Nova Scotia’s massive government stifling economic growth

As Ottawa pumps up its magical money machine, splashing out billions of our dollars to buy our votes, it’s clear that neither the federal nor provincial government plan anything to fix one of Nova Scotia’s most growth-stifling problems—its leviathan size of government.

Government spending in Nova Scotia equaled 63 per cent of the economy in 2022 (the latest year of available data), the largest of any province. The Canadian average was 41 per cent. If Nova Scotia were a country, it would exceed all countries on size of government except micro-states such as Kiribati (population of 130,000) and the Marshall Islands (population 42,000) and retro-communist states such as North Korea and Cuba.

Nova Scotia has high military spending, but if it were normalized to the Canadian average, government spending would remain about 60 per cent of the provincial economy.

Even the Nordics are pikers in government spending compared to Nova Scotia. In 2022, government spending in Sweden equaled 47 per cent of its economy; Norway, 39 per cent; Iceland, 48 per cent; Denmark, 45 per cent; and Finland, 53 per cent.

However, according the World Competitiveness Report, all the Nordic states (except Finland) have legal and regulatory environments consistently more business-friendly than Canada, offsetting costs imposed by large government. A recent study by the Mercatus Center at George Mason University suggests that Nova Scotia lags all the other Canadian provinces (except Newfoundland and Labrador) in the weight of the regulatory burden—adding to big government costs.

Vast government damages the economy in several ways. Onerous taxes discourage and distort economic activity. Deficits create future burdens. Yet spending all by itself injures the economy even if money drops from heaven, as much does for Nova Scotia from the feds.

It reduces the space for private-sector growth, leading to economic stagnation. It forces business to compete with generous government salaries and benefits, drawing many of the most talented workers and increasing costs. Massive government spending distorts business incentives. Government becomes many businesses’ biggest customer. To sell in the private sector, services and products must be of competitive quality and price. Government spending priorities differ, often revolving around political considerations, rewarding friends and doling out money for political gain. This erodes business’s focus on quality and price, and ability to succeed in the marketplace.

These are key reasons why Nova Scotia lags most of Canada in private-sector indicators such as investment, employment growth and business startups.

But there’s good news. If you reduce the size of government, you help unleash dynamic growth. When Ireland moved to shrug off its “have-not” status as northern Europe’s economic laggard, its key goal was to shrink government and broaden the space for the private sector.

Government spending in Ireland averaged more than 50 per cent of the economy through most of the 1980s. The country was a northern backwater. Ireland launched a series of reforms slashing government’s size. By 2000, government spending equaled only about 30 per cent of the economy. In 2022, it was just 21 per cent, one-third of Nova Scotia’s current level. Ireland is now roughly twice as prosperous as Canada. In 1989, before Irish reforms, per-person GDP in Canada was about one-third greater than in Ireland.

Canada had a similar experience, albeit not as dramatic. Through the 1980s and early 1990s, government spending in Canada spending reached Irish levels, soaring from under 40 per cent of the economy to more than 50 per cent in many years, weakening the economy.

Growth fell below world and U.S. averages. In 1995, Prime Minister Jean Chretien started dramatic spending cuts. By 2000, he’d reduced government spending to 40 per cent of the economy—still high, but economic growth resumed, matching and sometimes exceeding world and U.S. growth over the following decade.

Growth can be damaged in many ways. Size of government is one of those ways. Yet neither Ottawa nor the Houston government’s 2024 provincial budget show any interest in addressing this growth-hobbling condition and opening space for businesses to thrive and create prosperity in Nova Scotia.