When Nova Scotia Finance Minister Randy Delorey summoned public sector union leaders last month to tell them about the government’s austerity-driven “new approach to collective bargaining” he had a tough act to follow – himself.
Less than three weeks before brow-beating union leaders with tales of impending fiscal doom, the very same Delorey had released the Public Accounts for 2014-15. Those audited financial statements for the year ended March 31, 2015 told quite a different yarn from the one spun to the unions. Highlights include:
- The deficit or the last fiscal year was $144 million, $135 million lower than expected;
- Debt-to-GDP ratio dropped to 37.0% from 37.7%;
- Provincial own-source revenue was up an impressive 9.9% for the year.
Delorey and government spinners, backed up by the austerity-obsessed scribes at the Chronicle-Herald, were quick to pour cold water on what seemed like good news, lest it interfere with the Liberals’ plan for getting bargain-basement collective agreements with their unionized employees. The positive numbers, it was suggested, were a fluke, the product of phenomena known as PYAs, or Prior Years’ Adjustments. Previously scheduled Hard Times will resume.
But the positive numbers for 2014-15 should not be dismissed so quickly. PYAs work both ways. In 2013-14, a prior years’ revenue adjustment related to pensions left a hole that added over $300 million to the annual deficit. This created a big bad number the Liberals could use to fuel talk of the fiscal crisis while whacking the NDP’s financial management. In 2014-15 the adjustments went the other way, with the province getting an unexpected $110 million in sales and income tax revenue, contributing to the 9.9% increase mentioned above.
Given the uncertain state of the economy, no one in her right mind would predict a revenue increase of that magnitude next year. And the fickle finger of the PYA could move in the other direction, springing bad news in revenue or spending and throwing this year’s budget out of whack. But here’s the thing. When the bad PYAs of 2013-14 and the good PYAs of 2014-15 are combined, it turns out that provincial revenues over the last two years have been much better than the government would have us believe.
According to the public accounts, despite two years of slow economic growth and declining employment numbers, provincial source revenue increased from $6.84 billion in 2012-13 to $7.26 billion in 2014-15, an average increase of 3.07% a year. Go back three years to 2011-12 and the average annual increase in provincial source revenues is even higher – 3.95%. (The main revenue problem, as I’ve stated many times before, can be found with federal transfers, up an average of 2% a year, including a small drop in 2014-15).
Two things emerge from looking back three years.
First, a three-year perspective further undermines the Liberals’ oft-repeated claim that “lucrative” wage agreements negotiated by the NDP exceeded the government’s ability to pay. As I pointed out in my post of July 10, economic growth, as measured in nominal GDP, came in at a higher number than wage increases. And with the latest data from public accounts, it is clear that revenue growth – 9.9 % over three years – also exceeded the 7.5% wage increase given unionized employees.
Secondly, looking at revenues over a three-year period casts doubt on the credibility of the Liberals’ Fiscal Plan. The Plan, presented with the spring budget, is basically a projection of future revenues and expenditures that the government wants to use to guide its wage negotiations. http://novascotia.ca/PublicServiceSustainability/FiscalPlan.pdfT
It projects revenue increases averaging only about 2% a year over the next three years. Combined with spending increases averaging 1.5% a year, the Plan is supposed to begin producing small surpluses by 2016-17. The Liberals have made it clear that they aim to restrain spending primarily by putting the squeeze on their own employees, a risky and potentially disruptive strategy.
But it is questionable whether that policy of restraint is even necessary to achieve a balanced budget. To re-cap, from 2011-12 to 2014-15, during a period of declining employment and stagnant federal transfers, total revenue increased by 9.9%. With employment now stabilized (and full-time employment up an average of 4,500 a month so far this year), and with more well-paying jobs on the horizon with the ship building contract, the Liberals are dubiously projecting total revenue growth of only 6.2% over the next three years. It appears that the Liberals are deliberately low-balling revenue estimates to help their wage negotiation strategy. Either that or they have completely given up on growth in federal transfers or the provincial economy.