Nova Scotia's Books Accurate and Fair

Nova Scotia's budget and other financial documents present an accurate and fair picture of the province's financial position, deputy finance minister Howard Windsor said today, Dec. 3.

Mr. Windsor and senior officials of the provincial finance department appeared before the legislature's public accounts committee to review various accounting changes undertaken over the past few years.

Those changes, according to the provincial auditor general, have "allowed Nova Scotia to move from the bottom of the pack (among) provincial governments, to that of a leader," in terms of financial reporting.

Despite that high praise, the auditor general issued a report recently that took issue with some of the province's recent accounting decisions.

At the public accounts committee meeting, the finance department officials answered each of those concerns. They relate to the impact of census changes on provincial revenues and the disclosure of the impact of retirement health benefits and pension asset values.

The province did not alter its revenue projections in the 2003-04 budget to account for an anticipated census adjustment, as suggested by the auditor general, for a number of reasons.

In preparing the budget, the department had raw data from the 2001 census but experience suggested raw data was unreliable. There were significant changes from the raw data to the final census numbers following the 1996 census. Census numbers impact primarily on equalization, and there are more than 200 variables in the equalization calculation used by Ottawa. To isolate one variable -- census -- and change revenue projections based on that one variable, would lead to "purely speculative" revenue changes, the deputy minister said.

Such speculation would not meet the standard of certainty established by the auditor general himself for the province's revenue assumptions.

"As it turns out, had we pulled that raw data into our revenue projections at budget time, as the auditor general is now suggesting, it would have pretty much ruined the province's finances for this year," said Mr. Windsor.

The department ran its revenue projection models using the raw data, as suggested by the auditor general. The result was a $73 million over-estimate of revenues. Had the province acted upon that faulty information in last spring's budget, the government would now be looking at either a budget deficit of $73 million, or additional spending cuts of the same magnitude.

The auditor general's report was also critical of the province for not fully disclosing changes in the way it accounts for pension assets -- so-called smoothing -- despite the fact that at the time of the budget a bulletin was issued drawing attention to the change.

Noting that the change is in keeping with Generally Accepted Accounting Principles (GAAP), the deputy minister conceded that more could have been done to highlight it.

"There is a flood of information released with the budget, and we do try to walk the line between full disclosure and the absolute boredom threshold of Nova Scotians."

The third issue, also a question of disclosure, or more accurately the timing of disclosure, concerns the cost of health benefits for retired public servants.

Provincial Controller Kevin Malloy noted that the liability for those benefits has existed for about 30 years, and the disagreement with the auditor general was over when to "book" the liability as now required by GAAP.

He said that in October 2002, the former deputy minister of finance wrote to the auditor general explaining the province's intention to make that accounting change in the 2004-05 budget. The department did not become aware that the timing of the accounting change was a serious issue for the auditor general until June of this year.

Mr. Malloy said when the auditor general made the case that retirement health benefits be included in the 2002-03 financial statements, the government agreed. The 2002-03 statements were released last month and included the change, which increased the net direct debt by $493 million.

Finance Minister Peter Christie said his focus is dealing with today's budgetary challenges and preparing a budget for next spring, rather than reviewing previous budgets.