Nova Scotia is On a Roll. There are Tensions That Need To Be Managed

Finance Minister Allan MacMaster’s budget was delivered in the context of record outcomes in two key indicators.

The first is population, which grew by more than 20,000 people in 2021. The 2.1% increase compared to 1.2% for Canada as a whole, and was second only to Prince Edward Island.

One big source was 9,020 international immigrants, which was bolstered by a backlog from 2020 due to covid. Prior to that there were 7,580 in 2019.

The other was the net increase from inter-provincial migration, especially from Ontario. A “Work from Nova Scotia” online campaign enticing telecommuters to relocate deserves some of the credit. So does the cost of housing, which was and still is low compared to Toronto.

We can expect this year’s increase to be less than 2021 but still well above 10,000 per year and growing.

The second important statistic was job vacancies. Normally numbering about 10,000, it leapt to 20,330 unfilled positions in the fourth quarter of 2021. Even with the omicron wave still affecting jobs, the unemployment rate dropped to 6.6%.

It is a welcome surprise to have so many available jobs despite the substantial growth in population. That may account for the continuing positive view Nova Scotians have toward immigration. Narrative Research reports that in August 2021, 86% felt that immigration is important to Nova Scotia’s economy, of whom 36% thought it was critically important.

The plan for capital spending, released last week, is not just the largest ever, it is more than double what was spent just three years earlier. The biggest portions are for hospitals, roads, and schools and are largely a continuation of the ambitious agenda established by the Liberals while Stephen McNeil was premier.

There are two justifications for this extravagance. First, interest rates have been at historic lows, making borrowing cheaper, although that is likely to become less attractive as this year progresses.

Secondly, they are absolutely necessary. The health care system’s infrastructure was already undersized before population soared. Highway twinning will help some of that growth occur outside of Halifax. School replacements occur regularly, and more students mean that additions are required.

The government estimates that the 2021-2022 year will end with a small surplus but is forecasting a deficit of $500 million for 2022-2023, which is projected to reduce slowly in subsequent years.

Most departments will need to expand to service a growing population, with one important exception. A province with double the normal number of job vacancies does not need to spend much on job creation. The Better Paycheque Guarantee promised in the Tory platform is neither efficient nor needed. Thankfully it does not appear in the budget.

The forever subsidies for the Yarmouth Ferry, which when it is operating brings less than 1% of our tourists, are continued. The equally uneconomic spending on the film industry is being increased. Nova Scotia Business Inc’s payroll rebate program is better but it should be highly selective in creating new agreements.

What is conspicuously lacking in the budget documents is an integrated forecast of how the province will grow. It should start with a realistic estimate of population growth, which would provide guidance on how much new staffing and infrastructure will be required for government services, especially health care and education. It should also project the pace at which new housing needs to be completed.

Instead, the budget is based on annual population growth of just 7,000 people. Both the government’s ambition to double Nova Scotia’s population by 2060 and the province’s recent experience suggest that it is more likely to be twice that.

The budget expects residential investment to decrease in the near term—perhaps true if the hospital builds tie up too much of the labour force. But a corresponding rebound is not in the estimates for the later years after the hospital build is winding down.

The fiscal forecast of continuing deficits and rapidly growing deficits are worrisome. There are serious risks of it being worse: the revenue from new taxes on out of province homeowners is very unlikely to yield as much as the estimated $81 million of revenue; inflation might be higher and more persistent, leading to higher borrowing costs; and health care costs could grow more quickly than the already substantial estimates.

The biggest risk is that the estimate of dramatically slowed population growth could become self-fulfilling. Residential construction could fall even further behind what is needed if we lack an integrated plan to attract the needed labour  and develop enough serviced land. People will stop coming if there is no housing to accommodate them.

Nova Scotia is on a roll. There is great opportunity that we could easily lose it if we do not manage our resources well.


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