Nova Scotia government should avoid another debt binge in upcoming budget
In its upcoming budget, the Houston government will unveil its updated long-term plan for provincial finances. Since Nova Scotia is one of Canada’s most indebted provinces, the government should prioritize balanced budgets and restrain spending.
According to the latest projections, after recording a surplus (when government revenues exceed expenditures in a single year) in 2021, the government plans to return to a deficit position in 2022. This is worrying, especially considering the source of the problem.
This deficit projection comes despite strong revenue growth, which could have allowed Nova Scotia to balance the budget without spending cuts. A rebound in the economy and high inflation mean that this year’s revenue will likely be $1.3 billion higher than originally anticipated. But the Houston government wiped out most of the potential gains by forecasting a spending increase of nearly $1 billion. Had the government simply maintained its original spending plan, it could’ve been on track to run a surplus of more than $700 million in 2022.
Unfortunately, this is not surprising. A failure to restrain government spending is one of the main contributors to the province’s recent debt binge. In 2022, provincial debt is expected to equal $17,685 per person in Nova Scotia, an increase of roughly $2,000 per person since the pandemic started. The debt burden for Nova Scotians is also noticeably higher than for New Brunswickers or Prince Edward Islanders.
Moreover, the projected deficits will persist until at least 2025, which is one of the reasons why an independent analysis from experts at Finances of the Nation shows that under reasonable economic and policy assumptions, the province is fiscally unsustainable over the long-term because debt is expected to grow faster than the provincial economy.
The implications of further debt accumulation by the government in Halifax are quite clear. Just like households pay interest on their mortgages or credit cards, Nova Scotians also pay interest on government debt. As the Bank of Canada raises interest rates to curb high inflation, debt becomes more expensive, which makes it all the more important for the Houston government to manage money responsibly to prevent the province from accumulating debt that’s more expensive than in recent years.
Consider this. In 2022, provincial debt interest costs will reach a projected $684 million or approximately $671 per Nova Scotian. If we add in federal debt interest costs, each Nova Scotia resident will pay more than $1,500 this year on government debt interest.
In its upcoming budget, the Houston government should emulate the approach of New Brunswick, which under Premier Blaine Higgs has consistently run surpluses and paid down debt. These policy choices have allowed that province to reduce its debt interest costs and begin introducing tax relief for New Brunswickers.
Balanced budgets and responsible spending are the recipe to success for the Houston government. The province should not instigate another debt binge because Nova Scotians will ultimately bear the costs.