Fraser Forum

Nova Scotia government must change course to end debt binge in upcoming budget

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Nova Scotia government must change course to end debt binge in upcoming budget

On Thursday the Houston government will table Nova Scotia’s provincial budget. Since taking office part way through the 2021/22 fiscal year, the Houston government has increased government spending and substantially increased Nova Scotia’s government debt. Despite higher-than-expected revenues, the government still projects a budget deficit of $264 million this year, with additional larger deficits over the following three years. With the costs of this approach mounting, the government has an opportunity to change course.

Since 2021/22, Nova Scotia’s net debt (total debt minus financial assets) has increased by approximately $2.4 billion to an expected $19.5 billion in 2023/24. This represents the third-largest percentage increase among all provinces during those two years. After adjusting for population, every Nova Scotian is responsible for $18,906 in provincial government debt in 2023/24. In other words, if the government paid off its debt today, Nova Scotians would need to fork over nearly $19,000 each.

All this debt accumulation comes with significant costs, primarily in the form of higher interest payments. In 2023/24, debt interest payments will drain almost $800 million from the provincial budget. To put that number in perspective, that same fiscal year the province expects to earn $642 million in business taxes and plans to spend $710 million on post-secondary education. Simply put, the cost to service Nova Scotia’s government debt represents a substantial use of taxpayer dollars, yet Nova Scotians receive no corresponding service or tax relief for their money.

Unfortunately, growth in government debt and debt interest will continue, barring a change in approach from the Houston government. On Thursday, the government will table its third budget and these sobering facts about debt demand a change in fiscal course.

First, the government should reduce spending and chart a credible path to budget balance. At a time when government revenues have been growing, hiking spending on a yearly basis and generating budget deficits generates an unnecessary liability for future Nova Scotians.

Second, the government should reverse its current plan to run substantial deficits to at least 2026/27. Each successive deficit increases provincial debt and interest costs, fuelling a vicious cycle where interest costs increase the deficit, which in turn increases debt further.

This is not merely a theoretical concern. Through much of the 1980s and 1990s, successive Nova Scotia governments ran significant budget deficits, which more than doubled the provincial net debt and debt interest costs, making Nova Scotia one of the most indebted provinces in Canada. It was not until 2000-01 under the Hamm government that the deficit was eliminated, and it took many more years and balanced budgets to reduce the debt accumulated during that time.

When the Houston government tables its third budget, Nova Scotians should be aware of the costs associated with more government debt. Rather than stick to its current plan of increased spending and large deficits over the next three years, the Houston government should change course.

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