be setting aside more than $100 million" for debt repayment, especially in the context of the finance minister’s warnings that "Nova Scotians can expect a tough budget"?

One thing is certain: It will curtail the province from bringing programs and services up to the same level as experienced by the rest of Canadians.

John Jacobs is director of the Nova Scotia office of the Canadian Centre for Policy Alternatives, an independent public policy research institute. CCPA-NS assessment of the province’s fiscal situation can accessed at www.policyalternatives.ca.