Nova Scotia government follows ‘drunken sailor’ fiscal strategy

The proverbial “drunken sailor” goes on a wild spending spree the moment a pay packet arrives, waking up hungover with few pennies left jingling in an otherwise empty pocket.

Except perhaps for the hungover bit, this describes Nova Scotia’s fiscal strategy. For the second year running, the Houston government turned a deficit into a surplus because of increased revenues, according to the recent consolidated public accounts for the fiscal year ending March 31, 2024.

That may sound like good news, but the government spent about as soon as the money arrived—bypassing the legislature and leaving metaphoric pennies in the province’s pocket to pay down its astronomical debt or relieve the burden on the most taxed people in Canada. And they’re ready to do it again. "We're willing to spend, if we do have the money to spend," said Nova Scotia Finance Minister Allan MacMaster about the possibility of increased revenues this fiscal year.

Here’s how it works. In the fiscal year ending March 31, 2023, the first year of this financial wiggly jiggly, revenues were $1.95 billion higher than expected for total revenue of $15.6 billion. Instead of paying down debt or cutting taxes, the province pumped up spending by $1.33 billion, not small change but a 9.4 per cent increase over planned spending.

All this to “invest” in “transformational changes to healthcare, improvements to housing, affordability measures, the environment, and responses to extreme weather events.” Has anyone noticed the transformation?

Well, still good news that Nova Scotia had a surplus to bring down the debt—right? Not quite. Debt increased $580 million in fiscal 2022-23, hitting $17.7 billion. Liabilities and other factors grew more than the relatively paltry surplus left over after the provincial spending splurge. That put a debt of $17,330 on each Nova Scotia—adult, senior and child.

History seldom repeats itself with near exactitude, except perhaps in Nova Scotia. For the 2023-24 fiscal year, revenues were again higher than expected, this time $1.07 billion. Again, the province spent most of the surplus, dashing out $643 million. This was neither budgeted nor approved by the legislature, creating a spot of difficulty on the democracy and accountability fronts.

The government again promised provincial spending would go to “transformational” change, a popular word in Nova Scotia budget documents, appearing twice in the 2022-23 consolidated statement, doubling to four in the 2023-24. Will it double again next year?

Over the 2023-24 fiscal year, provincial net debt grew by $780 million to $18.52 billion or $17.428 for each Nova Scotian. A recent study, which included each province’s share of the federal debt, pegged Nova Scotia with the country’s highest debt ratio, equal to 97 per cent of the provincial economy, compared to an average of about 87 per cent for other Atlantic provinces.

So, let’s talk taxes. Across all income levels, Nova Scotia stands out as either the highest or second-highest-taxed province in Canada. Nova Scotia’s income taxes at most levels of income are also considerably higher than other Atlantic provinces, which have high taxes in their own right.

Several online tax calculators are available, producing near identical results. Ernst & Young’s suggests poor Nova Scotians are hardest hit relative to other provinces. A taxable income of $20,000 creates an income tax bill of $1,343 in Nova Scotia, double New Brunswick’s at $644, and higher than Ontario ($809) or the national provincial average ($859).

The middle class suffers, too. A taxable income of $70,000 generates a $16,977 tax bill in Nova Scotia, higher than in New Brunswick ($15,197), Ontario ($12,409) and the national average ($14,679). Young skilled professionals, exactly the folk Nova Scotia needs, are also discouraged from moving to or staying in Nova Scotia. A taxable income of $150,000 creates a tax bill in Nova Scotia of $49,318, again higher than in New Brunswick ($45,904), Ontario ($42,377) and the national average ($46,116).

So, if the Houston government hits another budget surplus, don’t assume much debt reduction or tax relief. Instead, expect more “transformational” change.