Making the Cut

There has been considerable talk about the need to balance the Province of Nova Scotia’s books. It is not easy to assess the dimensions of the problem because there are some big unknowns, and the new government has continued to confuse the picture by the way it accounts for the cost of post-secondary education. But the considerable drop in revenue from natural gas and the likelihood of restrained federal transfers mean that savings in the hundreds of millions of dollars will be needed.

Tax increases have already been implemented but so far there has been little action on the spending front. The government’s process has been replete with consultations, awareness raising, and reports by independent experts. But there have been few tough decisions.

In fact, a survey of government announcements this year shows most of them to be about new spending. A very incomplete list of examples;

• January 5: $8.8 million for Shelburne Ship Repair
• March 1: $75 million for forest industries
• March 2: A $75million addition to the Industrial Expansion Fund
• March 5 :$60 million for the former Trenton Works site
• April 6: $500 million top-up to the civil servants pension plan
• June 8: $15.2million to dredge Sydney harbor
• October 13: $56 million for the new Convention Center
• October 14:  $16.4 million for Sydney-area broadband
• November 23: $60 million in additional funding for economic development

The messaging about cuts has been confusing at best. The budget talked about reducing civil servant head count by 10% but current numbers were already that much below authorized. Was this a cut or maintaining the status quo? Deputy Premier Corbett further muddled the message by saying that there would be no layoffs, with reductions being handled by attrition. This sidesteps the question of where the reductions will occur. If there are in fact going to be 1,000 less positions in the civil service then government will have to stop providing some services. There is no indication yet what those might be.

To understand what a real cost cutting exercise looks like one need only follow current developments in many European countries. In Britain the civil service is being reduced by 450,000 positions and university tuition is tripling. France has raised its retirement age by two years. Several governments have reduced public sector wages by 5% or more. These have provoked strong and sometimes violent public reaction, especially in France, Greece, and Ireland.

Two instances of real cuts in Nova Scotia—cancellation of the Yarmouth ferry subsidy and reduction in civil servant pension indexing—are instructive. They are the only activities that generated meaningful protest.

The government has to make and communicate its choices by the time of the Spring budget. Taxpayers who want to see a return to fiscal responsibility should watch carefully to see which of the following steps are taken:

1. Real reductions in government functions to permit corresponding reductions in civil service complement.
2. Implementation of the sensible choices recommended by the Corpus-Sanchez and Ross reports on health care. Among other things this means repurposing many of the small emergency facilities and budgets for primary care, and reducing the number and scope of regional health authorities.
3. Reduce primary and secondary education spending in line with the reduction in student populations. Insist that post-secondary institutions eliminate waste, duplication, and archaic labour agreements.
4. Eliminate the substantial duplication, overlap, and inefficiency in Economic Development activities.
5. Put a cap on public sector pension costs by making benefit levels adjust to fit available funds. Return the $500 million top-up to taxpayers.
6. Freeze civil servant and teacher pay scales until the books are balanced.
7. Examine which of the many provincial boards and commissions can be eliminated.

It is dangerous to assume that cuts are not substantive unless protesters are marching in the streets, In fact one of the virtues of the government’s advance work is to improve acceptance of the needed tough choices. But the time for government to make those choices is now. The opposition parties must make their contribution to acceptance by supporting well considered but difficult measures.

It is unfortunate that choices like these will impact many public sector workers who are doing their jobs well. It would be wrong to blame them for the situation. But it is crucial to act while the government is still able to make its own choices. Consider what is happening south of the border. In May, the Illinois State Legislature adjourned, leaving a budget package that assumes the state will end the fiscal year with $6 billion in unpaid bills—and that does not include a plan to pay for the required $3.7 billion pension payment next year. Last summer, California issued $3 billion of IOU’s to creditors including residents owed tax refunds as a way of staving off a cash crisis; thousands of prisoners were released early because the state could no longer afford to house them. Stories like this are occurring in dozens of states and large cities.

They join governments in Europe and elsewhere for whom borrowing has become very expensive, or unavailable.

We must do better. Enough time has been spent admiring the problem. We owe it to our children and grandchildren to make the necessary choices now.