Premier Houston’s Spending Whirlwind Should Include Tax Reductions
Posted March 17, 2023
The Houston government continues to invest in hospitals, schools, housing, roads, and technology at a record pace, but is still running a surplus. Meanwhile the cost of living is making things tough for families. Time to use some of the surplus for tax fairness.
The expenditures are largely justified.
Capital spending on health was small from 2013 to 2019. It started to increase in the last two Liberal budgets and rocketed upwards in the 2022-2023 and 2023-2024 Progressive Conservative budgets, exceeding the amount invested in roads for the first time ever. The total for the two years is about $1.2 billion.
The sharp increase is driven by two factors. A long period of low investment meant that facilities became less and less viable, most notably the Victoria General site, with serious defects in plumbing and air quality.
After a long period of stagnation, population began to grow in 2016, accelerating upward with a covid-related pause in 2020. There are 80,000 more Nova Scotians today than there were five years ago.
Given the time needed to plan and build new facilities, the government needs to anticipate continuing growth. A further 100,000 Nova Scotians over the next five years is a reasonable guess.
Many of the newcomers are settling outside of Halifax. That validates the substantial investments in twinning highways 101 and 103. Safety considerations also validate the considerable investment in twinning highway 104.
The population growth has prompted construction of 11 new and replacement schools, and has saved some rural schools that had been at risk of closing due to dwindling enrolments.
The total capital budget in 2023-2024 is about $1.6 billion, about the same as 2022-2023 but more than two and a half times what was budgeted in 2018-2019. The PCs have benefitted from the disciplined spending during Stephen McNeil’s premiership. Until recently they also had been helped by the historically low costs of borrowing in recent years.
The province was able to issue long term bonds at about 3% during 2015-2018, reducing gradually to 1.6% by mid-2020. Since then it has increased by about 2% as a result of the Bank of Canada’s effort to contain inflation. That is still less than 1% above the average of borrowing rates prior to the covid pandemic.
So it appears that the future impact of today’s higher rates will be modest.
For 2022-2023, total revenue is projected to be $14.0 billion, up $1.3 billion from the budget estimate, due to increases in all key revenue sources, including corporate and personal taxes and harmonized sales tax.
Departmental expenses are projected to be $13.4 billion, up $950 million from the estimate, only $135 million of which was for the Department of Health and Wellness. The rest was for additional investments in other government priority areas.
The resulting surplus projection is $600 million. The government seems to view that as a problem, perhaps because it will fuel demands by public sector unions for more pay.
Or, Nova Scotian taxpayers might rise up and demand relief from Canada’s highest provincial taxes, a problem that gets worse every year because tax brackets get indexed to inflation annually in every province except Nova Scotia and Prince Edward Island.
The prospective surplus has resulted in a series of announcements about projects that will be shown as an expense this month, while the expenditure will occur years into the future.
For example Cape Breton University will immediately receive $58.9 million to develop a new campus to train doctors, including a new collaborative care clinic.
None of this will be spent on those goals during the current fiscal year. But all of it will show up as an expense in the 2022-2023 accounts.
Likewise, Saint Mary’s University will receive $25 million to develop additional training options in healthcare data analysis and other areas. St. Francis Xavier University will receive $37.4 million to look at ways to improve health promotion and mental health and wellness in rural communities.
These are worthy ambitions, but the costs that will appear in this year’s accounts will be spent far into the future.
The government has announced $61.9 million for Michelin’s expansion. Perhaps a way will be found to include that in 2022-2023 accounts. Even if it did there would be a healthy surplus of $400 million.
In November the government estimated that indexing tax brackets in 2022 would cost $125 million, well under the expected surplus this year. The amount would continue in future years and be increased with future indexing.
To do otherwise is manifestly unjust. Inflation increases the government’s tax take by far more than the cost of indexing. It is particularly egregious to freeze brackets for lower income families who are already struggling to deal with the rising cost of food and shelter.
Houston’s dramatic acceleration of spending while running surpluses has been enabled by rapid population growth. That will be more and more at risk if tax brackets continue to be increasingly out of step with the rest of Canada.