Nova Scotia government spending spree comes with consequences

The Houston government released its first budget on Tuesday, promising loads of red ink and rising debt, both now and in future years. Despite already holding the distinction of Canada’s most government-dominated province, the government is opting for substantial increases to spending, which will have consequences for Nova Scotians in the future.

Specifically, the budget projects a deficit of $506 million this year, with further deficits of $419 million, $377 million and $294 million in the next three years. There’s no plan to balance the budget within the government’s mandate. Spending, which is projected to increase by $664 million over the next three years, will drive the ongoing deficits.

Importantly, the deficit projections come despite strong revenue growth, which could have allowed the province to balance the budget without spending cuts. With the economy expected to expand coming out of the pandemic, the government is forecasting a revenue increase of $672 million above projections in last year’s budget for 2022/23. Had the government simply frozen spending at 2021/22 levels (already at all-time highs), it could have come close to balancing the budget next year.

This is a risky approach for the province. The province’s net debt is now projected to increase by $6 billion between 2021/22 and 2025/26. This year alone, the province will spend $676 million to service the debt, a number projected to increase in subsequent years.

Debt is also projected to grow at a faster rate than the provincial economy. Consider that in 2019/20 (following four balanced budgets), Nova Scotia’s debt load represented 32.8 per cent of the provincial economy. By 2025/26, this number is projected to hit 40 per cent, the highest number in more than two decades.

Aside from concerns over debt and the cost to maintain it, this fiscal approach also does nothing to improve Nova Scotia’s tax problem. Nova Scotia imposes some of the highest personal income taxes in North America across several different levels of income, which makes it hard to attract much-needed workers, entrepreneurs and investment.

In this budget, the Houston government could have emulated the approach taken by New Brunswick, which under Premier Blaine Higgs ran surpluses throughout the pandemic and has paid down debt. The result? New Brunswick’s budget (released last week) included more than $200 million in tax relief while holding the line on spending and reducing debt as a share of the economy. But rather than follow New Brunswick’s lead, this budget moves in the opposite direction.

Simply put, the message in Premier Houston’s first budget is clear—spend, spend, spend. While billed as a “compassionate budget” due to spending on health care, ongoing deficits and rising debt may not seem so compassionate to future Nova Scotians stuck with the bill.