- Budget balance remains targeted for 2013-14.
- The fiscal year just ended is estimated to have produced a deficit of $260.8 million instead of the deficit of $389.6 million budgeted last spring.
- For 2012-13, the budget projects a deficit of $211.2 million. As scheduled, fiscal balance is expected for the following year.
- The capital plan for 2012-13 amounts to $610 million.
- The HST will be lowered by one percentage point in 2014 and by another percentage point in 2015.
- Increases in the dependant exemption and spouse exemption to match the basic personal exemption of $8,481 (fiscal impact: $7.5 million).
- Effective January 1, 2013, small-business income tax rate is cut 0.5 points to 3.50% (full-year cost: $10 million).
- Real GDP growth is projected to be 1.7% in 2012 and 1.9% in 2013.
- Assumed natural gas price of US$3.10/MBTU in 2012 and US$3.80 in 2013.
- Ratio of net debt to GDP estimated at 35.2% at March 31, 2012, projected to decline to 31.2% in 2015-16.
- Projected term borrowing program of $1.2 billion in 2012-13, or $1.6 billion including short-term financing. The program is projected to decrease to $742 million in 2013-2014, to $550 million in 2014-15 and to $731 million in 2015-16.
The $129 million reduction in the forecasted deficit for 2011-12 compared to last year’s budget results mainly from lower program spending, which came in under budget for a third year in a row, and lower debt servicing costs. For 2012-13, the deficit is expected to decline by a further $49.6 million. Revenues are expected to be up 4.3 % from the 2011-12 forecast.
Petroleum royalties are projected to decrease markedly as the Sable Offshore Energy project nears the end of its capacity; however, this will be more than offset by an 8.3% increase in federal transfers, which account for slightly less than a third of government revenues. Program expenses are projected to increase by 3.2% ($262 million), but 38% of this increase ($100 million) comes from an increase in “restructuring costs,” seemingly related to the merger of the Nova Scotia Agriculture College with Dalhousie University.
Otherwise, there was a 2.7% increase ($103 million) in spending on Health and Wellness, a $70 million increase for economic development, and a freeze of total other program expenses. The latter was achieved mainly through $145 million in savings due to the government’s expenditure management strategy.
Over the three following years, revenues are projected to increase by an annual average of 0.7%. Revenue increase in 2014-15 is marginal due to the harmonized sales tax (HST) drop. Revenue increase for 2015-16 is a bit more substantial, because the second HST drop will be partly offset by the effects of the shipbuilding contracts. Royalty revenues from Deep Panuke, which is scheduled to come on stream next July, will increase over the medium term, but they will not approach the revenues generated from the Sable Offshore Energy Project.
The province is seeing a sharp increase in the share of corporate taxable income being taxed at the lower small business rate. This, as well as the reduction in the small business tax rate will reduce provincial revenues. The government remains committed to eliminate the Large Corporations Tax on capital of non-financial institutions as of July 1, 2012. Today’s Budget also encompasses some personal tax cuts. When the government returns to fiscal balance, it will remove the fifth personal income tax bracket – 21% on taxable income above $150,000 – and reinstate the 10% surtax on provincial income taxes payable in excess of $10,000. The net effect of these changes will be a reduction in revenues.
In our opinion, the revenue projections presented in the budget are based on a prudent economic forecast. Economic growth estimated at 1.2% in 2011 is forecast at 1.7% in 2012 and 1.9% in 2013. A number of major investment projects have not reached key sanctioning decisions and are not incorporated into the Department of Finance’s forecast, such as the maritime Link for Lower Churchill Power, the Donkin coal mine and Shell’s $970 million offshore exploration plan.
To achieve a balanced budget over the next three years, annual growth in program expenses will need to be limited to 0.3% in order to offset larger projected pension valuation adjustment and debt servicing costs. The province estimates that net financial market debt will increase by about $500 million in 2012-13 due to the budget deficit, the net acquisition of tangible capital assets and on-lending to Crown corporations. Net direct debt will increase over the following three years despite small budget surpluses because of acquisition of tangible capital assets. But the increase will be below that of nominal GDP so the ratio of net direct debt to GDP is actually projected to decrease starting 2012-13.