Assessing the Budget

The budget is a good effort, although not as good as advertised, and it leaves an extraordinarily important challenge unaddressed.

As repeatedly predicted by the government communications apparatus, the budget forecasts a tiny surplus in the current fiscal year, and the two to follow. Most of the pieces look reasonable, but some are suspect.

Transfers to universities are forecast to go down by $44 million or more than 11%, because Acadia and NSCAD were prepaid last year. But these payments have been a constant feature in recent years. It seems unlikely that this year will be different.

Nominal economic growth is forecast to be a reasonable 2.3% this year and 3.0% in 2014.

But against this HST is predicted to go up by 4.8%, personal income tax by  6.8%, and corporate income tax by 8.4%. There is a low visibility tax hike in the form of deindexed personal tax brackets. But tax revenues are unlikely to grow that much more quickly than the economy.

Once again government has shown no progress in reducing civil service staff. The forecast number for March 31 is 143 less than a year ago. The forecast number is the one that matters—those are the positions the government actually paid for.

There have been transfers in and out of the civil service, such as the movement of Agricultural College staff to Dalhousie.

This has caused a net reduction of about 200 positions with the costs simply transferred rather than saved. So in fact, civil service staffing has continued to increase.

The deficit in the year just completed is forecast to be $135 million worse than budget. Given the optimistic slant in assumptions a similar outcome for this year seems a reasonable estimate.

If so it is no great embarrassment. At least Nova Scotia’s government, unlike several other provinces, treats the goal of balancing the books as serious and urgent.

The most important and positive development this week went unmentioned in the budget and largely unreported in the media.

The government has now completed the transfer of the Public Service Superannuation Plan (PSSP) to a joint trusteeship. It will have limited scope to change annual contributions so benefits may have to be amended to fit contributions if circumstances are adverse.

This is the right approach and the government is to be congratulated for giving taxpayers a considerable degree of cost certainty in future.

Without this kind of provision there is enormous risk to taxpayers. It is visible in a number called “Pension Adjustment” which reflects the extent to which plans with unadjustable benefits are underfunded.

The cost to taxpayers of this Adjustment was $111 million in the year just concluded and is now scheduled to grow inexorably to $171 million three years hence. The total cost over five years has grown by more than $200 million since last year to an eye-watering $668 million. Unaddressed it will continue to get worse.

Prospectively the biggest contributor to the problem will be the Teachers’ Pension Plan. The benefits provided by that plan have been woefully underfunded for years and successive governments have failed to deal with it.

It is not only unfair to taxpayers to shoulder this cost. Today’s teachers, in fact all teachers who have retired since August 1, 2006, are being told about an inflation indexing benefit  that they will never receive without benefit reform.

The enormous amounts needed to provide for underfunded teachers’ pensions are education dollars. How can we justify slashing university budgets and closing schools that are extraordinarily important to the fabric of rural communities while leaving this problem unaddressed?

If the excellent example of the PSSP is followed it will free up a lot of money. Government will be able to give relief to schools and universities.

There may be enough left over to forecast a balanced budget next year without excessive optimism about prospects for tax revenue.

If the government also met its goal to reduce the size of the civil service by 1,000 positions, it could be worth another $100 million per year.

Maybe we could even step down from our perch as one of the highest tax jurisdictions in Canada. Wouldn’t that be a treat ?

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