A second instalment of an independent consultant's review of Nova Scotia's finances singles out the Health Department as a target for getting overall spending under control.

The report by Deloitte and Touche LLP, released Friday by the Finance Department, said there is a need to innovatively manage costs while improving health-care services as health is expected to continue to eat up more than 42 per cent of departmental spending in 2009-2010.

"Addressing those challenges transcends simple cost management," Deloitte said in the 33-page report.

"The situation will require innovative and creative thinking as well as determined discipline during execution."

However, Deloitte's report did not make specific recommendations about what the government should do in order to get health costs under control.

Deloitte also recommended that the provincial government file a separate capital plan by December of each year, especially given the increased emphasis on capital spending as a way of stimulating the economy during the recession.

The report said while the current practice of submitting capital expenses as part of the overall budget is "adequate and appropriate," a dedicated capital plan would provide greater transparency and allow for earlier tender planning and preparation.

The first part of Deloitte's review of Nova Scotia's finances, released in August, concluded that the province's books are in worse shape than the previous government let on.

The consultant indicated that if spending continued as in previous years, the provincial deficit would grow to $1.3 billion by 2012.

The NDP government has referred to the first Deloitte study and a report released this month by an economic advisory panel as proof that it will be impossible to balance the budget next year as it wrestles with a $592-million deficit, despite an election campaign promise to do so.

The government said it will seek public input on how best to proceed during a consultation process to begin in January.