May The Nova Scotia Budget Fiscal prudence is the

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					                                                                                                                                                                         May 5, 2008

                                                  The 2008 Nova Scotia Budget:
                                              Fiscal prudence is the order of the day
The 8.5-billion budget presented by Nova Scotia's minority government is                    In late March, Premier Rodney MacDonald said that 70% of Crown Share
prudent, unsurprising, and plain. When economic times are difficult abroad,                 payment for FY 2007-08 and previous years would go towards the debt. The
there is no chance to take. The NS government wisely decided then, like many                remaining will go in trust funds. The decision expected this spring should
others jurisdictions, to introduce a bunch of inexpensive measures in the 2008              means in theory that Nova Scotia's debt will plummet shortly. Thus, the debt
Budget: grants for students, modifications to the energy rebates, additional                outlook tabled in the 2008 Budget should be taken with a grain a salt. Nova
health care assistance for seniors, high-speed internet connection for rural                Scotia's net direct debt – the province's favourite measure of debt – stood at
areas, etc. Even if there were no earth-shattering fiscal policies in this budget,          $12.3 billion at the end of FY 2007-08, $300 million less than in FY 2006-07.
the Conservative minority government faces defeat and must get the support                  Borrowing program for FY 2008-09, which does not include any proceeds from
of the provincial Liberal or NDP party to pass the budget.                                  the crown share adjustment, is estimated at $915 million. The borrowing
                                                                                            program could shrink depending on the amount of Crown Share money the
The streak of balanced budget continues                                                     government gets. As of April 2008, DBRS, S&P, and Moody’s credit ratings
Since FY 2000-01, Nova Scotia registers surpluses averaging $134 million                    were A, A+, and Aa2, the same as a year ago.
(see chart). FY 2007-08 was a not out of the ordinary. Nova Scotia registered
a $158-million surplus, a tad above the 2007 budget estimate of $118 million.                                           Nova Scotia Net Direct Debt
Both revenues and expenditures were slightly higher-than-anticipated. In FY
2008-09, Nova Scotia projects a $190-million surplus based on reasonable                                                                                                    50
economic assumptions, notably a 1.7% real GDP growth forecast for 2008.                          12000
                                                                                                                                                                            45
Revenue and spending are set to increase by a small 2 ½ %, just a tad above                      10000
inflation. As mentioned earlier, tax and spending measures announced in the                                                                                                 40
budget were tiny, and therefore will not alter the fiscal outlook meaningfully.                   8000                                                                      35
The government will soon examine with scrutiny the overall tax structure of the
province, which could lead to a major overhaul and affect the revenue outlook                     6000                                                                      30
                                                                                                                                                 $ millions
in the medium-term.                                                                               4000                                           % of GDP
                                                                                                                                                                            25

                            Nova Scotia Budgetary Balance                                         2000                                                                      20
                                          ($ millions)                                                   85- 87- 89- 91- 93- 95- 97- 99- 01- 03- 05- 07-
       400                                                            239                                86 88 90 92 94 96 98 00 02 04 06 08
                                              147 113           170         182 159 190
       200                                              28 38                                       Source: Nova Scotia government
         0
      -200           -116
               -201
                                                                                                              Net debt in March 2008 for selected provinces
      -400 -233                 -261                                                                                                     (% of GDP)
      -600               -442
                                                                                                  Saskatchewan                     12
      -800                                                                                       British Columbia                    14
                                       -797
     -1000                                                                                               Manitoba                               22
             94-95   96-97    98-99       00-01     02-03       04-05       06-07   08-09               Ontario                                      24
        Source: Nova Scotia government                                                           New Brunswick                                        26
                                                                                                            N&L                                                 35
                                                                                                    Nova Scotia                                                     37
It's pay back time: NS will use 70% of
                                                                                                          Quebec                                                           42
"Crown Share" money to pay down the debt
What is most likely to make waves in Nova Scotia in the near future is not the                                      0   5    10     15     20    25       30   35    40     45
tame 2008 Budget, but the highly-anticipated decision of a panel about Crown                             Source: 2008 provincial budget documents
Share, which will end once and for all a long-standing dispute between the
province and Ottawa. As LBS Economic Research mentioned in the 2008
Provincial Monitor of January (available on www.vmbl.ca), Crown Share                                                             Sébastien Lavoie, Economist
Adjustment Payments (CSAP) were part of a old offshore resource agreement
ratified in 1986. Despite its obligation, the federal government has never paid
CSAP to Nova Scotia. Now, it is pay-back time for Nova Scotia.


Carlos Leitao, Chief Economist                                                                                                                        (514) 350-3000
Sébastien Lavoie, Economist                                                                                                                           (514) 350-2931
Martine Bérubé, Coordinator                                                                                                                           (514) 350-3006
                                                                                                        May 5, 2008


                                   Budget Summary
                                  2004-05     2005-06       2006-07 2007-08**    2008-09*
                                                          $ millions
Own-Source Revenue                  3,875        4,261        4,558     5,486       5,550
Federal Transfers                   2,330        2,428        2,576     2,779       2,917
Total Revenue                       6,204        6,689        7,134     8,265       8,467
   % change                            7.6          7.8          6.7     15.9          2.4
Operating Expenditure               5,598        5,993        6,484     7,198       7,429
Debt Servicing                      1,034          988          964       930         905
Total Expenditure                   6,574        7,000        7,470     8,128       8,333
   % change                            5.4          6.5          6.7       8.8         2.5
Consolidation Adjustments                                                  21          57
Budgetary Surplus/Deficit             170          239          182       158         190
Net Direct Debt                      12,305      12,239      12,357    12,348     12,336
As a % of GDP                        41.0%       38.8%       38.6%     36.6%      34.9%
* Forecast; ** Estimate ; Source: Nova Scotia Budget 2008




Carlos Leitao, Chief Economist                                                               (514) 350-3000
Sébastien Lavoie, Economist                                                                  (514) 350-2931
Martine Bérubé, Coordinator                                                                  (514) 350-3006