Posted April 1, 2021
The legislature resumed a degree of normalcy on March 25th with Labi Kousoulis, the Minister of Finance and Treasury Board, in new footwear presenting a budget and the opposition leaders having a chance to be heard. The budget has the right goals but the minister’s projections are probably too optimistic.
To nobody’s surprise, the year just ended, originally expected to have a small surplus, showed a deficit exceeding $700 million. One-third of the difference was attributable to reduced revenue with the rest being extra covid-related expenses.
The deficit is only slightly smaller in the upcoming year, mostly caused by continuing extra covid-related expenses which include the cost of getting vaccines into arms.
As well there are added expenses for long-term care and mental health. Small amounts are sprinkled on various initiatives. More substantial continuing funding is provided for poverty alleviation and support for the disabled.
The budget sets a commendable goal of returning to balance in 2024-2025. The plan for getting there has two issues.
For the first, a bit of context. Nova Scotia has benefitted from a period of sustained population growth. Even in 2020 when many international migrants were unable to reach Canada’s shores because of Covid we had good growth due to interprovincial gains.
International immigration should grow back to previous levels. People who moved here from Ontario and the West appear to be happy with their moves. We can be optimistic that more will follow them. We can reasonably expect population growth in excess of 10,000 per year for at least five years.
The market for buying or renting housing is already tight in Halifax and some of Nova Scotia’s towns. Developers are doing their best to keep up; CMHC reports that Halifax has more units under construction per capita than any other city in Canada and many more are being planned. Places like Truro and Bridgewater are booming.
The costs of labour and materials have already risen because of demand exceeding supply, and covid disrupting supply chains.
With this in mind, consider the government’s capital spending plan. Historically, these projects are trumpeted as much for creating jobs as for building useful infrastructure. Today the problem in the construction industry is jobs without qualified people, not those people without jobs.
The big projects are highway twinning and the major new hospitals in Halifax and Cape Breton. The prior year’s capital budget of $910 million was overspent by $87 million and the current year is budgeted for more than $1 billion.
That figure rises to $1.4 billion over the next four years. Debt servicing costs have been falling in recent years because of budget discipline and persistent low-interest rates. But the large and growing capital investments mean that servicing the debt will start growing again. That growth will be much faster if borrowing costs rise.
The low interest rates have a downside. The money set aside to pay for future pensions and retirement benefits must be increased. That cost $75 million this year and is scheduled to cost a further $450 million over the next four years.
About $110 million is the chronically underfunded Teachers Pension Plan. The government and the union have repeatedly failed to make the decisions necessary to fix the problem.
The increased pace of public spending will add to the upward pressure on the costs of materials and labour. These projects have real value—unlike for example the $38 million that was spent dredging Sydney harbour, or the many millions spent building a customs facility for the Americans in Bar Harbour.
Slowing the pace of construction to be level with the current year may save costs for that project and avoid further pressure on construction costs for affordable new housing. It will also reduce the growth in interest costs.
Secondly, the plan anticipates about $250 million in cost reduction through greater efficiency. Minister Kousoulis points out that even greater savings were achieved in 2013-2017. True enough, but most of that was from public sector wage restraint which they are not proposing to repeat. And it is harder to find other cost savings in an operation that has already been pruned.
Beyond that, there are pressures for much greater spending on long-term care and mental health.
The commendable Liberal commitment to balancing the budget sits on shaky ground. On this topic, they have no competition.
The responses to the budget from both the NDP and the Progressive Conservatives were complaints that the government was not spending enough. Neither of them provided any schedule for the goal of achieving a balanced budget.
What the Liberals have proposed for the coming year is reasonable. It is likely that more discipline will be required in subsequent years to get back to balance.
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