Nova Scotia's finances have dramatically sunk into the red as the Liberal government announced Thursday that an $18.3-million surplus predicted by the former NDP government has turned into a $481.7-million deficit.
The NDP forecast the slim surplus in the last fiscal update in August, shortly before former premier Darrell Dexter called October's provincial election.
In delivering her first quarterly update, Finance Minister Diana Whalen partly blamed the new deficit number for 2013-14 on a $318-million unfunded liability in the public service pension plan, as well as a drop in government revenue.
Whalen said she added a pension charge to this year's budget at the recommendation of Auditor-General Jacques Lapointe, which results in a one-time $280-million hit to the bottom line.
Taking care of the unfunded pension liability now also helps the government in the future, she said.
"I think we are in better condition right away for next year," said Whalen.
Revenue from personal income taxes is down by $71.7-million while HST revenue is down by $30.2-million than was predicted in the spring's $9.5-billion budget, she said.
Overall, revenue is down by a total of $157.8-million from the budget forecast while total expenses are forecast to be $328.5-million higher.
Acting NDP leader Maureen MacDonald said the Liberals inflated the budget to make the books look worse than they actually are, adding that it wasn't necessary to add the pension payment to the budget in one year.
But she also conceded that the province's finances are legitimately in deficit.
"I do accept that the revenue is down, that's clear, and that's based on information that comes in," said MacDonald, who was the NDP's finance minister.
Tim Houston of the Progressive Conservatives expressed disappointment at the size of the deficit, saying the government needs a plan to balance the books and that everything the government spends money on should be reviewed.
"Look through the budgets line-by-line and see where we can find efficiencies," said Houston. "It's not going to be an easy job. There's going to be some tough decisions that will have to be made."
Whalen said spending by government departments increased by $85.6-million, although $36.4-million of that figure is offset by funding received from Ottawa and municipalities. Another $9.2-million cost was added to the budget to account for the government's support for a new ferry between Yarmouth and Maine.
Whalen wouldn't speculate on whether program cuts are coming in the spring budget, but she said the government will stick to its pledge to reduce departmental spending by one per cent, except for Health and Education.
"We'll be looking at all the tools we have at hand to try to rein in spending and to be fiscally conservative," she said.
The government will be helped, Whalen said, by forecasts that show an improvement in economic growth next year because of the federal shipbuilding contract and increased activity in the province's offshore oil and gas sectors.
As has been expected, Whalen confirmed that the government will repeal NDP legislation that would have started cutting the HST next year because it cannot afford the loss in revenue.
Under the law, the HST would have been cut by one percentage point next year and again in 2015, bringing the tax rate down to 13 per cent. Each percentage point cut is worth about $190-million in revenue for the province.
Before the deficit announcement, Premier Stephen McNeil said the updated finances shouldn't be a surprise because the NDP's budget was too optimistic.
"Every Nova Scotian questioned the revenue numbers that were put forward by the previous government, we all said they were too rosy. The numbers now that have come in and that have been verified confirm that," he said.