The costs of a bud­get sur­plus

Cost-cut­ting mea­sures led to an un­ex­pected bud­get sur­plus, but also may have led to an exit of doc­tors, teach­ers and film in­dus­try work­ers

Investment Executive - - COMMENT & INSIGHT - BY DONALEE MOULTON

nova sco­tia’s reign­ing lib­eral Party has been pre­dict­ing a bud­get sur­plus for more than a year. But even party lead­ers — in­clud­ing the prov­ince’s fi­nance min­is­ter — were sur­prised at the ex­tent of that sur­plus. Ev­ery­one else was equally sur­prised the fi­nan­cial wind­fall did not in­clude higher tax rev­enue.

The au­dited fi­nan­cial state­ments for fis­cal 2016-17 show that Nova Sco­tia has a sur­plus of al­most $150 mil­lion. That’s $110 mil­lion more than the Lib­er­als pre­dicted dur­ing their re­cent spring elec­tion cam­paign. Ac­cord­ing to Fi­nance Min­is­ter Karen Casey, volatil­ity in the num­bers made pre­dict­ing the sur­plus with any ac­cu­racy dif­fi­cult.

Casey also con­tends the yearend sur­plus is “the re­sult of govern­ment work­ing with Nova Sco­tians to cre­ate a more sus­tain­able fi­nan­cial po­si­tion.” Many in­dus­tries would con­tend “work­ing with” is a eu­phemism for “im­posed.” Doc­tors signed a con­tract for a 2.5% wage hike over four years. Their pro­fes­sional as­so­ci­a­tion said the deal was not a good one, but also rec­og­nized a ne­go­ti­a­tion brick wall when hit­ting one. “This deal is the best that can be ac­com­plished,” the Doc­tors Nova Sco­tia lead­er­ship stated in a let­ter to mem­bers.

Teach­ers hit the same wall, but they at­tempted to blast through. That ef­fort re­sulted in the govern­ment pass­ing un­prece­dented leg­is­la­tion forc­ing a deal upon Nova Sco­tia’s 9,300 pub­lic-school teach­ers. They will re­ceive a 3% in­crease over three years. That was a move that cost the Lib­er­als votes at the polls and, along with ap­par­ent penny-pinch­ing on health­care ser­vices, al­most re­sulted in the elec­tion of a mi­nor­ity govern­ment.

Crit­ics have been quick to point out that the cost sav­ings come at the ex­pense of health care, education and em­ploy­ment. New Demo­cratic Party leader Gary Bur­rill told re­porters the govern­ment’s pri­or­i­ties are mis­aligned. “In the face of the needs we have, par­tic­u­larly in health and also in education, [this] is no time for the govern­ment to say, ‘Yeah, for us, we have put more money in the bank,’” he said.

This is not the first time the govern­ment’s sin­gu­lar fo­cus on fi­nances has led to a pub­lic out­cry. Two years ago, the govern­ment slashed the film tax credit — which had put the prov­ince on the cin­e­matic map as a place to pro­duce TV shows and films — and landed face to face with thou­sands of pro­test­ers. Premier Stephen McNeil did ex­tend an olive branch and put in place a new fund for screen pro­duc­tions, but trust still is a rare com­mod­ity in that in­dus­try.

The pain as­so­ci­ated with get­ting to a healthy bot­tom line may be one of the main rea­sons the govern­ment is not shout­ing about the sur­plus.

There is also an­other tax­ing is­sue. Tax rev­enue in this fis­cal year was ac­tu­ally down $36.1 mil­lion. The main rea­son: a drop in per­sonal in­come taxes and the HST. Peel the onion and the rea­son for the de­cline in rev­enue is a de­cline in the labour force. And the rea­son for the de­cline in the labour force is linked — at least, in part — to an ex­o­dus of doc­tors, teach­ers and film-in­dus­try work­ers from Nova Sco­tia’s work­force.

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