CONTINUED SPENDING ON KEY INITIATIVES
- Budget balance forecasts: surprise surplus of $40.3 mn (0.1% of nominal GDP) in FY24, returning to deficits of -$467.4 mn (-0.8%) FY25 and -$608.7 mn (-1.0%) in FY26 in line with last year’s budget, narrowing to -$575.7 mn (-0.9%) in FY27 and -$360.1 mn (-0.6%) in FY28 (chart 1).
- Net debt: expected to increase from 33.3% of nominal GDP in FY24 up to 38.4% in FY28 (chart 2).
- Real GDP growth forecasts: +1.3% in 2023, 1.7% in 2024, and 1.9% in 2025.
- Borrowing program: $2.0 bn in FY24, $2.6 bn in FY25, $3.4 bn in FY26, $2.0 bn in FY27, and $2.6 bn in FY28.
- Budget 2024–25 follows through with a focus on healthcare and key initiatives, while assumptions of an optimistic economic outlook and increased revenue provides the backdrop for increased spending.
OUR TAKE
Nova Scotia’s Budget 2024–25 presents a budget balance that, for the most part, looks to be unchanged in the near term. The Province now expects to run a surprise surplus of $40.3 mn in FY24, albeit only 0.1% of nominal GDP, as higher own-source revenue and federal transfers are partially offset by greater program spending. Over the following two fiscal years, departmental expenses are expected to rise faster than revenue resulting in deficits that will increase to -$608.7 mn (-1.0% of nominal GDP) by FY27, in line with last year’s Budget, followed by slower declines in the deficit in the outer years.
Since the December 2023 fiscal update, Nova Scotia has seen greater than expected revenue windfalls. An additional $587 mn in federal transfers along with $425 mn from prior years’ adjustments have supported a 4.7% increase in FY24 total revenue relative to December’s forecast. While own-source revenue is expected to be lower in FY25 at $8,913 mn from $9,113 mn in FY24, when excluding FY24’s prior year adjustment own-source revenue is expected to increase by $360 mn. The introduction of tax brackets and credit indexation supports the upward revisions to the Personal Income Tax outlook. Total revenue is forecast to increase between 2% and 2.6% each of the next four years, reaching $17 bn by FY28.
While total expenditure looks set to increase 5.6% in FY25, the Budget continues to follow through on promised spending initiatives. Spending on Health and Wellness, the single largest item by departmental expense, will increase by $304 mn (5.8% y/y) to $5.5 bn in FY25. Nearly $10.5 bn will be spent in FY25 on the top four departments by share of expenditure: Health and Wellness (33.5%), Education and Early Childhood Development (12.1%), Community Services (9.6%), and Seniors and Long-term Care (8.2%), accounting for almost two-thirds of the fiscal year’s total expenses.
The net debt-to-GDP ratio is expected to continue increasing each year included in the Budget. Net debt is expected to increase more than 7% from FY25 out through FY27 and 5.7% in FY28, compared to nominal GDP forecasts of 3.9% in 2024 and 3.2–3.3% thereafter. This will drive up the net debt-to-GDP ratio from 33.3% in FY24, marginally below what was presented in last year’s Budget, to 38.4% by the end of FY28.
The economic outlook presented in the Budget is more optimistic than our baseline view. The Budget assumes real GDP growth of 1.7% in 2024 and 1.9% in 2025, which is above our latest forecast of 0.8% and 1.6% respectively, following 2023’s expected growth of 1.3% year-over-year. Uncertainty around an expected slowdown in the near term owing to elevated interest rates suggest there is more downside than upside risk to the Budget’s assumptions on economic activity.
Nova Scotia’s borrowing program for FY24 is complete, at $2.0 bn for the fiscal year. Borrowing requirements for FY25 are expected to increase to $2.6 bn for the purpose of funding the primary deficit and construction of long-term care facilities, as well as the net acquisition of tangible capital assets. Total borrowing requirements as laid out in the Budget are $3.4 bn in FY26, $2.0 bn in FY27 and $2.6 bn in FY28. The province expects the primary source of funding for the FY25 borrowing program to come from the Canadian debt market.
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