Will the surplus pattern continue?
Nova Scotia’s 2024-2025 budget Building Nova Scotia, Faster was released on Thursday. It continues a pattern of lowballing future revenue prospects. Recent budgets have forecast significant deficits but are followed by small surpluses in spite of massive additional appropriations.
The 2023-2024 budget forecast a deficit of $279 million. Actual spending was $823 million higher than that but revenues were $1,362 million higher, leaving a surplus of $319 million. Likewise in 2022-2023, a $506 million deficit was magically replaced by a surplus of $247 million in spite of excess spending of $1.41 million.
Those added expenses are approved by cabinet without being scrutinized by the legislature, not a good way to do things. But better to underpromise and overdeliver than the other way around.
The 2024-2025 budget predicts a deficit of $467 million. Will the pattern repeat?
Nova Scotia is finally joining the federal government and all the other provinces by indexing tax brackets by inflation, starting in January 2025. Good, but not good enough.
A key contributor to the excess revenues in recent years has been population increases much higher than anticipated in the budgets. The key drivers have been international migrants and net positive interprovincial migration. The most recent data suggest weaknesses in those sources. International migrants are fewer than before. Interprovincial migration was a small net negative in the third quarter of 2023.
Federal government initiatives will reduce the future number of international students, which are profitable for the universities. Notwithstanding that and inflation of four per cent in 2023 the universities are restricted to two per cent tuition increases and two per cent increases in provincial funding, less for Dalhousie if they do not provide satisfactory plans for provincial priorities.
It is not a coincidence that Dalhousie University announced several initiatives to increase student housing on Wednesday.
The 2024-2025 budget “highlights” run 11 pages of items large and small.
On the cost of living, there are numerous small initiatives for low-income households. The big item is $144 million to rebate the 10 per cent provincial HST on home heating.
For children, there is more money for more schools, more teachers, and a new lunch program.
The province and the federal government continue a multi-year commitment to support housing by rebating the HST on new purposebuilt rentals such as apartments, student housing and senior residences.
In addition, the province provides $85 million for supportive housing to address homelessness, $100 million for student housing, public housing and other projects to provide affordable housing. There is also $102 million for disability income supplements and programs.
Unsurprisingly the healthcare list is the longest. Spending on buildings and other infrastructure will cost $579 million. There is $255 million to fund pay increases for physicians, nurses and others.
Beyond that, there are initiatives for cancer care, mental health, diabetes, and long-term care. The One Person One Record project will consume another $75.6 million.
There are several programs to increase the number of health-care providers, and to recruit, train and retain skilled tradespeople. This includes tax incentives to retain new tradespeople and eligible nurses.
So how will the government repeat the trick of turning a $467 million deficit – plus the usual large additional appropriations – into a surplus? In past years it was largely driven by the strong population increases in the previous calendar year.
The increase in the calendar year 2021 was about 20,000, almost entirely from immigrants and net positive interprovincial migrants. In 2022, 9,000 of the 30,000 new Nova Scotians were net new nonpermanent residents: international students, temporary foreign workers (TFWS) and asylum seekers.
That increased to 14,000 of the 26,000 new Nova Scotians in the first nine months of 2023. The different mix matters. Non-permanent residents will be paying less sales and income taxes than the new permanent residents, the number of which is shrinking, and they add to the pressure on housing and other services.
The federal government has taken steps to limit the number of international students and asylum seekers. This will not impact most students already here, many of whom will become citizens and valuable members of our communities. If it doesn’t act on the number of TFWS the province can do so.
The number of new international students will be less in 2024. That and the health care and housing initiatives, including on-campus housing, should revive Nova Scotia’s attractiveness to potential permanent residents.
But the cumulative impact of previous failures to index taxes means that Nova Scotia will continue to be conspicuously the highest tax province. A good plan would be to have future indexing occur at inflation plus one per cent to gradually reduce the excess over other provinces. That will send a low-cost signal that tax competitiveness is important to the government.
The budgetary estimates of economic growth have consistently proven to be low in recent years and are likely to do so in 2024-2025. The government has intentionally managed the additional appropriations to a level that will leave a surplus. If they fail to “build faster” and improve tax positioning the tradition of “surprise” surpluses will come to an end.