Nova Scotia remains Canada’s most government-dominated province

On the heels of a free-spending provincial budget by the Houston government, and the Trudeau government likely poised to table a free-spending federal budget, the footprint of government is growing in Nova Scotia. While this is a concern across the country, Nova Scotia has earned the unfortunate distinction of being Canada’s most government-dominated province.

To understand the scale of government in Nova Scotia, and why this is a problem, let’s start with the data. Government spending in the province (by federal, provincial and local governments) totalled 63.0 per cent of the provincial economy in 2022, the latest year of available data. This is not only the highest level in Canada but also approximately double the size of government in provinces such as Alberta (26.8 per cent), Saskatchewan (32.8 per cent) and British Columbia (35.6 per cent).

Even when compared to eastern peers, where governments tend to be larger, Nova Scotia’s size of government stands out. In 2022, Nova Scotia’s government spending as a share of the economy (again, from all levels of government) was 4.7 percentage points higher than in Prince Edward Island, 5.4 percentage points higher than in New Brunswick, and 18.9 percentage points higher than in Newfoundland and Labrador.

Why should Nova Scotians care about a large and growing size of government?

First, a larger government footprint in the economy generally discourages economic growth. According to research, in developed countries the level of government spending that maximizes economic growth tends to be 26 per cent to 30 per cent of the economy. At 63 per cent of the economy in 2023, Nova Scotia’s government footprint is far beyond the estimated optimal level.

When government grows beyond optimal levels, it usually becomes active in areas where its presence is harmful to economic growth such as increasing regulations or favouring certain industries and sectors of the economy through corporate welfare and protectionism. By picking winners and losers in the free market, or establishing a regulatory environment that limits business investment, the government harms productivity and economic growth.

To be sure, governments have other legitimate priorities besides maximizing real economic growth. However, economic growth remains an important priority given the linkages between a growing economy, higher living standards and greater overall prosperity.

Finally, the increase in the size of government in Nova Scotia is largely driven by both the provincial and federal government, which are increasing spending, running budget deficits and increasing debt. Higher debt today means higher taxes tomorrow. With Nova Scotia already being a relatively high-tax jurisdiction in North America, additional tax increases will only further harm the competitiveness of domestic businesses, discourage investment, and make it harder to attract high-skilled workers.

Nova Scotians would be well served if their governments at all levels reined in spending and reduced their footprint. With levels exceeding 60 per cent of the economy and growing, a reduced size of government can help encourage economic growth and raise living standards.