1998-99 First Quarterly Report

The government of Nova Scotia is targeting a reduction of $30 million in administrative spending to help deal with a potential budget deficit. The targets affect areas of government-wide spending, including travel and capital purchases.

Finance Minister Don Downe said the administrative reductions enable the government to take responsible and effective steps to help bring the budget back into balance under the Expenditure Control Act.

"We are faced with additional costs due to the unexpected fall in the Canadian dollar as well as the need for more money to pay for health care and economic development measures," said Mr. Downe. "We have directed our senior managers to find ways to effectively reduce costs across the government."

The First Quarterly Report forecast shows increased spending of $28.9 million at the Health Department, $18.5 million at Economic Development, and $2 million at Community Services, as well as debt-servicing cost increases of $34 million.

The extra money for Health is to cover the unanticipated requirement to purchase equipment for the new Canadian blood system, additional support for the province's pharmacare program, and the cost of additional demand for physicians services.

The extra money for Community Services is to cover additional costs for children at risk. In the case of Economic Development, the requirement for extra spending has been triggered mainly by the achievement of employment and other targets under agreements with a number of firms. In previous years, the department signed a number of contracts whereby funding was tied to employment goals. Now those goals have been met, or are reasonably expected to be met, the government is legally required to book the anticipated cost.

"Our government made the decision to invest in successful businesses that met our job-creation criteria," said Mr. Downe. "In the case of Stora, $9.9 million has been allocated under our agreement to help fund its training needs, when it invested $850 million in Nova Scotia."

The additional debt-servicing costs are primarily due to the weakening Canadian dollar. During its low point in August, the dollar was worth less than $0.64 cents US. Since 40 per cent of the province's debt is payable in U.S. dollars, the fall in the value of the Canadian dollar has resulted in increased costs for the province.

When the budget was originally prepared in the spring of this year, most economic forecasters were predicting a dollar in the low $0.70 to $0.72 range. Accordingly, debt-servicing costs were based upon an estimated annual average dollar value of $0.714. On a long-range basis, the government has a policy of reducing the foreign currency exposure to no more than 20 per cent of the debt. The significant drop in value of the dollar this summer, followed by a recovery, suggests that market conditions are not currently favourable for a substantial change in the currency mix.

However, since April 1, 1998, the government has hedged two debt issues for an additional $398.5 million US to Canadian dollars liabilities.

Taking the actual debt-servicing costs to date into account, as well as the forecast cost of the Canadian dollar and other important variables remaining at its current level of approximately $0.66 US and some gains on interest revenue, the province is now forecasting an increased net debt-servicing cost of $34 million in fiscal 1998-99. Offsetting these increased costs is the anticipated $30-million reduction in government-wide administrative spending.

The quarterly report also looks at the performance of the Nova Scotia economy since the tabling of the budget in June. On most measures, the economy continues to be on track to meet budget estimates. Employment growth, consumer confidence as measured by retail sales, and business investment are all above budget estimates.

Said Mr. Downe: "We are determine to meet the needs of Nova Scotians within a balanced budget and without raising taxes. Several unexpected events and demands have temporarily set us back, but we will remain on course."

The minister said the regular publication of the province's fiscal and economic outlook can be seen like a school report card.

"In our case, we have received good grades on economic management and respect for health care needs," said Mr. Downe. "We now need to work harder on our spending control efforts.

"We are sending a clear message that savings need to be found as quickly as possible. If we postpone action, it will simply make the problem larger next year."

Nova Scotia's balanced budget law requires all budgets to be initially drawn up in balance, and if they should go out of balance because of unforeseen events, any deficit that may develop must be made up within two years.

As a result of the setbacks, the government is forecasting a deficit of $51.8 million at this time. The First Quarterly Report comes at a time when revenue forecasts for the government are still in the preliminary stages. The government expects to have more reliable information from Ottawa later this fall. This information will be incorporated into the next quarterly report, which is expected to be released in December.

"We are taking responsible action today to ensure that we keep our spending under control," said the finance minister. "Depending upon the news we get on revenues, we will further adjust the spending restrictions."

Mr. Downe also noted that the regional health boards and non-designated organizations are currently working on business plans to deal with their deficits. This planning process will be completed later this fall. Depending upon the outcome of this process, the government could face additional pressures in this area.

In the area of economic development, the new economic strategy announced in the budget for 1998-99 is now expected to be released for public consultation and input later this fall.

"The government remains committed to supporting strong economic growth in the private sector, a reduction in red tape for businesses, and the creation of a climate for economic self-reliance for Nova Scotians," said Mr. Downe.