Nova Scotia government abandons any semblance of fiscal responsibility

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Appeared in the Halifax Chronicle Herald, March 24, 2023
Nova Scotia government abandons any semblance of fiscal responsibility

The Houston government released Nova Scotia’s 2023/24 operating budget on Thursday, and for the second year in a row, has opted for big spending. In fact, despite the documented costs of increased spending and more debt, the budget is drenched in red ink with no plan for a balanced budget and alarming increases in debt.

Specifically, the government projects a deficit of $278.9 million this year. Along with spending previously announced in the capital budget, this will cause net debt to rise by $1.36 billion to $19.54 billion. And the budget projects substantial deficits in each of the next three years, with no plan to return to a balanced budget.

The costs to this approach are clear. Over its first two budgets, the Houston government has grown total spending by approximately $2 billion or 15 per cent, which has resulted in two deficits and a rising debt load. The province will spend a projected $767 million this year on debt interest alone, a number that will likely continue to grow as long as the province keeps spending more than it receives in revenue. This money gets diverted away from other priorities and into the hands of bondholders.

Crucially, this budget fuels concerns about fiscal sustainability. Before the budget, according to independent analysis from experts at Finances of the Nation, under reasonable economic and policy assumptions, the province’s finances are fiscally unsustainable over the long-term because debt is expected to grow faster than the provincial economy. This budget doubles down on that approach. Although relatively strong economic growth is expected, provincial debt (as a share of the economy) will grow faster in each of the next four years, from 33.6 per cent this year to 36.2 per cent in 2026/27.

Clearly, the Houston missed a golden opportunity. Strong economic growth has driven government revenues well above expectation, which means the government could have balanced the books while still increasing spending. Instead, it’s spent all of the province’s record-breaking revenues—and increased spending even further.

Consider this. According to the budget, provincial revenues will be $14.2 billion for 2023/24—that’s $1.3 billion more than the government expected this time last year. Yet despite this improvement, the government still chose to spend more than it takes in this year. Had the Houston government learned from the approach of neighbouring New Brunswick and held the line on spending (as measured by nominal per-capita program spending) over the last two years it's been in office, Nova Scotia could have a $962 million surplus.

So, why should Nova Scotians care?

Because if the government balances the budget and returns to surplus, not only will it avoid debt interest costs, but it will also create fiscal room to deal with the province’s pressing tax challenges. Nova Scotia has some of the highest personal income tax rates among all 60 Canadian provinces and U.S. states, along with uncompetitive business tax rates. The Houston government’s reckless fiscal approach will make it almost impossible to tackle the province’s tax challenges anytime soon.

Of course, the Houston government claims that more spending will solve the province’s health-care woes. But time and time again we’ve seen that more money does not necessarily improve health care. Indeed, Nova Scotia (and Canada) must learn lessons from other countries by reforming the system rather than simply spending more.

Prior to becoming premier, Houston seemed to understand this as he repeatedly claimed that more spending was not the answer, stating “we need to refocus how we spend our health-care money. And we can deliver health care to people in this province for $4.4 billion.” Now, Premier Houston is touting a $1.2 billion increase in health-care spending over two years.

This type of dramatic spending increase underscores a risky fiscal approach. Rather than balance the budget and solidify Nova Scotia’s fiscal future, the government has opted for large deficits, rapidly growing debt and out of control spending, which places the province on an unsustainable path.