The province is forecasting a slim budget surplus for 2006-2007, as higher expenses for government pensions and labour settlements in the health care sector put pressure on the budget. The province’s second budget forecast update this year shows $3.3 million remaining in the unallocated surplus — the amount available to cover spending and revenue pressures for the rest of the year. The total surplus of $64.7 million — $8.88 million down from the $73.5 million budgeted — includes $57.4 million legislated for debt reduction, and a $4-million debt-reduction contingency. “The province continues to perform well overall,” said Finance Minister Michael Baker. “However, with a razor thin surplus, we will be taking a very prudent approach to managing our budget risks in the last quarter of the year. We must keep our expenses in line.” Total revenues are forecast to rise slightly, to $6.928 billion, including net income from government business enterprises of $340.3 million. Total expenses will go up $11.8 million to $6.917 billion, as higher program and pension expenses are offset by savings in debt servicing costs. Net program spending is forecast to increase by $21.3 million over the original budget, primarily because of an additional $23.7 million to cover the recent contract settlement with acute-care health-care workers. Costs related to government pension plans are also expected to rise, with a negative variance in the pension valuation adjustment of $35.8 million. The higher expenses are offset by a $45.3-million decrease in net debt servicing costs, to $830.9 million. The Department of Finance has revised its calculation for sinking fund interest earnings, and taken advantage of favourable market conditions for the refinancing of government debt. Net revenues, excluding government business enterprises, were down $900,000, with a number of significant changes in revenue categories. Nova Scotia’s own-source revenues are forecast to drop $12.5 million, with federal revenues $11.6 million higher than budget. Provincial and federal income tax revenues are forecast to be higher, offset by lower revenues for petroleum royalties and tobacco taxes. Mr. Baker said higher pension expenses are a significant risk for the last quarter, when new benefit and premium estimates are expected. Nova Scotia may also be hurt by income tax changes potentially coming forward in the federal spring budget. Details have not yet been announced. Nova Scotia’s real Gross Domestic Product for 2006 is forecast to be 2 per cent, down from 2.5 per cent in the budget. This is because of slowing economic growth in Canada and the United States. Mr. Baker said government departments will be asked to defer, or eliminate, non-essential spending to ensure that the province ends the year with the surplus required by the Provincial Finance Act.