Nova Scotia: Budget 2023 - Surging Revenues to be Spent on Health Care and Capital Investments

Nova Scotia’s 2023 budget continued to pencil in deficits for every year of the forecast starting in fiscal year 2022–23 (FY2023), following a short-lived surplus in FY2022. While revised lower in FY2023 and FY2024, deficits are now projected to be larger in the outer years of the forecast than in Budget 2022. In line with smaller fiscal shortfalls in the near term, the province expects to borrow $2.0B in FY2024, down $63M from the plan in Budget 2022. However, Nova Scotia now anticipates borrowing $2.3B and $2.2B in FY2025 and FY2026, respectively, up $720M and $955M versus last year’s budget plan. Economic forecasts for calendar year 2023 were revised lower in respect of a softer global backdrop, but base case projections do not assume a recession. Outer-year economic forecasts have been revised higher, however, due to population growth and investment. The FY2023 revenue windfall lifted the trajectory of government revenues in the later years of the fiscal plan. That enabled much of the $3.4B in new spending in FY2024 and FY2025 combined versus last year’s fiscal plan. Nova Scotia once again raised its population growth forecasts in light of the ongoing surge. To meet the needs of a growing population, it continues to plan significant increases in infrastructure spending that will raise its debt profile over time. Some investors and rating agencies will no doubt continue to worry about the province’s rising debt burden. But we think the focus on long-run growth and public service provision is wise given Nova Scotia’s particular economic situation and the sheer strength of recent population gains. The challenge will be to ensure that it hits its fiscal and infrastructure targets in a highly uncertain environment.