As the economy grows, the government has a greater capacity to service debt without sacrificing program delivery. -30- NOTE: For further 2009-10 budget information, see the Department of Finance website at www.gov.ns.ca/finance . Stimulate the economy Government will undertake its largest infrastructure investment, Building for Growth. In the next three fiscal years, the province will increase capital spending to leverage federal dollars and stimulate economic growth. These infrastructure investments will cause debt to rise. The province of Nova Scotia will change its approach to debt management to respond to the current fiscal and economic circumstances. A new Debt Management Plan will be introduced as part of the 2009–10 budget. In the midst of a worldwide economic downturn, Nova Scotia’s revenue sources are declining, and additional funds are needed for core programs such as health, education, and social services. Under the new debt plan government will: The Provincial Finance Act will be amended to support the Debt Management Plan of 2009 and modify provisions of the 2005 Debt Reduction Plan that were enshrined in legislation. Government will set new debt reduction targets for the years ahead. The goal is to keep debt at a level that is affordable for the size of the economy and resume debt reduction once the economy improves. Debt Reduction Background Nova Scotia has implemented a number of financial measures in the last eight years, first to slow the growth of its debt and then to produce large enough surpluses each year to reduce it. In 2005, the government adopted the Debt Reduction Plan, placing debt management along with balanced budgets as a central priority of fiscal management. Some provisions of the plan were given force by amendments to the Provincial Finance Act. The act was amended to ensure that a payment of $830 million from the government of Canada for the offshore offset would be earmarked to go to debt reduction. The 2005 Debt Reduction Plan also included a policy commitment to have the debt decline beginning in 2007–08, which was met. Government later made a policy commitment to put funds received from the Crown share payment on the debt. Government has managed the debt portfolio prudently. Gross debt-servicing costs have declined, and after remaining U.S. dollar funds were hedged in 2007, the foreign currency exposure went to zero from 72 per cent in 1995. Debt Management Plan, Four Components The Province of Nova Scotia will introduce a Debt Management Plan in 2009 to replace the Debt Reduction Plan of 2005. It has four components: Maintain fiscal discipline Balanced budget legislation will continue. Government must take a very strategic and disciplined approach to keeping expenses down, while maintaining or increasing revenues to balance the budget in years ahead. As part of this discipline, government is choosing not to run an operating deficit to finance stimulus measures. A higher base of operating expenses continues into future years, is very hard to reverse, and makes debt reduction targets more of a challenge. Set debt-management targets The 2009 Debt Management Plan sets new debt management targets that are focused on keeping the level of debt sustainable and affordable for the Nova Scotia economy. Amend legislation The Provincial Finance Act will be amended to facilitate the introduction of the 2009 Debt Management Plan. borrow money in the next three years to pay for much-needed infrastructure and stimulate the economy use some specific funds previously earmarked for debt reduction to fund programs and services The Offshore Offset Revenue Expenditure Act changes Nova Scotia’s unique definition of deficit, which prevents offshore offset payments from being used as revenue to calculate whether the provincial budget meets the balanced budget requirements. The changes mean that offshore revenues may be used as revenue as they would normally be under standard accounting practice, and as they are in all other provinces.