2013 Budget Season

Posted January 4, 2013

A central plank in the government’s election platform was the promise of fiscal responsibility. Budgets were to be balanced starting in the second year of the mandate and the only tax promise was a reduction in charges on home energy.

In fact, the provincial portion of HST has increased by 2%. Last year saw a deficit which is expected to recur in the current year.

The minister has been grumbling about the prospect for federal transfers although these have provided a relatively stable share of revenue throughout this government’s mandate. Meanwhile the province continues to benefit from the extraordinarily low interest rate environment.

Balancing the budget will nevertheless be difficult. Here are three necessary choices:

1. The 2010 budget committed to reduce 1,000 civil service positions through retirements and attrition, but there has been no evidence of a plan to make it happen. The government’s claims that 400 reductions have already been identified are hardly impressive. As of last March the number had actually gone up. The topic did not even get mention in the 2012-13 budget, and some of the reduction is from transfers that don’t save any money.

The government can show serious intent by identifying the departments where the reductions are to occur and when they are expected to happen.

2. Stop writing big cheques.

No more pension bailouts.

We don’t need any more woodland.

The government is demonstrably weak at negotiating business deals and should stay away from job creation or preservation arrangements that involve multi-million dollar upfront payments.

Most of these payments have been counted as assets so they do not show up in current year deficits, but the lenders who provided the money will have the same expectation of repayment from our children and grandchildren.

3. The government has passed excellent legislation that will give taxpayers certainty over the cost of civil servant pensions, while keeping those pensions among the very best in the province for their participants. The necessary regulations and procedures should be in place in the spring of 2013. Of course this should be implemented without adding to the $536 million bailout from taxpayers in 2011.

The same mechanism must be implemented for teachers where the deficit at the end of 2011 was $1.65 billion and may have worsened in 2012. This plan has also received bailouts from previous governments, amounting to more than $400 million. The arrangement is unfair both to taxpayers and to active teachers, who are unlikely to ever receive indexing benefits they believe they are paying for.

Similar arrangements are needed for Nova Scotia Power and for universities, municipalities, and other organizations that depend in part on access to the provincial taxpayer’s purse. The province should pass legislation requiring these to be implemented.

Making these kinds of choices is hard and unpopular work. Hopefully we will soon see a time which is less constrained. Next week we will look at areas that need more spending, and how to do so with the best impact.

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  • Much of the NDP’s focus in Nova Scotia has been in bailing out failing industries which will likely be gone in a few years time. While heralding the notion our ship has finally arrived, spending on grandiose bailouts, energy links, buying up lands filled with trees, topping up Government employees pension plans etc, etc, have taken a big toll on the Province’s ability to cope financially. The poor Finance Minister doesn’t know what hit her. It’s as if the revenues from the ships are being borrowed from the future to pay for many programs and projects now. This is dangerous and very short sighted as the Ships contract can be changed at the discretion of the Federal gov’t. Look around at the economic landscape and we see Canada is fastly moving into a funk. Housing is slowing down, debt levels for Canadians are at record levels, and there is a growing severe energy price imbalance between east and west .This latter one is already playing havoc with Alberta’s finances. It is also playing havoc with Eastern Canada as we see our fuel expenses for our home, cars, and businesses shoot through the roof. This is a national emergency and should be treated as such. Our Premier should be concentrating on getting a pipeline to Nova Scotia rather than an undersea link. The cost of going green is turning everything red as I see it.
    Nova Scotia, however, can’t take all the blame for their wayward and ill conceived philandering. The Federal gov’t has to share in this too and should be leading the way to get the west east pipeline up and running as quickly as possible. It shouldn’t be about years but months otherwise a recession could strike.
    The special interest groups and provinces opposing a national west east pipeline should be cast aside .Shame on Premier Clarke and shame on the First Nations and environmentalists for holding Canada hostage over all their griping and poor me attitude. Shame on all those who have caved into this. Instead they should have been taking these misspent billions to build a proper national pipeline infrastructure years ago. This is one time where the Prime Minister should overrule all who oppose these pipeline projects. He’s good at shutting down Parliament so this should be a no brainer. We in the east can’t take much more with our high taxes and unrelenting fuel and energy costs. It comes at a good time because it looks like a lot of people could use the work here and now.

    John Moore | February 11, 2013

  • Richard thank you for your note.
    As sole trustee of the plan the Minister did have the right to make the change to inflation indexing. There are very fewer defined benefit plans left in the private sector because of the high and volatile cost. Those few that do would typically have no inflation indexing or indexing dependant on the plans’ finances being healthy.
    You are right to say that the possibility of indexing being affected was not well known to retirees. It is even more true that taxpayers, most of whom have no pension plan at all, had no idea that they could suddenly be tapped for $536 million to shore up the funding of the PSSP. That money does not come from a vault. It comes from taxi drivers, IT professionals, doctors and lawyers, retail clerks, the server who passes you your double double at Tim Hortons. You can safely assume that their experience with their own RRSP’s, if they have one, has been much more disappointing than what you have experienced. And yes, the pensioners of the PSSP also pay those taxes.

    Bill Black | February 6, 2013

  • Good Morning Mr Black
    I am sending this to comment on an opinion you expressed in your recent “editorial” in Saturday, January 5,2013 Business Section of the Chronicle Herald page C5, “Province must learn how to stop writing big cheques”.
    I agree with you whole heartedly that we must live within our means and be fiscally responsible. However, I do take exception to you congratulating the current government’s legislation in respect to changing indexing of civil service pensions. This change is unfair to both retirees and current employees.
    I do see the merits of defined contribution pensions going forward. The NSGEU has also seemed to support this position. Although their position is contrary to the obvious benefit of defined benefit plans. I expect they are concerned because their members pension contributions would rise. However, in my opinion, the value of an indexed pension offsets this cost especially when the province pays half, the contribution is tax deductible and it represents forced savings. I am sure you would welcome a defined benefit pension if you do not already have one.
    A useful quote from David Chilton, The Wealthy Barber, at page100 of his recent book “The Wealthy Barber Returns” clearly lays out some of the issue.
    “There is a common misconception about defined benefit pension plans that needs to be cleared up. Many Canadians think that employees don’t make any contributions to their DB plans. That is not always the case. Often participants have significant deductions from their pay cheques to help fund their plans. In fact, it could be argued that the employee is even making the employer’s contribution. That sounds nonsensical, but when you think about it , all contributions are really part of the compensation plan, a plan that has to be competitive enough to attract the right employees. Instead of taking all their compensation in current income, the employees
    are taking some in the form of a defined-benefit pension. Good move. Tax deductible forced savings.”
    The issue for retirees is that the indexing rules were changed retroactively. This is unfair. My own personal situation is that I had already retired and made the decision to retire based in part on an indexed pension. Now I am not so sure I did the right thing. It surprises me that the Province of Nova Scotia can do this since I am fairly certain it would not be allowed in the private sector. Please correct me if I am wrong.
    The other galling thing to me is that I chose to work for government even after having opportunities to work in the private sector at a higher income in part because of an indexed pension. I thought my pension was a condition of employment and part of my benefit package. Apparently it may not be.
    So when is a deal not a deal?
    Your thoughts on this would be much appreciated.

    Richard O'Brien | February 6, 2013

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