How Nova Scotia got its budget surplus
by Fred McMahon
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16/05/1999
The Moncton Times and Transcript, The Halifax Daily News
The provincial government deserves kudos for Nova Scotia’s budget surplus. Of course, the provincial government in question happens to be in Ontario.
Only good economic times in Ontario – and the resulting bloat of equalization payments – bailed Nova Scotia out of an irresponsible spending streak. Fortunately, New Brunswick’s leaders are showing far more interest in Ontario’s model of growth-stimulating tax cuts than in Nova Scotia’s carefree ways.
Over the past year, Nova Scotia racked up $70 million in program overspending. That’s not counting debt-servicing, which came in tens of millions of dollars over-budget. The province’s “conservative” estimates of these costs proved wildly Liberal.
All this incompetence justified the press’s reaction to the $23 million budget surplus. One Halifax newspaper called it the “yo-yo” budget; the other Halifax paper described “a roller coaster-ride in budget forecasting.”
Last spring, Nova Scotia’s government predicted the $1.2 million surplus; by summer that became an $82 million deficit; by early winter, a $108 million deficit, by mid-winter, a $49 million deficit. By then, both Premier Russell MacLellan and Finance Minster Don Downe said they had stopped targeting a balanced budget anyway.
So thank you Ontario for sound economic policy which has led to huge increases in economic activity and job-creation in a province that only a few years ago was near ruin from over-spending. I’m no great fan of the Ontario government. It’s mishandled many things, including amalgamation and education.
But Ontario got some big things right, and that lead to renewed economic activity and an extra $77 million in equalization payments for Nova Scotia, topped off by another $85 million surprise gift from Ottawa for past underpayments in equalization. That’s why the $23 million surplus seems so puny.
New Brunswick’s political parties are on the right track with their talk of significant tax cuts. The danger New Brunswick faces is a “have-your-cake-and-eat-it-too” policy of tax cuts and higher spending. Cuts must be accompanied by prudent spending or all the gains of the last decade will be lost.
Nova Scotia’s Finance Minister argues his overspending equaled only two per cent of the budget, so not to worry. Excuses are no way to manage the budget. To paraphrase former U.S. Senator Everett Dirkson: A million here, a million there, and pretty soon you’re talking real money! (In the U.S. context, Dirkson used “billion.”)
The government’s second line of defense is the claim that the Buchanan government often got surprise gifts from Ottawa but never ran a surplus.
Bulletin to government: bragging you’re better than the Buchanan regime is self-damning by faint self-praise. It’s like bragging about how much slimmer you are than the average sumo wrestler.
Anyway, the budget isn’t really balanced. Government is ultimately responsible for the ballooning debts – hundreds of millions of dollars – of Nova Scotia’s hospitals and health boards.
The most disturbing sign of the government’s irresponsibility came when it used taxpayer dollars to crow about its faux-surplus in newspaper advertisements. NDP finance critic Howard Epstein is right. These are campaign ads. Average Nova Scotians should not be forced to pay for them.
The bulk of overspending – $50 million – is in the health department, yet there seem to be no idea how to control this swelling cost before it absorbs all of government.
How much of this spending is for health care and how much for politics? Here’s an example of political spending masquerading as health spending. A re-organization plan for Halifax’s mega-hospital, the QEII, was canceled just before the last election. It would have been unpopular, involving lay-offs.
Health care professionals said the plan would save tens of millions of dollars and not adversely affect health care. Hospital and health department officials still say some version of the plan must be implemented if the QEII is to survive as an efficient institute. Right now the QEII is both a hospital and a government make-work project, bizarrely situated in the province’s most job-rich region.
Worse is the over-spending by the Economic Development Department. There is no evidence in economic literature that the silly sort of subsidy strategy we employ has any positive economic benefits.
The vast majority of economists argue it does more harm than good by attracting inefficient, subsidy-hungry grantepreneurs and by subsidizing bad companies which then use government money to drive more efficient, tax-paying competitors out of business. These problems are well documented in any number of studies from around the world.
But economic research clearly points to one area of government spending which generates powerful growth and employment. That’s spending on transportation infrastructure, highways and the such, something New Brunswick has focused on.
Guess where Nova Scotia has cut back – infrastructure spending. We go wild on economic development spending which has a proven record of failure while we stiff spending in infrastructure that has a proven record of success.
Nova Scotians should hope Ontario keeps doing well.