Federal transfers marginally improve N.S. government's bottom line

The Nova Scotia government's finances continue to be pummeled by the pandemic, but a larger than expected transfer of cash from Ottawa means they are in slightly better shape than what was projected in the summer.

Instead of the $853 million deficit forecast by Nova Scotia's Department of Finance in July, officials are now predicting a $779 million deficit, according to a budget update provided Thursday.

While that is a deep fiscal hole to fill, Finance Minister Karen Casey tried to reassure taxpayers this was not a return to running deficits to finance ordinary government spending.

"This deficit is short term, caused by the economic shock from COVID-19 and the temporary measures that we put in place to manage our public health crisis," Casey told reporters on a conference call. 

"Once we have successfully managed through the pandemic, we anticipate that that our economic situation, our revenues and our expense obligations will return to the previous trends."

In all, the federal government is expected to transfer almost $4.3 billion to the province, an increase of $421 million from last spring's budget and $350 million more than the province expected in July.

Most of that money is coming as part of the deal reached between the federal government and the provinces as part of the Trudeau government's Safe Restart Agreement.

There's also $81 million coming from the feds through the Essential Workers Wage Program and $48 million from the Safe Return to Class Fund. That money has been disbursed to thousands of workers the province deemed essential, or has gone to pay for classroom supplies, increased ventilation inspections at schools and beefed up food programs.

Tax revenue

Things continue to look bleak when it comes to provincial tax revenue, with every category down except tobacco and cannabis taxes, which show slight increases.

Casey also tried to sound optimistic about those figures during her explanation of her department's latest forecast, suggesting an economic rebound once the pandemic was over.

"If we can contain the virus, keep our population healthy, open up and lift the restrictions that we currently have, that will drive the economy and that will, I believe, be the signal, the green light, that we are going to continue to improve," she said.

"The key to it all is containing the virus."

Documents released along with Thursday's budget update detail almost $1 billion in extra spending to deal with the impact of the ongoing COVID-19 pandemic. The province is reporting  $181 million in capital spending and $724 million in extra operating expenses for a total of $905 million in COVID supports.

Ottawa is contributing $490 million toward those costs, while the Nova Scotia government is picking up the tab for $415 million of that extra spending.

Not surprisingly, all that extra spending is driving up the provincial debt, which will grow by $1.1 billion this year to $16.8 billion.

It also means the Finance Department is having to ask for the authority to borrow even more than anticipated, just in case.

This year, the department had permission to borrow up to $1.7 billion. During a background briefing, officials said the province had already used up almost all that borrowing power and needed permission to borrow up to $1 billion more.

Casey did not anticipate using up that extra billion dollars in borrowing.