HALIFAX -- The Nova Scotia government has turned an $18-million surplus into a deficit of almost $500 million. And this massive reversal of fortune was accomplished simply by holding an election.
Barely two months after relegating the province's first New Democrat government to the political trash heap, the new administration of Liberal Premier Stephen McNeil delivered a sobering fiscal update last week that forecasts a $481-million deficit.
As for the balanced budget and modest surplus the NDP touted heading into last fall's election, Finance Minister Diana Whalen says they were the product of creative accounting and wishful thinking.
Much of the shortfall is due to a single line item -- the new government decided to take a one-time, $280-million hit to cover a public sector pension liability. The NDP had planned to absorb the liability over the next decade but Whalen is transferring the entire shortfall to the provincial debt as a lump sum.
The Liberals long ago dismissed the NDP's surplus as a work of fiction, and now that they are in power they have the numbers to prove it. NDP revenue projections were "too rosy," as McNeil put it last week -- income taxes, the harmonized sales tax and other revenue sources will bring in almost $160 million less than predicted. Cost overruns account for the rest of the missing millions.
The NDP is crying foul. Maureen MacDonald, who took over as interim leader after former premier Darrell Dexter lost his seat in election bloodbath and resigned, accuses the Liberals of playing politics. The goal is not prudent fiscal management, she charged -- it's to sully the previous government's reputation.
MacDonald, Whalen's predecessor as finance minister, says the NDP relied on an outside legal opinion when it opted to amortize the pension liability over an 11-year period, softening the blow to the bottom line. She likened the Liberal move to paying "your entire mortgage all in one year."
Whalen responded with an independent opinion of her own, this one from provincial auditor general Jacques Lapointe, who believes the liability should be accounted for in the current fiscal year. "This is not politics," she said, and it would be "irresponsible" to ignore Lapointe's advice.
But there's an undeniable political reality at work here. By swallowing the pension liability now, the Liberals make their predecessors look bad while gaining wiggle room as they try to achieve the balanced budget that eluded the NDP.
Whalen has announced a one per cent spending cut for all departments except health and education. Taxpayers will also be stuck with a 15 per cent HST -- the country's highest combined sales-tax rate, a fraction of a percentage point higher that Quebec's -- for the foreseeable future.
The NDP raised the HST from 13 per cent in 2010 as the centrepiece of their efforts to balance the budget, a measure that added hundreds of millions to provincial coffers but failed to eliminate the red ink. The increase was to be rolled back by July 2015, but that plan evaporated in October when Nova Scotia voters turfed the NDP and handed the Liberals a solid majority.
McNeil, the new premier, took a political risk and campaigned against the tax cut, saying he would scale back the HST only if the books were as solid as the NDP claimed. They clearly weren't, and he avoided being saddled with a promise he could not keep.
The leader of the Opposition Progressive Conservatives, meanwhile, is accusing his rivals of playing games while the province's financial situation deteriorates. "Who's right and who's wrong doesn't matter," said Jamie Baillie. "What does matter is that our debt continues to go up and our taxes stay too high."
The latest deficit lifts Nova Scotia's accumulated debt above the $14-billion mark, with no end in sight.
Whalen is promising to be more cautious than the NDP when it comes to revenue projections, and more up front about her choices and challenges. She described her fiscal update as "the start of a frank, honest and transparent discussion about the province's finances."
But her plans for extricating Nova Scotia from its deficit spiral -- let alone providing tax relief -- remain surprisingly modest. The Liberals will strive to balance the budget "during our time in office," she told Halifax's Chronicle Herald newspaper.
That gives her up to five years to accomplish a feat the NDP managed to pull off in four -- but, as it turns out, only on paper.
Dean Jobb, the Winnipeg Free Press East Coast correspondent, is associate director of the School of Journalism at the University of King's College in Halifax. www.deanjobb.com