Improved Nova Scotia Economy Will Help Curb Deficit

Nova Scotia's strong economy has resulted in a lower deficit forecast for 1999-2000.

In releasing the province's second quarter financial report today, Finance Minister Neil LeBlanc said the government is now forecasting an $8 million reduction in the deficit.

Based on the second-quarter financial report, the government now forecasts a deficit of $489 million for 1999-2000. This is $8 million less than the budget estimate of $497 million. Mr. LeBlanc said increased personal income tax revenues, the result of higher employment, are the reason for the reduction.

"A reduced deficit in this forecast is good news," Mr. LeBlanc said. "Employment is up, more people are working and that means higher tax revenue."

All program areas, except Education and Economic Development, are either on target or are below budgeted expenditures. Education spending increased due to higher-than-anticipated applications under the Student Assistance Program.

The Economic Development figures include a final payment of $10.2 million to Stora Enso of Port Hawkesbury. The former government had agreed to provide Stora Enso with $19.8 million in employee training assistance for the company's new $750-million super- calendered paper line at its plant in Port Hawkesbury. Stora Enso employs about 2,000 people in its production and woodlands operations.

The over-expenditure was not reflected in the recent budget because a plan to spread this payment over future years had been initiated by the previous government. After a review, it was determined that the company had met all conditions of the agreement and that the full payment should now be made.

The government also increased the amount budgeted to provide for possible loan losses. Economic Development was asked to review its valuation allowances, the amount reserved to manage provincial exposure. In order to provide for a more reasonable reserve for possible loan losses, the forecast includes an additional $11.1 million.

In addition to the second quarter report, the finance minister also released information on loan and bad debt write-offs for 1998-99 and from April 1 to Nov. 30, 1999.

"As far back as I can remember, the public learned about write-offs only after the Orders in Council approving them were released," Mr. LeBlanc said. "Our government is committed to more transparent financial reporting so we are being up front and open about the write-offs."

As indicated, each year the government budgets for possible bad debts. This provision is included in the province's financial statements for that year. However, the provision must be adjusted based on actual results as a loan made in any particular year may not default until some years later.

For the fiscal year 1998-99 and from April 1 to Nov. 30, 1999, $96.2 million have been written-off. Of this total, $11 million represents losses associated with the 1998 bankruptcy of Dynatek Ltd of Bedford. Another $37.5 million is from a performance-based grant awarded to Michelin, resulting from an agreement negotiated in 1997-98 to ensure the company's continued expansion in Nova Scotia. A further $26.7 million results from a 1997 agreement between the previous government and the Nova Scotia Medical Society regarding expenditures related to physician services. The former government had allowed this amount, but had never accounted for it as a write-off.

Each of these expenses has been included in the previous years financial statements. The approved write-offs are the legal requirement to close the files and do not impact the current year's finances.