Record Infrastructure Builds At Higher Interest Rates Are Underway. How To Cover The Cost.
Posted January 13, 2023
The 2023-2024 provincial budget will be presented in early spring. The factors affecting revenue and expenses are more volatile than usual. The list of priorities need not include job creation.
Last year’s budget was out of touch with the pace of population growth at the time, which has subsequently accelerated. Pressures on the health care system have been exacerbated. Schools and community services have struggled to keep up. A more thoughtfully considered projection must inform the upcoming budget.
The revenue and expense projections for 2022-2023 were far off. The December update predicts expenses that are $950 million (8%) over budget. Surprisingly, only $135 million of that was from Health and Wellness. Many other departments had substantial overages.
Fortunately, revenues are also greatly exceeding budget, provincial taxes by $510 million and an upward prior year adjustment on taxes by $620 million. So the deficit is forecast to be a modest 1% of revenues. Both inflation and population growth will push up revenues in the coming years.
Likewise, there will be many pressures on expenses. The low interest rates of recent years have supported big capital investments. No more. New hospitals, roads, and schools are going to be built while borrowing costs are higher.
Last weeks’ announcement of 65 job offers to continuing care assistants from Kenya is emblematic of the diverse program of initiatives to grow the health care workforce. Health and long-term care costs will accelerate as government initiatives to add facilities and workers continue to bear fruit.
With that as context here are some recommendations for the upcoming budget.
- The spike in inflation puts pressure on all government departments and on wages everywhere. That points to higher costs, but also higher income tax revenue. Canada and most provinces index their tax brackets to inflation. Nova Scotia, already among the highest taxing provinces, does not index. That matters a lot when inflation is high.
If your pre-tax earnings and your expenses both go up by 8% the growth in your after-tax earnings will be smaller. This is unfair, especially to low wage earners, and should be fixed.
- The government’s minimum wage review committee has proposed an increase from $13.60 to $15.00 by next October. That is close to 10% but is only a little above the inflation rate in 2022. The committee also recommended increases at 1% above inflation in future years.
Fortunately, the strong employment rate should make it possible for employers to recoup the cost. The government should approve both recommendations.
- The province is enjoying the best economic pace in decades. Unemployment has dipped to 6.7%, 5.4% in Halifax. Average weekly earnings in the first 10 months of 2022 were 4% higher than 2021. Many job openings go unfilled for lack of qualified applicants.
In that context it makes sense to examine programs that were designed for a time when jobs were scarce.
(a) Cancel the Yarmouth Ferry. The ship and the crew are American. Nova Scotia has had to pay for upgrades to facilities in Maine to park it.
In 2022 the ferry brought 14,000 visitors to Nova Scotia, many of whom would have come anyway if the ferry was not available. It costs well above $1,000 per visitor, bringing less than 1% of tourists. There is no need for an Economic Impact Study for the ferry.
(b) Nor is one needed for the lavishly supported film industry. It is scheduled to receive $41.6 million this fiscal year, representing close to 30% of its spending in Nova Scotia. In addition, the province spent $8 million on a sound stage and $15 million on a Content Creator Fund.
This spending produces not a single self-sustaining job. It is time to redirect that money to indexing tax brackets, rental supplements for the needy, and health care.
(c) Scrap the “Better Paycheck Guarantee” idea. It was always going to be horribly inefficient, giving profitable corporations tax reductions for wage increases that they were going to give anyway. The Progressive Conservative Platform estimated the first-year cost to be $206 million, which purportedly would be recovered in subsequent years.
That makes no sense when the problem is jobs without people, not people without jobs.
(d) The same is true of the platform’s “Nova Scotia Loyal” program, which would incentivize consumers to choose Nova Scotian products and services at a cost of $99 million, 90% of it for purchases that are happening anyway. How it would create 18,000 jobs in any circumstances is impossible to imagine. In a tight labour market it might create none.
The Houston government is 17 months into its mandate and 30 months away from the next election. Health and housing have consumed most of their attention. Getting both right is crucial to maintaining the strong economy and population growth, and getting re-elected.
New hospital builds are going to cost unknown billions. Bringing staffing to a satisfactory level will cost hundreds of millions more. This is the time to cut programs that are inefficient and unneeded.
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