Posted April 11, 2014
Finance Minister Whalen’s first budget was introduced in the middle of nurses’ strikes and round-the-clock sittings of the legislature to deal with them. It was a modest effort and did not get a lot of attention.
The second sentence of the budget speech succinctly summarized its ambition: Fulfill commitments, identify fiscal challenges, and support private-sector growth.
1. Fulfilling Commitments
This mostly involved implementing Liberal campaign promises. Like her predecessors Ms. Whalen is allergic to the word “spending.” Thus money for things like children’s dentistry, hip and knee replacements, or reduced class sizes are all described as “investments.”
The list is long but most of the items are relatively inexpensive. The exception is education where the government plans to “invest” $65 million over four years.
There is also mention of two initiatives to impact electricity rates—allowing renewable power generators to compete with NSPI and somehow changing the way Efficiency Nova Scotia works. In neither case has the government provided a coherent explanation of why these are good ideas.
2. Growing the Private Sector
The speech highlights the importance of primary industries. It includes small amounts of money for initiatives in silviculture and forestry harvest tracking, apple farming, fur (i.e. mink) research and innovation, lobster marketing, and credit availability for small business.
Perhaps just as important as the particular initiatives is the clear signal that these industries are crucial to our future, and that the best way to spend taxpayer money is through sectoral initiatives rather than subsidizing individual companies.
First contract arbitration has been reformed to be less onerous on employers, apprenticeship programs are to be improved, red tape reduced.
It is surprising and disappointing that no mention is made of mining, nor of oil and gas, which have by far the best prospect for improving Nova Scotia’s economic prospects.
3. Fiscal Challenges
Although the speech does not pull any punches the problem may be even bigger than described.
The NDP government had awarded public sector employees increases of 7.5% over three years. That was greater than the comparable increases in other Canadian jurisdictions, greater than the growth in the economy, and much greater than typically received by other Nova Scotians. These pay raises have increased expenses by $300 million annually.
Growth in the last two years has been anemic. Both our population and our workforce are declining. Although less than the national average the provincial forecast growth rates of 1.4% in 2014 and 2.1% in 2015 may prove to be optimistic.
The speech correctly identifies improved immigration as crucial to our future, and the need for the federal government to be a strong partner. But experience in other provinces suggests that even the best strategy and implementation will take a long time to build sustainable momentum.
Meanwhile federal transfers for health and social programs, which had been growing more quickly than the provincial spending, will now be shared nationally on a per capita basis and therefor will grow much more slowly. Future revenue increases average 3.3% per year.
It is therefore not surprising that the budget forecasts continued deficits until a wafer-thin surplus in the final year of the mandate. As Yogi Berra observed “It’s like déjà vu all over again.”
With those prospects the government was correct to cancel scheduled reductions in HST. A promised tax review may produce interesting findings but is unlikely to change the total picture—Nova Scotians are already among the highest taxed in Canada and reductions should not be contemplated until the deficits have in fact been eliminated.
The deficits are not just the result of adversity but also the lack of response. Except for eliminating the Graduate Retention Rebate the speech mentioned no significant initiatives to reduce spending.
Apparently a “rigorous assessment” of spending in every department is planned but it only was mentioned in media briefings. There was no mention of getting a grip on public sector pension and benefit costs even though the pension valuation adjustment adds more than $100 million per year to costs, in addition to regular funding.
Like its NDP predecessor this government has commissioned several worthy reports to help guide its choices. The NDP made good beginning but never really got beyond admiring the problem.
Governments tend to lose courage as the next voting date approaches. The time for tough choices is at hand. Most of them need to be made this year. None of them can be postponed beyond the next budget.
There are times when boring can be a good thing. This is not one of them.
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