Nova Scotia voters face choice of fiscal disasters

Nova Scotia voters face choice of fiscal disasters
by Fred McMahon

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20/07/1999
National Post

As Nova Scotia’s party leaders grapple for the steering wheel in the final days of the provincial election campaign, the province looks to be headed for a devastating fiscal crash.

Nova Scotia pays about $750-million in net debt service each year – nearly $1,000 for every man, woman and child – and the province is on course to push up debt costs by as much as $250-million in just three years. This looming crisis will force ruinous cuts in health care and education.

Yet, in the inane world of Nova Scotian politics, the only party promising a balanced budget this year is the governing Liberal Party, which believes a $248.4-million deficit is actually a $1.6-million surplus. The government performed this trick by blithely declaring $250-million of garden-variety health-care spending an “off-book” investment. It plans another $250-million in off-book spending next year and $100-million in the following year, for a total $600-million “health investment fund.”

The Conservatives and NDP claim the fiscal chaos is so great, it’ll take them at least a couple of years to honestly balance the budget. Yet, just 18 months ago when Russell MacLellan became premier, Nova Scotia had a more-or-less balanced budget, a creation of Mr. MacLellan’s Liberal predecessor, John Savage.

A Liberal revolt forced Dr. Savage out of office, for the twin sins of battling patronage and controlling expenditures. In came Mr. MacLellan, a Trudeau-era federal backbencher. In 18 months of recklessness, Mr. MacLellan squandered fiscal sanity. Intense cutbacks will be required to return the province to normalcy.

There’s the rub. Neither Tory leader John Hamm nor NDP leader Robert Chisholm talks much about cutbacks.

Dr. Hamm has unveiled 243 promises, including new spending and tax reductions, but in last week’s chaotic leaders’ debate, he refused to specify one program he would cut. Instead, he promised to consult all “stakeholders” (who will predictably say their spending is essential) before cutting. This hardly shows the toughness needed to get the province’s fiscal mess under control.

Mr. Chisholm has become “Mr. Read-My-Lips No-New-Taxes.” On top of his no-new-tax pledge, the NDP leader promises a torrent of new spending, tax cuts for small business and, in a few years, a balanced budget. That’s not possible on planet Earth.

Speaking of planet Earth, Premier MacLellan stepped out of an alternative universe into last week’s leaders’ debate when he twice bragged that the province’s sound finances allow the Liberals to unleash spending.

Huh? The province is already deeply in debt, and creating new debt – from the health investment fund and other sources – at the incredible rate of nearly $2-million a day. If this is sound fiscal shape, the Titanic floats, the Hindenburg flies, and the Russian economy is jim-dandy – just like the Nova Scotia budget.

The numbers bring home the extent of the looming catastrophe. In two “balanced” budgets, Mr. MacLellan’s Liberals have added $860-million of debt to the province’s books; projections for budget three bring that figure to $1.1-billion. Then there’s the $600-million health investment fund, bringing new debt to $1.7-billion.

But, wait! There’s more! The province built some of this debt by absorbing off-book obligations, but it’s hardly absorbed all of them. Moreover, regional health boards and provincial corporations, undisciplined by the government, continue to build more.

For example, in June, 1998, the government estimated the debt of Nova Scotia Resources Ltd. at about $500-million. Observers now believe it to be about $700-million, and that may understate the problem. Earlier this month, Ken MacAskill, the minister responsible for Crown corporations, received a new report on NSRL’s finances, but he refuses to release the report. “I’m in an election,” Mr. MacAskill told reporters. “My first priority is being re-elected.”

At least Mr. MacAskill admits his priority isn’t providing voters with the information they need to make a choice. Of course, providing that information could interfere with Mr. MacAskill’s, and the Liberals’, prime directive – “being re-elected.”

And still there’s more. The Liberals promise to keep subsidizing Sydney steel. That’ll add tens of millions of dollars of expenditures. The province is already on the hook for a $200-million clean-up of the Sydney tar ponds. Throw this into the fiscal mix, and the new debt total reaches about $2-billion in three years, not fully counting the constant stream of new debt created by health boards and provincial corporations.

Since $2-billion is a conservative figure, all this suggests additional debt servicing costs of $150-million to $250-million by 2002, perhaps more if – as is probable – the province’s credit rating suffers.

But that’s not all. The government is slipping about $500-million in new school construction off the books through a miserably managed public-private partnership. Private partners will go to the markets to borrow money to build schools that will be leased by the province. The education budget will have to rise by tens of millions of dollars to cover leasing costs – another form of disguised debt servicing.

Even a sensible Nova Scotia government would have trouble making ends meet with today’s debt-servicing costs. With hundreds of millions more ripped out of the budget in a few years, cuts will be devastating, worse than for any other province’s fiscal restructuring. The alternative of raising taxes is no alternative: Nova Scotia is near maximum tax capacity. Higher taxes would produce little new revenue because of destroyed economic activity.

Nova Scotians are hardly less intelligent than other Canadians, but their political leadership has failed to bring home the consequences of ever-increasing debt. Many hoped last week’s debate would lift the fog. Instead, an ineffective moderator allowed the debate – “The Tower of Babel Debate,” as one newspaper put it – to lose focus.

It seemed four voices were always at it simultaneously: The three leaders talking at each other, with the moderator vainly trying to gain some respect in the background. The debate, just like the province’s finances, careened out of control, and the province remains headed for a fiscal wreck.