20 May The Debate – on the economy
Let’s get a few things straight. The province ran a deficit of roughly a quarter billion dollars in the fiscal year just ended. We could have balanced the books by using the extraordinary payments from the Crown share adjustment, but legislation passed by the Hamm government prevents that. Without changing that law, that one-time resource revenue has to go toward debt repayment.
(There are two good reasons for that law: (1) thanks to the excesses of the Buchanan administration, our provincial debt is far too high, and needs to be paid down to a reasonable level. (2) Non-renewable resource revenue should not be used for current expenditures; it should be used for things that produce lasting benefits. Otherwise, we’re robbing future generations.)
So last year’s quarter billion dollar deficit is water over the dam. It’s gone. We can’t wish it back.
In the current fiscal year, we’re headed toward a much bigger deficit—I’m guessing half a billion dollars. Whatever government takes office in mid-June will have a hard time turning that ocean liner around. To balance the books in 2009-1010 will will require about half a billion in cuts over nine months. That’s not likely to happen, so Liberal leader Stephen McNeil is telling the truth when he says we are likely to remain in deficit for some time.
The federal infrastructure money will pose a special quandary for the new government. Naturally, we’d like to have that money to compensate for economic activity that has dried up due to the economic meltdown. Every plant shutdown, every layoff, every store closing due to the recession saps money from Nova Scotia’s economy (and tax revenue from the province). Economists of all stripes have been surprisingly unanimous that governments must step in to replace that money with works projects. We’re all Keynesians now.
But the federal infrastructure money requires provincial cost sharing. Should Nova Scotia, with its horrendous debt load, go deeper into debt to pony up its share? Can we afford to? Conversely, can we afford not to? Do we want our province to go even deeper into recession in order to avoid building the provincial debt?
That’s the dilemma facing the provincial government — whoever forms it. There are reasonable arguments to be made on both sides. It’s a debate we should have had back in January. But we didn’t—we didn’t even hear it debated last night. Rodney MacDonald continued to pretend there was no deficit. Dexter complained about the deficit, but pretended he could go on spending as usual. Only McNeil even hinted at the real nature of the dilemma.
So here’s what’s going to happen. When If Darrell Dexter becomes premier on June 15, he will order an audit. When the audit comes back in, he will say, “OMIGOD! it’s far worse than we realized. Those scurvy Tories have spent us into a massive deficit. It will take years to balance the books.” He will have a ready made excuse to jettison his campaign promises, and a ready made excuse to run a continuing deficit.
All three leaders talked about leadership, but none delivered it. Real leadership would have required leaving behind the world of make believe and have a serious discussion of the tough options we face.