02/25/2015 08:40 EST | Updated 04/27/2015 05:59 EDT

Public sector retiree benefits add to Nova Scotia's debt woes: auditor

HALIFAX - The cost of benefits for retirees in the public sector is a growing risk to Nova Scotia's finances, a new report by the auditor general says.

The province's obligation for health benefits, allowances and accumulated sick leave for retirees totalled $1.8 billion as of March 31, 2014, an $81 million increase from 2013, Michael Pickup said Wednesday.

Union and non-union, civil servants, along with workers in the health and education sectors, account for 88 per cent of the total liability.

Pickup warns the liability is unfunded, which means the government will have to pay for the plans through future taxes and other revenue.

He had no opinion or formal recommendations on what the government should do.

"We do note, however, that government needs to evaluate how these obligations will be addressed on an ongoing basis and share with Nova Scotians its plans on how it plans to mitigate the associated risks," he said at a news conference.

The report says retirement health benefits in the past five years have increased by almost 43 per cent, while retirement allowances — a lump-sum payment that some employees get when they retire — have increased almost 20 per cent in the same period.

The report comes as the government faces contract negotiations with a number of public-sector unions, including teachers.

Finance Minister Diana Whalen said there is nothing the province can do about benefits that have been previously won through contract negotiations. However, she said negotiations on future contracts would have to examine all aspects of public-sector pay and benefits.

"Everything has to be looked at, there's no question," said Whalen. "Every time you sit down to negotiate there is give-and-take and there's tradeoffs."

Meanwhile, Pickup returned to a familiar theme on the government's overall financial position, saying programs and services are at risk because of the province's $15 billion in net debt.

He said particular concerns are the biggest ever increase to the net debt per capita, and the fact the debt is growing faster than revenues. Net debt is increasing at a rate that exceeds population growth, which the report says might not be sustainable.

The net debt stands at $15,659 for each Nova Scotian in 2013-14, a six-per-cent increase from the year before. Net debt as a percentage of total provincial revenues reached a high of 147 per cent in 2014, meaning there is $1.47 in debt for every $1 in revenue.