Budget Deficit Cut by More than Half

The provincial government is now projecting a budget deficit of $49 million -- less than half the amount forecast in December -- and Finance Minister Don Downe says a third consecutive balanced budget for Nova Scotia is a real possibility.

"We have government spending firmly under control, and our revenue forecasts have turned around dramatically from the numbers we had in December. The new revenue forecasts reflect a strong, growing economy," the minister said in releasing the fiscal year's third quarterly update on the province's finances.

The province bases its revenue forecasts on information from the federal government. Transfer payments from Ottawa account for about 40 per cent of the province's total revenue, and the federal government collects provincial income, sales and corporate taxes. Throughout the year, the federal government gives the province revenue projections. The accuracy of those projections tends to improve as the year progresses.

Mr. Downe said the turnaround in the province's finances shows that Premier Russell MacLellan was right last fall in insisting that the province maintain a steady course and not rashly cut spending when faced with an apparent growing deficit.

"The premier said we aren't going to slash health, education or other services Nova Scotians count on in order to balance the bottom line, particularly when forces outside the government's control were pushing us into the red."

Factors outside the province's control include transfers from Ottawa and payments on the province's debt, which escalated dramatically as the Canadian dollar declined in value against the American dollar. Those factors are turning back in the province's favour. Debt payments are now forecast to be about $731 million this year, or $40 million more than estimated when the government brought down a balanced budget in June. As recently as December, the government anticipated taking a $55-million hit on debt servicing.

But the largest turnaround since the December forecast comes on the revenue side. Nova Scotia's growing economy is now reflected in provincial income tax revenues, which are forecast to yield $988 million this year -- a figure $23 million higher than the December projection. Overall, the revenue side improved by $75 million since the December report.

On the expenditure side, the government is 1.5 per cent over its $3.7-billion spending estimate.

"Outside of health, where demand for service drives costs, program spending is right on target with the budget," said Mr. Downe. "In some areas we needed to spend more, so we found savings elsewhere."

The minister said the government will put health-care spending, and service, on sustainable, stable footing for the future. The province is finalizing plans to deal with regional health board and hospital debts. The extent of the federal re-commitment to health care will be known Feb. 16, when the federal budget is introduced.

Mr. Downe said he is determined to improve on the $49.2-million year-end deficit he is now forecasting.

"Long-term sound management across government will help us regain a budgetary balance in Nova Scotia," he said. In each of the past two years, the government balanced the budget and, in fact, recorded surpluses. Accumulated budget surpluses in 1996-97 and 1997-98 totalled $46.8 million.

"Fiscal responsibility requires that we manage government, over time, in the black or in balance," said the finance minister. "That does not mean we need to balance the books every quarter. We need to build in the flexibility to ride through the peaks and valleys in revenue and debt payments.

"As a government, we need to be able to respond to real human need, or to seize great opportunities, and that may require increased spending. It is counterproductive to good government to judge government solely on the fiscal bottom line at any one moment in time."

On the economic front, the minister noted that most indicators remain extremely positive for the province.

"We face very serious challenges in certain parts of our economy, particularly in Cape Breton. But across the province the private sector continues to create jobs and drive economic growth to new records. The latest Statistics Canada numbers show unemployment in Nova Scotia at 10 per cent, with a record 408,000 Nova Scotians working."

NOTE TO EDITORS: The third Year End Forecast Update is available at the Nova Scotia Government Bookstore, 1700 Granville St., Halifax, 902-424-7580 or 1-800-526-6575, or at Communications Nova Scotia, third floor, 1723 Hollis St., Halifax, 902-424-4492, e-mail [email protected] .