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Minister says Nova Scotia finances worse than expected, but offers no solutions

HALIFAX, N.S. - Before Nova Scotia's rookie finance minister delivered the bad news about the precarious state of the province's finances, an aide carried in a large chart showing a thick, blood-red line jutting upward.

HALIFAX, N.S. - Before Nova Scotia's rookie finance minister delivered the bad news about the precarious state of the province's finances, an aide carried in a large chart showing a thick, blood-red line jutting upward.

Above the line were two words: "Unsustainable Path."

Graham Steele, sworn in less than two months ago when the province's first NDP government assumed power, led a time-honoured, political tradition Monday by releasing a report that concludes the province's books are in worse shape than the previous government let on.

"This report reveals the previous government did not share with Nova Scotians the full extent of the budgetary challenges we face," he said, setting himself up for the new government's message track.

"The previous government was on an unsustainable path and that is going to change."

Premier Darrell Dexter called for the financial review shortly after his New Democrats won a majority government June 9.

He was expected to announce Tuesday his plan to deal with the financial mess.

The independent review, prepared by Deloitte and Touche LLP, found that the former Conservative government led by Rodney MacDonald had used less-than realistic expense projections, underestimating the bottom line by $1.2 billion by 2012-2013.

Steele said the Tories tried to avoid or bury the province's financial challenges.

"They just calculated what they needed to show a surplus," he said.

As well, the review found the province's spending had outpaced a series of short-term revenue windfalls, including big payments from the offshore petroleum industry and federal equalization.

With the province's revenue stream declining in the midst of the global economic meltdown, the Deloitte report concludes the province faces "the single largest financial management challenge ... for the decade ahead."

As a result, Nova Scotia could be saddled with a $1.3 billion annual deficit by 2012-2013, adding to an accumulated debt that could top a staggering $16 billion that year, a $4 billion increase in just three years.

The underlying assumption behind these ominous numbers is that nothing will change in the years ahead in terms of projected revenue and expenses.

Steele said change is on the way, but he declined to release details Monday, saying he wants to talk to Nova Scotians before delivering a budget in mid-September.

"I know that a lot of people are going to be wondering after today's report about what the next steps are," he told a news conference. "But the next step is not what is being announced today."

The minister admitted he's in a tough spot, mainly because the NDP promised during the election campaign to balance the budget by next year without raising taxes or cutting spending.

That's a tall order for a government that, under existing balanced budget legislation, has to find or cut $809 million to balance the budget in 2010-2011.

"Our operating principle continues to be that we will balance the budget next year," Steele said.

"Nothing that I've seen as minister of finance leads me to say that it is going to be impossible to balance the budget next year."

When asked directly if he would repeat the NDP pledge to refrain from raising taxes or cutting spending, Steele wouldn't do it.

"Today is not the day for me to say to you, 'We are going to do this, we're going to do that,"' he said. "We are going to keep our commitments."

However, the financial review hinted at what the New Democrats may be forced to do, suggesting the NDP "revisit" the province's balanced budget legislation and debt management regime.

Again, Steele would not say if such a move was being contemplated.

Bill Hogg, a co-author of the review and an associate with Deloitte in Halifax, said other provinces with balanced budget laws are facing similar challenges in the midst of a sputtering economy.

"You're setting up a very steep hill for you to climb," he said, referring to Nova Scotia's strict debt management requirements.

Liberal Leader Stephen McNeil has said Dexter's balanced budget promise was a misguided attempt to buy votes because the NDP did not have a clue what the province's finances actually looked like.

On Monday, he said Dexter was "misleading Nova Scotians to obtain power" and he pressed the New Democrats to say how they will keep the province in the black.

"What we want to know is how they are going to keep those commitments," he said after the news conference.

He said the Deloitte review "ballooned the numbers" to make it easy for the NDP to reduce expectations raised during the election.

The NDP and the Liberals joined forces last May to bring down MacDonald's minority government when he tried to bring in a budget that included proposed changes to the contentious legislation.

The Tories wanted to avoid a deficit by putting off legally required payments on the province's debt, but the opposition rejected the move as a shell game.

Interim Conservative Leader Karen Casey said the report's suggestion to change the budget legislation mirrors a move proposed by the former MacDonald government.

"We had a plan to address the financial situation that didn't involve deficits or cuts, but the NDP and Liberal parties chose not the support that plan," Casey said in a statement.

"The NDP government must now show Nova Scotians what their plan is to meet our financial obligations."

During the election campaign, the NDP presented voters with a modest, three-page platform that included $78.9 million in new commitments - a document the Conservatives and Liberals dismissed as a weak pamphlet.

The premier has denied program cuts will be needed because the NDP's platform is focused on creating the kinds of jobs that will allow the economy to grow.

Nova Scotia's debt-to-GDP ratio has been declining, but the province is now paying more than $900 million annually in debt servicing charges, leaving a big hole in an $8 billion budget.

 
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