COVID-19 blasts $850M hole in Nova Scotia budget

Nova Scotians got the first look at what COVID-19 has done to the province's finances on Wednesday, and it's every bit as brutal as could be expected.

Finance Minister Karen Casey released documents showing the expected surplus of $55 million is long gone, replaced by a provincial deficit of $852.9 million. That hole was dug primarily by massive overruns in department spending and the $228-million stimulus package the province announced for additional construction projects this fiscal year.

"We cannot diminish or underestimate the magnitude of what we are facing as a province and as a country," Casey said during a briefing.

"We have a deficit because of the pandemic and that is something that none of us could predict, none of us could plan for and none of us could stop."

Nine departments required additional appropriations, totalling $443.4 million. The lion's share of that was consumed by the Health Department, which required an additional $374 million for personal protective equipment, essential working funding, backfilling employees, increased use of pharmacare and other demands.

The effects of an economic shut down, which saw many businesses reduce operations or outright close in an effort to flatten the curve, also weighed heavily on the province's finances.

The province is projecting an unemployment rate of 11 per cent, or 25,000 fewer jobs — the highest in Nova Scotia since 1997.

Revenue down, debt expected to increase

Revenue for 2020-21 is down $532.1 million from the budget tabled in the spring, primarily due to decreases in HST ($234.4 million) and corporate income tax ($160.8 million).

Personal income tax is down $50 million, a figure partially offset by federal direct payments to Nova Scotians. Finance Department officials said that's a sign the program is working.

Nominal economic growth is 7.6 per cent lower than projected in the budget, household consumption is down 7.5 per cent, residential construction is down 18 per cent and exports are down 13.1 per cent.

Net debt is projected to increase from $15.7 billion to $16.9 billion. The net debt-to-GDP ratio is projected to jump from 33 per cent to 38.7 per cent. Finance Department officials said the latter change is consistent with what other provinces and the federal government are experiencing.

Nova Scotia has been in a state of emergency since March 22 and public health orders of one type or another have been in place since March 13.

Dealing with the deficit

Addressing a deficit of this magnitude will not be simple or quick.

Casey said the government would evaluate all spending to ensure it maximizes effectiveness, and she noted things may get better as provincial revenues begin to increase.

One measure the minister said she is not considering to tackle the deficit is layoffs within the public service.

"The corner is not going to be turned and we're not going to be back to balanced budgets or surpluses for a while," said Casey.

"That's not our goal. Our goal is to make sure that we provide the services and supports, we start to try to live within our means looking at the revenues, and using those dollars wisely."

A risk that cannot be predicted for is what effect a second wave of COVID-19 would have on the provincial economy.

More help and spending likely to come

Casey said the government is expecting people will continue to need help as the pandemic continues, even now that the economy has started to reopen.

"We know that there are still Nova Scotians who are hurting and who will need support and, as we've always done as a government, we will provide the supports that are necessary to help those Nova Scotians," she said.

What form those efforts take remains to be seen. The government also has yet to know what kind of assistance universities or municipalities will need, and members of the province's tourism industry have also asked for help weathering a storm that's predicted to rob the sector of at least $1 billion this year.

Opposition not surprised by deficit

Progressive Conservative finance critic Murray Ryan said he wasn't surprised the deficit was large — in fact, he thought it would be bigger.

"I figured the [deficit] was going to be well in excess of $1 billion," he told reporters.

With predictions that the second wave of the virus could be worse, Ryan said now is not the time to be looking at how to rein in the budget and he cautioned against government trying to cut its way back to balance.

"I'd say the next 24 months, [getting back to balance] is not even on our radar."

Ryan said he'd like to see the government announce some type of bailout for the tourism industry, which is one of the hardest hit economically by the virus. He also noted Wednesday's update came without any additional money for long-term care.

NDP finance critic Claudia Chender said it's important for the government to live within its means, but now is no time for austerity.

Chender said she'd like to see the government consider targeted spending that goes to the people and areas that most need it and also "spend upstream," which means spending on things that might not have immediate benefits but are good long-range investments.

"I'm talking about things like we know that there were request after request for infrastructure money for Northwood, for example, to have individual rooms. That didn't happen. We know that we need increased funding around community health initiatives. We know that public health spending in Nova Scotia is last in the country." 

Both Chender and Ryan said that given the province's financial position and the fact the pandemic isn't going away any time soon, the government should be allowing the public accounts and health committees to regularly meet.

The Liberals have used their majority on those committees to shut them down since the spring and Premier Stephen McNeil has said they would not meet again until some time in the fall. 

Numbers likely to change again

Although the province expects numbers to rebound in 2021, Finance Department officials still project they will be below 2019 levels.

The numbers are apt to change by the next fiscal update, as this one is coming several months earlier than normal. Ordinarily, the public accounts — a closing of the books on the 2019-20 fiscal year  — would come first, however Finance Department officials continue to finalize those numbers.

Wednesday's documents did not include federal funding for the safe restart program and the associated costs, recently announced by Ottawa. The province has said it's getting about $250 million from the federal government, but it's not given a specific number yet.

Officials said the numbers also do not include a projection for the cost of a public inquiry into April's mass shooting, although the Justice Department's budget did see an increase of $3.2 million due to RCMP costs related to the shooting.

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