The NS election

The NS election
by Fred McMahon

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07/1999
National Post

As Nova Scotia’s party leaders grapple for the steering wheel in the final days of the provincial election campaign, it looks like the province is headed for a devastating fiscal crash.

Nova Scotia pays about $750 million in net debt servicing costs each year-nearly $1,000 for every man woman and child. Nova Scotia is a course to push up debt costs by as much as $250 million in just three years. This looming crisis will force ruinous cuts in health care and education.

Yet, in the inane world of Nova Scotian politics, the only party promising a balanced budget is the governing Liberal party which believes a $248.4 million deficit is actually a $1.6 million surplus. The government performed this trick by blithely declaring $250 million of garden-variety health care spending an “off-book” investment. The government plans another $250 million off-book spending next year and $100 million in the following year, for a total $600 million “health investment fund.”

The Conservatives and NDP claim the fiscal chaos is so great, it’ll take at least a couple years to honestly balance the budget. Yet, just 18 months ago when Russell MacLellan became premier, Nova Scotia had a more-or-less balanced budget, a creation of Mr. MacLellan’s Liberal predecessor, John Savage.

A Liberals revolt forced Dr. Savage out of office for the twin sins of battling patronage and controlling expenditures. In came Mr. MacLellan, a Trudeau-era federal backbencher. In 18 months of recklessness, Mr. MacLellan squandered fiscal sanity. Intense cutbacks will be required to return the province to normalcy.

There’s the rub. Neither Tory leader John Hamm nor NDP leader Robert Chisholm talk much about cutbacks.

Dr. Hamm unveiled 243 promises, including new spending and tax reductions. In last week’s chaotic leaders debate, he refused to specify one program he would cut. Instead, he promised to consult all “stake-holders” – who will predictably say their spending is essential – before cutting. This hardly shows the toughness needed to get the province’s fiscal mess under control.

NDP leader Chisholm has become “Mr. Read-My-Lips No-New-Taxes.” On top of his no-new-tax pledge, Chisholm promises a torrent of new spending, tax cuts for small business and, ultimately, a balanced budget. That’s not possible on planet earth.

Speaking of planet earth, Premier MacLellan stepped out of an alternative universe into last week’s leaders debate when he twice bragged the province’s sound finances allow the Liberals to unleash spending.

Huh? The province is already deeply in debt and creating new debt – from the health investment fund and other sources – at the incredible rate of nearly $2 million dollars a day. If this is sound fiscal shape, the Titanic floats, the Hindenburg flies, and the Russian economy is jim-dandy – just like the Nova Scotia budget.

The numbers bring home the extent of the looming catastrophe. In two balanced budgets, Mr. MacLellan’s Liberals have added $860 million of debt to the province’s books; that rises to $1.1 billion in projections for budget three. Then there’s the $600 million health investment fund, bringing new debt to $1.7 billion.

But, wait! There’s more! The province built debt by absorbing some of its off-book obligations. But, it’s hardly absorbed all of them. Moreover, regional health boards and provincial corporations, undisciplined by the government, continue to build more debt.

For example, in June 1998, the government estimated the debt of Nova Scotia Resources Ltd. at about $500 million. It’s now thought to be about $700 million. That may understate the problem. Earlier this month, Ken MacAskill, the minister responsible for crown-corporations, received a new report on NSRL’s finances. He refuses to release the report. “I’m in an election,” Mr. MacAskill told reporters. “My first priority is being re-elected.”

At least MacAskill admits getting re-elected is more important than providing voters information needed for their choice. Of course, providing that information could interfere with MacAskill’s, and the Liberal’s, prime directive – “being re-elected.”

And, still there’s more. The Liberals promise to keep subsidizing Sydney steel. That’ll add tens of millions of dollars of expenditures. The province is on the hook for a $200 million clean-up of the Sydney tar ponds. Throw this into the fiscal mix, and the new debt total reaches about $2 billion in three years, not fully counting the constant stream of new debt created by health boards and provincial corporations.

Since $2 billion is a conservative figure, all this suggests additional debt servicing costs of $150 million to $250 million by 2002, perhaps more if – as is probable – the province’s credit rating suffers.

And, still there’s more. The government is slipping about $500 million in new school construction off the books through a miserably managed public-private-partnership. Private partners will borrow to build schools which will be leased by the province. The education budget will have to rise by tens of millions of dollars to cover leasing costs, another form of disguised debt servicing.

Even a sensible Nova Scotia government would have trouble making ends meet with today’s debt servicing costs. With hundreds of millions more ripped out of the budget, cuts will be devastating and huge, worse than for any other province’s fiscal restructuring. The alternative of raising taxes is no alternative. Nova Scotia is near maximum tax capacity. Higher taxes would produce little new revenue because of destroyed economic activity.

Nova Scotians are hardly less intelligent than other Canadians. We’ve had a failure of political leadership to bring home the consequences. In this haze, many hoped last week’s debate would lift the fog. Instead an ineffective moderator allowed the debate – “The Tower of Babel Debate,” as one newspaper put it – to get out of control.

It seemed four voices were always at it simultaneously, the three leaders talking at each other with the moderator vainly trying to gain some respect in the background. That’s not a bad metaphor for a province and an election careening out of control.