Nova Scotia is still heading for a razor-thin surplus but staying in the black is contingent on freezing retirement awards for public sector workers, a move that's yet to be imposed by the government or accepted by the province's main union.

According to the latest fiscal update, finance officials are forecasting an end-of-year surplus of $12 million, $5 million smaller than the $17 million surplus predicted when the budget was introduced last spring.

Finance Minister Randy Delorey told reporters at a briefing on Thursday the government is committed to staying the course.

"We have been clear that we must stick to our plan, which provides modest increases while maintaining a balanced budget and puts us on a path to fiscal sustainability," he said. "It's not fair to ask our children and grandchildren to pay for unsustainable compensation packages provided for services delivered today."

That was a direct reference to failed contract negotiations with teachers, who have taken work-to-rule job action, and the province's largest union, which represents government workers.

Long-service awards

What the minister did not say, but his officials confirmed after the briefing, is the fiscal projection includes $40 million in savings from a freeze on long-service awards paid on retirement to non-union and unionized government employees, including Nova Scotia's 9,300 teachers.

Neither the Nova Scotia Teachers Union, nor the Nova Scotia Government and General Employees Union are agreeing to the changes.

The governing Liberals used their majority in the legislature last year to pass Bill 148, which includes a freeze on all long-service awards, but cabinet has yet to enact the proposed law.

'They are looking to take things from people'

NSGEU president Jason MacLean, whose members Wednesday rejected a year-old tentative agreement, said the union was willing to go back to the negotiating table but wanted the long-service award to remain as is.

"We're not looking for anything," he said. "They are looking to take things from people. Who here in Nova Scotia wants to go to tomorrow with things taken from their employer?"

Asked repeatedly whether the government was ready to enact Bill 148 to impose a contract on government workers, Delorey refused to be specific.

"We'll have to see where negotiations go," said the minister.

The teachers union sits down with provincial negotiators on Saturday. It's unclear when the NSGEU will return to the bargaining table.

Cape Breton flood damage

Flood damage in Cape Breton has also hurt the provincial books.

Thursday's numbers incorporate $17.5 million to respond to the damage from the October storm in Cape Breton.

New federal-provincial cost-sharing programs for clean water and waste-water projects, ocean research, an enhanced science complex at Acadia University and projects at Nova Scotia Community College campuses also increased costs by about $45 million.

The delay in the completion of the new convention centre in Halifax has reduced revenue by $110.3 million and reduced capital expenditure costs by $169.2 million.

Forecasted tax revenue is down $45.5 million, mainly from reduced personal income tax, motive fuel tax and HST. The reduction is partially offset by projected increased revenues from corporate income tax and tobacco tax.