04/03/2014 01:31 EDT | Updated 06/03/2014 05:59 EDT

Nova Scotia Budget 2014 Forecasts $279-Million Deficit


HALIFAX - University students in Nova Scotia are losing a tax credit aimed at keeping them in the province while funding will be increased to improve student-teacher ratios in classrooms in a provincial budget Thursday that was short on cuts and new spending.

Finance Minister Diana Whalen made no secret of the fact the Liberal party's first budget since it was elected in October would contain a deficit, and the government is forecasting a shortfall in 2014-15 of $279 million.

The government plans to spend $9.9 billion in this fiscal year, which includes a $455-million increase in expenditures. Most of that was already promised by the province's previous NDP government, with just $80 million earmarked for new Liberal programs.

Whalen described the budget as "the foundation for the work ahead" as the Liberals wrestle with an economy that a leading academic recently warned is on a path to financial disaster unless changes are made.

"We have undertaken a series of measures to meet our commitments and effectively respond to Nova Scotia's clearly articulated desire for a new direction," Whalen told the legislature.

The changes being made by the government are modest, with health spending and home-care services getting small increases.

There is a hike in the education budget over a four-year period, which includes $7.2 million to help cap class sizes at 20 students from Primary to Grade 2. The Education Department said the money will be spent to hire 180 new teachers.

The government is also adding some money to early literacy initiatives and bringing back a reading program that was axed in 2011.

But less than a week after eliminating interest on the provincial portion of student loans, the government is killing a graduate retention rebate that gave grads a maximum annual tax credit of $2,500. The interest-free loans is expected to cost the government $1.6 million annually, but getting rid of the tax credit is estimated to save $49.5 million.

Jonathan Williams, executive director of Students Nova Scotia, said the move was a "betrayal" of students who want to stay and work in the province.

"There are lots of things driving graduates away and this budget is not going to help," said Williams.

He said a more useful tool would have been converting loans to grants that are tailored to students needs, much like Newfoundland and Labrador recently announced.

"That wouldn't have taken up all the money that the graduate retention rebate was worth," he said.

But Whalen defended the savings resulting from the elimination of the graduate retention rebate, saying the program wasn't working.

"We're trying to make smart investments and this one was money that was not doing what the credit said ... retaining young people."

Whalen said the government will focus instead on programs aimed at helping graduates enter the workforce. They include a new graduate scholarship for innovation and research worth $1.85 million and a $1.6 million program aimed at helping employers train new graduate workers.

In health, the government will spend $10.6 million on programs intended to recruit and hire doctors in rural areas of the province.

There are no new tax measures in the budget and the government is maintaining the harmonized sales tax at 15 per cent, scuttling an NDP promise to begin lowering the tax this year.

The estimated net debt is expected to grow to $14.6 billion, up from $13.9 billion forecast in last year's budget. That amounts to about $16,000 for every man, woman and child in Nova Scotia.

Progressive Conservative Opposition Leader Jamie Baillie said the Liberals are adding to the debt burden when they should be balancing the ledger.

"If they had simply held the line on spending, Nova Scotians would have a balanced budget today and a chance at real tax relief," said Baillie.

But Whalen said cost-cutting and restraint measures over the last four years have resulted in huge costs for programs that require funding such as home care and various community services initiatives.

She said the government was also paying $137 million in 2014 as part of three-year public-sector wage settlements.

A tax review that is underway will eventually give the government a sense of where it should go regarding future spending, she added.

Note to readers: This is a corrected story. A previous version said the budget was $9.6 billion.

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