The Rankin government on Thursday tabled Nova Scotia’s budget for 2021/22. Finance Minster Labi Kousoulis reported a large deficit, increased government spending and spike in debt. While this is not unlike many provinces across the country, there’s reason to be concerned over the province’s rapidly-rising debt levels.

The budget projects a $585 million deficit this year, down from $706 million last year, and deficits in each of the next two years before returning to budget balance in 2024/25. Combined with $1.176 billion in capital spending this year alone, the ongoing deficits will increase Nova Scotia’s government debt by nearly 40 per cent from 2019/20 to 2024/25.

Specifically, the government projects net debt will increase by nearly $1.3 billion this year, following a $1.5 billion increase last year. On a per-person basis, net debt this year equals $18,209 for every Nova Scotian, and this number is expected to rise to more than $21,000 (in nominal dollars) by 2024/25. Simply put, the debt burden is rising rapidly and this will continue until the government balances the budget.

The finance minister has been quick to point out how the budget deficit is related to the pandemic and “not structural.” But while weakening government revenues and increased spending during COVID created the deficit, governments must make important policy choices on these matters. And this budget delays much of the tough decision-making on spending and deficit-reduction.

The government projects a spending reduction equal to 1.9 per cent of program spending next year, which would reduce the deficit to $218 million. Should this occur, it would be an important step toward budget balance. However, Nova Scotians should view these commitments with caution as it’s much easier to promise future restraint than to enact restraint today. The Rankin government also projects another deficit of $176 million in 2023/24 before running a small surplus in 2024-25. Again, while the commitment to balance the budget and cut future spending is commendable, delaying the return to balanced budgets has costs.

As we wrote recently, Nova Scotia can learn from New Brunswick, which has largely resisted hiking government spending during the pandemic. As a result, New Brunswick’s debt levels are actually expected to decline (as a share of the economy) in the near future, allowing the government to focus on other priorities. In contrast, Nova Scotia’s debt-to-GDP ratio (a good measure of the sustainability of debt) will rise significantly, which means Nova Scotians will face rising interest costs on their government’s debt and potential future tax increases.

For example, according to budget projections, Nova Scotians will pay $720 per person in interest on provincial government debt this year. This is money diverted from other priorities such as health care, education and/or tax relief. Again, Nova Scotia’s plan to continue accumulating debt increases the risk that interest payments will rise in the future, exacerbating this problem and making a return to balanced budgets more difficult.

Further, the ongoing string of deficits and rising debt will make it harder for Nova Scotia to tackle longer-term challenges. The province has the most government-dominated economy in Canada, and some of the highest levels of taxation. The debt accumulation outlined in this budget will expand the size of government and worsen the province’s fiscal position, impairing the government’s ability to deal with these issues.

Budget 2021 gave Nova Scotians their first look at the new government’s fiscal approach. On the plus side, the Rankin government supports a return to balanced budgets, at least in principle. However, it has left much of the heavy lifting to future years. The result is rising debt levels that will impact Nova Scotians negatively in the years ahead.