The Nova Scotia government tabled its 2020 provincial budget on Tuesday. Highlights include a spike in capital spending and net debt, minimal relief from high taxes, and the province’s fourth consecutive balanced operating budget.

Despite projecting balanced operating budgets from 2020/21 to 2023/24, net debt in Nova Scotia is expected to grow by $2.7 billion during the period covered by the budget. The government projects a $535 million increase in net debt this year alone, primarily due to a record-breaking $1.04 billion in planned capital spending.

The province can balance its budget and still accumulate debt because the government separates annual spending (operating budget) from long-term spending on items such as new schools and highways (capital budget). On the operating side, the government projects balanced budgets over the next four years.

The province’s debt relative to the size of the economy is projected to rise throughout the budget plan from 2019/20 levels. This ratio, worsening for the first time since 2014, is projected to reach 34.5 per cent by 2023/24, up from 33.0 per cent in 2019/20. This ratio is also much higher than the government’s previously-endorsed goal of reaching 30 per cent or less by 2024. Put differently, the current capital spending spike negates some of the progress from a five-year track record where net debt was essentially flat.

The level of overall spending in the budget, and the consequent increase in net debt, is concerning given the province’s debt load (and associated interest payments) is already relatively high. The amount of provincial net debt per person is now expected to reach $16,034 in 2020/21.

While there’s certainly a need for investment in capital projects, the government’s plan comes with significant risk because the debt accumulation occurs while the economy is growing. The health of Nova Scotia’s finances could deteriorate rapidly if something causes these conditions to change, such as a recession.

Government program spending (operating budget) is projected to grow by 2.1 per cent annually over the next two years. The government has demonstrated some restraint, keeping this increase below the average annual rate of population-plus-inflation growth (2.8 per cent). The government in Halifax plans to increase program spending from $10.6 billion in 2019/20 to $11.5 billion in 2023/24.

On personal income taxes, the government provided no relief. Prior to the budget, Nova Scotia already had the highest top combined federal and provincial personal income tax rate (54.0 per cent) of any state or province in North America. By maintaining this tax rate on entrepreneurs and professionals, the province risks negating some of the recent progress made in attracting new residents.

However, the government will reduce the corporate income tax rate by two percentage points. This is a step in the right direction, given that Nova Scotia previously had the highest rate in the country. But it’s important to remember that the new rate of 14.0 per cent still ranks higher than every non-Atlantic province in the country.

On personal and business taxes, competitiveness continues to be a major issue for the province. Research repeatedly shows that high personal and business income taxes, like we have in Nova Scotia, can negatively affect economic growth. Furthermore, for a province that badly needs to attract investment, skilled workers and entrepreneurs, these high taxes act as a deterrent to those considering Nova Scotia.

In its 2020 budget, the provincial government largely stayed the course with its fiscal plans of the past five years. While the balanced budget and business tax relief count as modest progress, the spike in debt is concerning, and more disciplined fiscal action is required to tackle future challenges.