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The Nova Scotia government is forecasting a deficit of $778.8 million for the 2020-21 fiscal year, a $74 million improvement from its forecast in July. A forecasted surplus of $55 million back in February has been wiped out by declining tax revenues and huge expenditures associated with COVID-19.

“Nova Scotia, like the rest of the world, is continuing to experience an unprecedented economic shock due to the COVID-19 pandemic,” said Finance Minister Karen Casey. “While we are pleased to see an improvement from the July forecast, government’s priority remains protecting Nova Scotians and controlling the spread through strong public health measures, while making investments to support economic recovery.” 

The government reports additional appropriations to 10 separate departments totalling $970 million — a record increase, according to the Department of Finance. Government is also increasing its authority to borrow by an additional $1 billion, for a total of $2.75 billion, increasing capacity to respond further should there be more fallout from the pandemic. 

This is one of the largest amounts the province has borrowed in recent history ($2.75 billion was also authorized back in 2000-2001). It’s described as a “prudent measure” by senior civil servants who provided the technical briefing. They don’t expect that money will actually be spent before the end of March but it is there if needed and will be carried over into the following year.

That said, Nova Scotia appears to be doing better than many other provinces. Our double A credit rating remains intact. Casey noted that Nova Scotia is one of only three provinces declared “fiscally sustainable” in a report from the Parliamentary Budget Office in November (Quebec and Ontario are the other two). Casey said the province’s four balanced budgets in four years are the reason.

“The deficit we are experiencing is not caused by a fundamental mismatch between our revenue sources and the cost of programs and services we deliver,” said Casey. “This deficit is short-term caused by the economic shock from COVID-19 and the temporary measures we have put in place to manage our public health crisis. Once we have successfully managed through the pandemic, we anticipate our economic situation will return to the previous trends.”

The budget update shows Nova Scotia’s economy shrunk dramatically from what was predicted back in March 2020. The forecast heading into 2021-2022 improves but will not get the province back to where it was in 2019. Here are some key assumptions from the budget update.

Economic Outlook: 2020 and 2021

Real GDP- 4.7%3.0%
Nominal GDP- 3.7%4.7%

2020 : steep negative economic impact and recovery from COVID-19

• Initial shock concentrated in accommodations, food service, retail, personal care, air transport, residential construction, seafood and manufacturing exports

• Annual employment projected to be 22,000 lower, unemployment rate to be 9.8%

• Household consumption down 5.2%, residential construction investment down 7.6%, exports down 14.8%

• Household income accelerated by federal support payments (+5.5%), employee compensation falls to 2.1%

2021: recovery continues and accelerates with expected vaccine rollout

• Assumes second wave and additional restrictions at beginning of year (equivalent to four weeks full or 8-12 weeks of partial lockdown, can vary by region, industry). Most industries return to ‘normal’ capacity by end of year.

• Lingering reductions in output for tourism and travel industries beyond 2021.

• Household consumption, exports, residential investment, employee compensation anticipated to improve, but below 2019 levels. Household income falls as government support payments end.

• Annual employment recovers by 12,900 while unemployment rate falls to 8.1%

COVID-19 restrictions affected provincial tax revenues in interesting ways. While revenue from HST and gasoline taxes declined as people obeyed Dr. Strang’s calls to stay off the roads and out of the malls, tax revenue tied to the sale of homes and residential properties grew. 

Overall, provincial revenues are down less than 2% from forecast. Household income actually grew by 5.5% thanks to a temporary bump from CERB and other federal programs. And provincial revenues that declined $598 million from the estimate last March were substantially offset by $421.2 million received from Ottawa. 

The news wasn’t as good on the expenditure side of things. Spending increased by $718 million over what was forecast last March, with more than $400 million for Health and $100 million more for changes at the Department of Education. Community Services spent more than $20 million topping up salaries for workers in residential care homes and the Department of Justice also required an increase in its appropriation.

For fiscal year 2020-21 to date, increased RCMP costs paid for by Department of Justice are $3.7 million related to the mass shooting and $4.2 million related to violence tied to the ongoing fisheries dispute. 

Casey was asked to explain the government’s plan to help the economy recover. “We’re going to continue to do what we have been doing”, she replied, essentially pinning hopes of future economic growth on increasing consumer confidence once people have been vaccinated against the virus. At this time, there appears to be no other strategy.

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Jennifer Henderson is a freelance journalist and retired CBC News reporter.

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