Nova Scotians brace for tax increases, deep spending cuts

Nova Scotia's NDP government is relying on tax increases and finding huge savings in spending as it attempts to dig the province out of a fiscal hole.

The budget tabled Tuesday was an acknowledgment, which came as a surprise to no one, that the New Democrats could not keep last year's election promise not to raise taxes.

"Doing nothing is not an option," said Finance Minister Graham Steele. "The financial path chosen by the previous government was unsustainable. We choose a different path."

The scale of the province's problem is clear. The government is forecasting a deficit of $222-million in 2010-11 and is looking to find a total of $772-million in savings over the next four years.

"Every program and every service will be examined for relevance, effectiveness and affordability," Mr. Steele said.

If all goes according to the government's plan, by 2013-14 the province will have a surplus of $300,000 on a budget of $9.14-billion. But that won't be done by cost-cutting alone.

"The size of the financial challenge means that new revenue options have to be considered," said Mr. Steele, citing the recommendation of a government-appointed advisory panel.

In July, the harmonized sales tax will go up to 15 per cent, with assistance built in for lower-income residents and certain personal products exempted. The province's harmonized sales tax will be the highest in the country, though Prince Edward Island residents pay a combined 15 per cent in federal and provincial consumption taxes.

The change will cost Nova Scotians $207-million this year. The average family will pay $500 more, according to government figures.

A new tax bracket will levy incomes above $150,000 at 21 per cent, up from the current top bracket of 17.5 per cent. But everyone earning more than $93,000, the current top bracket, will benefit from an end to the 10 per cent surtax on higher earners.

These changes to the income tax system, which are effective January 1, 2010, are expected to bring in an extra $32-million this year.

Next January, taxes for small businesses will be trimmed by a half percentage point, to 4.5 per cent. And this year a tax on the capital of large non-financial institutions will continue to decline, disappearing in two years. The total hit to the treasury in 2010/11 is estimated at $13.8-million.

These various tax changes will be coupled with an "ambitious" plan for finding saving in government.

"Let's be clear, though," Mr. Steele said. "When talking about expenditure restraint we're not talking about impacting patient care or student outcomes. We are talking about centralizing services, sharing administrative costs and using technology to not only improve service, but our bottom line as well."

He pointed to the expected success in meeting their efficiency targets this year, which would mean a saving of $54-million. The targets are more ambitious in the future - the government is looking to find $198-million next year, $247-million the year after and $273-million in 2013/14.

Also making the task more difficult, government spending this year is artificially low because they chose to pay $395.2-million in university funding in advance, taking it off the 2010/11 books.