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In its 2020 budget, the Province of Nova Scotia allowed the net debt-to-GDP ratio to rise by 2 percentage points, back up to 35%. This change in policy was made prior to the COVID-19 crisis and is a divergence from the target set by the One Nova Scotia Commission to achieve a ratio of 30% or less by 2024. Compared to other provinces, Nova Scotia’s net debt-to-GDP ratio and net debt per capita are in the middle of the pack.
Municipal revenues and expenditures grew at a typical rate through fiscal 2018-19, bringing the operating budget close to $1 billion. Halifax Regional Municipality (HRM) continued its debt-reduction strategy by reducing the municipal tax-support debt for the 10th straight year. The municipality was in a good fiscal position leading up to the COVID-19 crisis.
The COVID-19 crisis has put increased fiscal pressures on both the Province and HRM. Significant declines in GDP are expected in 2020, leading to lower tax revenues. Government programs to provide emergency support to individuals and businesses will be financed through borrowing. Combined with a decline in GDP, we expect debt levels to rise substantially and the debt-to-GDP ratio to worsen.
HRM revised its annual budget before it was ratified, making $85 million in cuts to mitigate the significant losses in revenue anticipated as a result of the COVID-19 crisis. Governments around the world are facing tough fiscal decisions throughout the crisis and will continue to face challenges as we emerge from it.
In its latest budget delivered in February 2020, the Government of Nova Scotia forecasted the provincial net debt at the end of the 2019-20 fiscal year to be $15.2 billion. This works out to approximately $16,000 per Nova Scotian and 33% of provincial GDP. In addition, there is approximately $19,000 of federal net debt for every Canadian.
Today’s debt represents money that ultimately will have to be paid back by tomorrow’s Nova Scotians, including residents of Halifax. When debt-servicing costs remain reasonably low relative to income streams, there is no need for alarm, but if they grow rapidly and challenge the debtor’s control, governments may resort to austerity measures: tax increases and/or spending cuts. These will impact the well-being of our residents and our businesses.
Consistent with the One Nova Scotia Commission’s goal of reaching a 30% net debt-to-GDP ratio by 2024, the provincial ratio has been trending downward, going from 38% in 2013-14 to 33% in 2019-20.
Prior to the COVID-19 crisis, this year’s budget marked a change in direction allowing for the ratio to rise to 35% by 2023-24.
Given the economic crisis that has followed in the wake of the COVID-19 public health crisis and the province’s response to it, we can expect GDP to drop and provincial debt to rise substantially. As such, the debt-to-GDP ratio will worsen substantially. The province may be facing tough fiscal decisions once the crisis has subsided.
(f): Forecast data
Source: Province of Nova Scotia, Provincial Budget
Source: RBC Economics, Canadian and Provincial Fiscal Tables
In response to the COVID-19 crisis, HRM extended its deadline for property tax payments to June 1, 2020. Given this delay, expenditure and revenue figures were not yet finalized, and we can only report on planned spending for the fiscal year 2019-20.
Municipal revenues grew by 2.2% in fiscal 2018-19, reaching a total of $937.2 million. In its budget for 2019-20, HRM anticipated a typical 2.0% increase in revenues for 2019-20 and a slightly more modest 1.5% increase through fiscal 2020-21.
Property taxes brought in three-quarters of municipal revenue, growing by a typical 3.1% rate in 2018-19. Of all property taxes, 38% are generated from commercial property and 62% from residential property. A 19% reduction was budgeted for the deed transfer tax. Deed transfer tax revenues typically are much more volatile from year to year than property tax revenues.
HRM continued to pursue a disciplined debt-reduction strategy by budgeting to reduce tax-supported municipal debt by $4.5 million in the 2019-20 budget. This 1.9% reduction is on par with the 5-year average for annual reductions and brings total tax-funded municipal debt down to $235.7 million. Overall, HRM was in an advantageous fiscal position going into the COVID-19 crisis.
Municipal spending for the fiscal year is laid out in the 2019-20 budget. The largest share of the budget is devoted to fiscal corporate services (17.2%), mandatory provincial costs (17.0%), and policing (13.2%).
*Change in budgeting treatment of Halifax Stanfield and Irving taxes between 2014 and 2015
(f): Forecast data
Source: Halifax Regional Municipality, Financial Policy and Planning
Source: Halifax Regional Municipality, Financial Policy and Planning
Source: Halifax Regional Municipality, Financial Policy and Planning
Halifax was the 3rd-fastest growing Canadian city in 2019. We gained nearly 10,000 new residents and broke our own population growth record for the 4th straight year. Immigration continues to drive population growth and enrolment at our universities is growing.
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