Provincial surplus: very close to the line

Finance Minister Karen Casey delivered the McNeil government’s third balanced budget on Tuesday, marked by fairly rosy revenue estimates, new funds from legal marijuana sales and some significant spending increases in health and early education.

In other words, the plan for 2018-19 is anything but an austerity budget. Net debt will even increase a bit in dollar terms (rising $100 million to $15.2 billion), because net capital spending, led by highway twinning and hospital replacement, will be larger than the modest operating surplus of $29.5 million. That’s on a budget of $10.8 billion.

A $250-million windfall from an arbitration on offshore royalties, announced last week, hasn’t hurt spending ambitions, either. Much of this has been placed in a series of trust funds, some just created, that will spend on internet infrastructure, research and economic innovation and measures to encourage family doctors to take new patients and digitize their records.

The trusts allow the windfall to be recorded as one-time spending in the 2017-18 provincial budget. The actual flow of funds from the trusts to the intended purposes will be spread over the 2018-19 fiscal year and future years.

The largest trust — $120 million to subsidize a rollout of broadband fibre-optic lines and switching hubs — isn’t likely to be spent for several years, since the province’s consultant hasn’t yet defined what big private sector players can profitably do and how much subsidy is really needed. So it’s worth asking why the trust had to be funded now instead of using the funds to reduce debt, even temporarily, or to fund health infrastructure first and the broadband initiative later, when the need is better defined.

On health, there is little doubt increases — both one-time and for ongoing operations — were needed. The two health authorities overran their budgets by $42 million in 2017-18 due to rising care demand and there is $34 million more for these pressures again this year.

The $18.2 million earmarked from the royalty award to get doctors to reduce the wait list for family physicians and move to electronic medical records, along with $18.1 million to raise family physician fees and $8 million more for collaborative care teams, are welcome efforts to seriously address the gap in primary care and to mend relations with physicians we need to retain and recruit.

Some $14 million in operating and capital funds to increase joint surgeries address another longstanding bottleneck in care. Other health services got small increases — too small for mental health and practically nothing for the long-term care bed shortage that is jamming up hospitals.

Schools are major budget winners, with 130 new pre-primary sites ($17.6 million), another $10 million to improve classroom conditions, $3.3 million more for Reading Recovery and $15 million to fund recommendations on inclusive education expected later this month.

The government says all this is possible because it’s based on a sound fiscal plan of continued surpluses and gradually shrinking public debt, when measured as a percentage of the province’s annual economic output. But the surplus projections are very modest and there isn’t much leeway, even with forecasts that tax revenues will grow by more than three per cent annually in a so-so economy.

One new revenue is particularly hazy. The budget estimates a $20.8-million take from legal marijuana sales in 2018-19 ($10.4 million in duties, $10.4 million in HST) based on a projected purchase by Nova Scotia Liquor Corporation, the chosen retailer, of 12 million grams. But the start and the size of that market are still uncertain. And it should be a little unsteadying that the budget surplus is only one-third larger than this one smoky revenue that comes with its own health, safety and regulatory costs.