Wednesday, April 5, 2000
The Halifax Herald Limited

Nova Scotians not reaping benefits that others are

By Roland Martin

JUDGING by the budgets just tabled by the other governments in the Atlantic region, Nova Scotia Finance Minister Neil LeBlanc has his work cut out for him. The province is at least five years behind in getting a grip on its public finances, and it is costing its citizens dearly. Yet, the other provinces’ records are a powerful demonstration of the benefits that await Nova Scotians – if they can meet the challenge.

As a result of their early and fairly consistent conversion to fiscal responsibility, Prince Edward Island, New Brunswick and Newfoundland have regained some degree of financial flexibility. In all three provinces taxpayers will, directly or indirectly, be given back some of their hard-earned income by way of personal income tax reductions and other taxation changes. In addition, many small businesses and entrepreneurs of growing companies are getting tax relief or incentives.

In fact, tax reductions have become a welcome trend among the trio. New Brunswick has had personal income tax reductions each of the past four budgets, P.E.I. two years in a row, and Newfoundland has committed to a three-year tax reduction plan that started on Jan. 1 this year. Significantly, New Brunswick now has the lowest small business rate in Canada.

This financial performance by three of the four Atlantic provinces has not come about without tough decisions and a broad sharing of the financial pain. New Brunswick has significantly reduced its public service sector and is in the process of another round of creating a smaller and smarter government sector.

  Selected Financial Indicators for The
Atlantic Provinces 1995/96 to 1999/2000
                                                Nova                      New                        Newfoundland                      Prince Edward
                                                Scotia                     Brunswick             & Labrador                            Island
Personal Tax Cuts                NIL                         4 times in               1st of 3                                     2 years
                                                                                4 years                   Jan 1, 2000                             in a row

Small Business                    NIL                          from 6%                2 cuts in                                  NIL
Tax Cuts                                                                to 4.5%                   payroll tax                             

Surplus (deficit)                    $(767.0)                  $(16.8)                    $166.2*                                 $16.6*
1999/2000 ($millions)

Interest Expense as a           16.5%                     9.3%                       14.3%                                     10.6%
% of revenues

Total Debt to Gross             51%                        36%                        74%                                        29%
Domestic Product
* Adjusted for deferred revenues

P.E.I. has been vigilant with expenditures and has creatively diversified its economy. Newfoundland has gotten rid of most of its losing Crown corporations and agencies, provided incentives for municipalities to reduce debt, and used unbudgeted windfall federal equalization payments to reduce hospital debt and other obligations.

Meanwhile, Nova Scotia’s financial position has deteriorated substantially relative to its Atlantic neighbours during the past five years and, in fact, over the past 15-20 years. It should be the region’s star economic performer, yet it has been sliding downhill for decades. The accompanying table of selected financial indicators shows just how much this poor performance is costing taxpayers.

It is therefore disappointing to hear and read the reaction to the recent financial update by Mr. LeBlanc. He has provided Nova Scotians with the most complete financial disclosure in more than 20 years, warts and all. While reality is often difficult to accept, denial is a far more dangerous state of mind.

Nova Scotia’s total deficit for the fiscal year ended March 31, 2000, will be approximately $767 million! Nova Scotia cannot continue to add $400 million to $500 million of new debt each year. That requires new revenues from taxes or service fees each year of $35 million to $40 million – just for increased interest costs.

The province’s population growth is negligible and, on average, is getting older. Therefore, a lower percentage of the people will be active in the labour force to pay the increasing interest bills and eventually pay down the accumulated debt, which is now approximately $11.5 billion, or $12,300 for each man, woman and child!

While the 60 per cent of Atlantic Canadians living in the other three provinces are starting to see the personal benefits of better financial management over the past five years, Nova Scotians are beginning the journey again, after a false start under the government of John Savage.

If it does not take a giant step to begin this journey with the 2000-2001 budget, the slide into financial chaos will accelerate. The province’s ability to compete, both commercially and in the retention of its young citizens, will be seriously weakened as compared to other Canadian provinces and the rest of North America.

The appropriate advice for the minister of finance’s November 1999, budget was, “Don’t wait for spring, do it now!” He chose to wait.

The advice today is, “if you wait any longer, it will be a long cold winter” before Nova Scotians start to see any increase in financial returns from their hard-earned incomes.

Roland T. Martin has been deputy minister of finance for the Province of Newfoundland, a professor of business at Memorial University, and president of a Toronto Stock Exchange listed company. He currently is chairman of Martillac Limited and a Fellow in Public Finance for the Atlantic Institute for Market Studies.