• Nova Scotia expects to run a larger $898-million deficit in fiscal year 2025-26 after a surprise surplus of $82 million in fiscal 2024-25.
  • Deeper deficits are forecast over the fiscal horizon to 2028-29, largely due to a new $200 million contingency.
  • Tax cuts are introduced to stimulate the economy and improve affordability for residents.
  • The debt-to-gross domestic product ratio is expected to rise over the fiscal plan to 40.9% by 2028-29, making Nova Scotia’s debt burden among the heaviest in Canada.

Nova Scotia’s government was re-elected on the promise of lowering taxes and improving affordability for residents, and Budget 2025 was an attempt in that direction. The fiscal plan included expected tax cuts for households and businesses as well as the removal of tolls and parking fees from some public infrastructure.

New deficit projections closely mirrored those in Budget 2024. The inclusion of a new $200 million annual contingency allowance, however, resulted in deeper deficits over the course of the fiscal plan—including a larger $898 million deficit in fiscal 2025-26.

The annual contingency allowance was added to mitigate the impact of potential new tariffs from the U.S. and other unexpected events like natural disasters, emergencies, and new priorities.

Deficits are still projected to shrink over the course of the fiscal plan until reaching $191 million in fiscal 2028-29 or reaching balance if the contingency isn’t used.

Expenditure projections for fiscal 2025-26 are up $619 million (3.7%) from the 2024-25 estimate, reflecting higher department expenses, particularly for health and wellness where higher staffing, facility, and supply costs are expected.

Higher costs are expected alongside a $306 million (-1.8%) reduction in revenue relative to fiscal 2024-25, reflecting tax cuts and the roll-off of one-time revenue increases reported in fiscal 2024-25. One-time adjustments boosted revenue $550 million over the previous 2024-25 forecast, and came largely from higher personal and corporate income tax assessments than expected in the prior year.

Tax from personal income is also tracking significantly higher ($351 million) in the fiscal 2024-25 year than previously forecasted as employment and income growth outperformed expectations. These upward adjustments to revenue were major contributors to a surprise surplus of $82 million in fiscal 2024-25 from the $467 million deficit previously projected.

Province delivers on tax cuts

Budget 2025 delivered on tax cuts for households and businesses—some of which could support growth during a period of heightened uncertainty.

A reduction in the small business tax rate from 2.5% to 1.5% and an increased income threshold to $700,000 from $500,000 should help the province’s tax competitiveness, making it among the lowest in Canada.

An increase in the basic personal amount, spousal amount, and the eligible dependent amount for tax filers is poised to improve affordability and help tax filers prepare for a potentially turbulent year. It’s also a productivity-enhancing measure, which incentivizes work, savings, and investment. These changes are set to take effect in the 2025 tax year.

The government also announced plans to reduce provincial HST from 15% to 14% starting April 1, 2025. This will likely boost consumption in the near term, but is unlikely to provide the productivity enhancements needed to boost wages.

The budget also includes a tax increase, however this applies to non-resident property transfers. The non-resident Deed Transfer Tax will double from 5% to 10% effective April 1, 2025

Growth assumptions pose downside risk for revenue

The province’s nominal GDP forecasts were revised up significantly from Budget 2024, citing the stimulus impact from higher capital investments and tax cuts. These projections are also said to account for some provisions related to potential U.S. tariffs and slowing population growth.

The budgetary projections are based on growth assumptions that are slightly more optimistic than ours, posing downside risk to revenue.

Fiscal burden on track to get heavier

Nova Scotia’s net debt-to-GDP ratio is tracking lower than expected in 2024-25. The surprise surplus and upward revisions to the province’s 2023 nominal GDP resulted in a slight improvement of the debt burden to 31.6% in fiscal 2024-25 from 33.3% in fiscal 2023-24.

High operating deficits moving forward, however, will put the debt burden back on an upward trajectory, crossing the 40% threshold in 2028-29.

The province’s debt servicing costs are also projected to rise over the course of the fiscal plan, increasing as a share of revenue from 5.5% in fiscal 2025-26 to 6.8% by fiscal 2028-29. Heavier debt burdens and interest costs will leave the province with less fiscal firepower for upcoming challenges.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook and budget commentaries.

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