Unexpectedly strong revenues drove what’s now expected to be an $80 million surplus for Nova Scotia in FY 2024/25, a marked difference from the near $500 million shortfall projected in last year’s budget. Still, this black ink is not expected to last, with the province forecasting an $697 million shortfall (before a newly introduced $200 million contingency fund is factored in) in FY 2025/26. This amounts to a significant 1% of GDP. The Province expects to return back to a surplus (excluding the contingency fund) by FY 2028/29. Net debt-to-GDP, meanwhile, is seen climbing sharply over the forecast horizon.

Budget 2025 delivers on election promises made by the provincial government ahead of last November’s election. Tax relief features significantly in the budget, with the government set to roll out measures for households and small businesses. On the opposite side of the ledger, spending growth is projected to slow markedly this fiscal year. 

Economic growth to be Firm Moving Forward

The Province expects continued solid economic expansion over the next couple of years, with real GDP growth expected to average 1.9% (in line with 2024’s estimated gain). Meanwhile, nominal GDP growth is projected to average 4.5% over 2025 and 2026, roughly 1 ppt above our December projection. Growth is expected to find support from the province’s capital spending plan and tax cuts, offsetting the provisioned impact of U.S. tariffs and slowing population growth.

Even with this relatively firm growth backdrop, revenues are budgeted to drop 1.8% in FY 2025/26, as tax cuts weigh on the province’s intake. In terms of tax measures, the government will follow through on its pledge to lower the HST by 1 ppt effective April 1st. Compared to provinces that have the HST, this reduction will put Nova Scotia’s rate below the other Atlantic provinces, but above Ontario’s 13% rate. The Basic Personal Amount will also increase while personal income taxes and certain credits will be indexed to inflation. These measures are expected to save an average family around $1k this year, for a total savings of $500 million.

Nova Scotia Economic Assumption
[ Percent change unless otherwise noted ]

Source: Nova Scotia Budget 2025, TD Economics.

Budget 2025
Calendar Year		2024	2025	2026	2027	2028
Nominal GDP		4.8	4.7	4.3	3.6	3.0
Real GDP		1.9	2.0	1.8	1.5	1.3
Employment		2.8	1.4	0.6	-	-
Labour Force		3.0	1.6	0.7	-	-
Unemployment Rate (%)		6.5	6.7	6.8	-	-
CPI		2.4	2.2	2.0	-	-

Budget 2025 also follows through with the 1 ppt reduction in the small business tax rate to 1.5%, effective April 1st. Meanwhile, the small business income threshold will be raised to $700k from $500k – the highest among Canadian provinces.

On the opposite end of the ledger, expense growth over the coming year is projected at 3.7%, marking a notable slowdown from the prior fiscal year and restrained by a more moderate gain in healthcare spending. In contrast, education spending is forecast to surge by 11%. Meanwhile, debt servicing costs are seen as climbing 4.5% this year, lifted by borrowing requirements. As a share of revenues, they are pegged at 5.5% in FY 2025/26, below the long-term average of about 8%. 

Debt Burden to Climb Significantly

Net debt-to-GDP is forecast to jump from last year’s estimated 31.6% to 39.8% by FY 2028/29 (excluding the boost to the ratio from the contingency fund). For reference, there is only one province (Newfoundland and Labrador) with a debt ratio currently above 40%. 

The increase in the debt burden will be fueled by the combination of deficits and capital spending. On the latter, Nova Scotia’s FY 2025/26 $2.4 billion capital plan will invest in healthcare projects (like the Halifax Infirmary Expansion Project), education and public housing.

Borrowing requirements are expected to total $3 billion (before contingencies) in the upcoming fiscal year, up from $2.5 billion in FY 2024/25.

Bottom Line

This could remain a theme all budget season, but there is high uncertainty around the government’s solid economic forecasts, depending on how the situation with the U.S. evolves. There’s also some chance that the government may need to open its purse strings to cushion households and businesses in the province in the event of a Canada-U.S. trade spat. As such, the fiscal position of Nova Scotia could deteriorate, and we could be looking at a different situation by the time the next fiscal update rolls around. Note that net debt-to-GDP is already expected to rise to its highest level in about 25 years at the end of the projection horizon, even without significant downside risks manifesting.  

Nova Scotia’s meaty capital plan (released a few days ago), will add to these fiscal pressures, although it could support economic growth in the short-term, helping offset the negative impacts on investment from tariff-related uncertainty. Indeed, the government is banking on this to some degree in their economic forecasting. Also beneficial is the potential for capital spending to lift productivity over the longer run.

Nova Scotia Government Fiscal Position

[ Millions of C$ unless otherwise indicated ]

Source: Nova Scotia Budget 2025, TD Economics.

Fiscal Year		2024-25	2025-26	2026-27	2027-28	2028-29
		Forecast	Estimate	Estimate	Estimate	Estimate
Revenues		16,811	16,506	17,265	17,934	18,369
% Change		8.2	-1.8	4.6	3.9	2.4
Expenses		16,950	17,569	18,148	18,395	18,713
% Change		8.3	3.7	3.3	1.4	1.7
Consolidation/Accounting Adjustments		221	366	361	353	353
Surplus (+) / Deficit (-)
Provincial Surplus (Deficit) - Before Contingency		82	-698	-523	-108	9
Contingency			-200	-200	-200	-200
Provincial Surplus (Deficit) - After Contingency		82	-898	-723	-308	-191
Net Debt
Net Debt - Before Contingency		19,750	22,420	24,981	27,165	29,017
% of GDP		32%	34%	37%	38%	40%
Net Debt - After Contingency		19,750	22,620	25,381	27,765	29,817
% of GDP		32%	35%	37%	39%	41%