By PATRICK WEBBER (AIMS Research Associate)
• Chronicle Herald, 04 January 2017
Austerity has become a popular buzzword over the last decade, gaining traction in the aftermath of the 2008 Great Recession and subsequent fiscal troubles in Europe.
It has also found its way into Atlantic Canada’s public discourse. A plethora of local organizations, from student groups to unions to think-tanks, denounce austerity policies.
But how do the budgetary decisions of Nova Scotia governments over the last three decades match up with jurisdictions that have experienced truly austere financial conditions?
For austerity to exist, there must be an actual reduction of spending. My recently published paper, Measuring Austerity in Atlantic Canada, provides historical perspective on austerity rhetoric. The numbers show government spending in all four Atlantic provinces ballooned over a generation.
In 2014-15, the latest fiscal year for which reliable public accounts data are available, Nova Scotia spent $10.13 billion on programs. (This excludes debt service and capital spending.) Spending declined by only one per cent from the previous year. The decrease came after nearly two decades of massive spending increases.
Nations hardest hit by austerity measures in Europe in the wake of the Great Recession cut their budgets by annual averages of six to 12 per cent. Greek spending was cut by a quarter over just two fiscal years.
The 1990s saw an effort to curb program expenses by Nova Scotia governments, with some success. This restraint was a response to exploding debt service costs in the 1980s and early 1990s. In current dollars, debt service doubled from $552 million in 1980-81 to $1.11 billion in 1990-91. The first half of the 1990s saw program spending grow by only 0.5 per cent, but the last half of the decade saw an uptick of 22.4 per cent.
Then the spending taps were turned on full blast. Program expenditure jumped from $6.88 billion in 2000-01 to $10.23 billion in 2013-14, an increase of 48.7 per cent, after inflation. In per capita terms, program spending grew by 47.3 per cent.
In other words, today’s minor dip in program spending follows a 15-year period in which governments of all three major parties increased spending with little inhibition. Nova Scotia today spends 83.3 per cent more on programs than it did in John Savage’s last full fiscal year as premier.
This spending regime is not sustainable. The province will still spend over $870 million this year on debt service, or more than $900 per Nova Scotian. This cost is to merely service a debt that amounts to $16,000 per resident. Current spending and debt service are barely covered by public revenues, supplied through some of the highest rates of sales, income and corporate taxes in North America.
Ever-increasing spending will either demand tax levels that drive income earners and businesses away or plunge the province into further debt and higher servicing costs. Eventually, the bill will come due.
To further illustrate the fiscal challenge of Nova Scotia, remember that we are currently in a period of record-low interest rates. Were this to change, the province’s debt service costs would explode. This is what happened in the early 1980s, when they consumed nearly one in five tax dollars.
Nova Scotia is charting an unsustainable fiscal trajectory. If unchecked, the province could one day require European-style austerity measures.
Residents must understand this choice. Their government can either live within its means today, or continue on the current path that will eventually lead to real austerity.
