THE PROVINCES COLUMN
Caution: Debt may be larger than it appears
by Brian Lee Crowley
The Globe and Mail
IN NOVA SCOTIA — Imagine that you have just taken command of an overcrowded lifeboat that’s taking on water. You are lost, far from land, and have no radio. Not everyone will survive, but the occupants of the boat don’t know how bad the situation is and are looking to you for leadership and reassurance. On the one hand, the news is mostly awful, so there is a tendency to sugarcoat the truth to keep morale high and induce people to accept needed sacrifices. On the other hand, if people find out that they’ve been misled and that things are worse than they were led to believe, your credibility will be shot and all further measures to try to improve the situation will be met with suspicion and resistance.
That pretty much sums up the dilemma of Neil LeBlanc, the Acadian MLA who has been Nova Scotia’s Finance Minister for less than 50 days. Last week, two months after voters swept Premier John Hamm’s Conservatives into power, Mr. LeBlanc announced his assessment of just how bad the fiscal situation is in Nova Scotia.
Clearly he wants to enlist the support of Nova Scotians in cleaning up a fiscal mess that is deeply disturbing, especially when other provinces in the region, particularly Prince Edward Island, have been making significant progress in bringing order to their finances. Nova Scotia’s budgetary compass spun wildly out of control in recent years under Russell MacLellan, a weak Liberal premier who led an undisciplined minority government. Fiscal caution was thrown to the winds, and the progress that had been made in balancing the books under former premier John Savage was squandered. Years of deficits tarted up by cheap accounting tricks to look like surpluses added to an already dreadful balance sheet.
Mr. LeBlanc professes to want to end this bad behaviour. He is therefore holding the province’s books to proper accounting standards and has produced what he claims is a true picture of the province’s finances.
The numbers are sobering. For example, far from the $22-million surplus claimed by the previous government for the last fiscal year, the province ran a deficit of $370.5-million. Far worse are the debt numbers. According to Mr. LeBlanc, Nova Scotia taxpayers are on the hook for more than $9.5-billion, nearly $1-billion more than previously reported and one of the highest per-capita levels of indebtedness in the country.
But while Mr. LeBlanc certainly got the public’s attention with his numbers, and some sympathy in many quarters for the tough medicine they imply, he also clearly gave in to that dangerous impulse not to tell the full story. If he truly wants Nova Scotians’ support for the cuts and retrenchment he will have to propose shortly, this lack of candour will come back to haunt him.
His debt number, for example, is still short by at least $1-billion. A consolidated statement of the province’s position should state unequivocally all the debt for which the taxpayer is ultimately responsible. That includes such things as the environmental clean-up costs for the Sydney steel plant, the full debt of Crown agencies such as the municipal finance corporation and Nova Scotia Resources Limited, and the full value of all the unfunded workers-compensation and public-sector pension liabilities. Here Mr. LeBlanc’s nerve failed him. Even the conservative Dominion Bond Rating Service puts Nova Scotia’s debt and pension liabilities $700-million higher than he does.
Then there is the revenue position. While Nova Scotia has been growing smartly over the past few years, government revenues have not. And this year and last the province received about $400-million from Ottawa in special or unexpected payments, items that will likely not be repeated.
Not only is Mr. LeBlanc not coming clean, but he has announced that he will present an interim budget shortly that will not contain any serious measures to deal with this deteriorating financial position. He wants people to wait until the spring for his first “real” budget, pleading that he has not had enough time to consider his options.
But the minister cannot have it both ways. Either he is correct that the situation is far more dire than voters suspected, in which case urgent cost-cutting measures are called for and would receive widespread public support, or he thinks he can just tread water for another six or eight months, in which case the public will see that the minister’s rhetoric exceeds his actions and the momentum that his recent announcements might have created will be spent.
Meanwhile, the lifeboat is taking on water fast.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a Halifax-based public-policy think-tank. E-mail: [email protected]