Offshore oil refits, federal cash losses put Newfoundland budget into the red

By Sue Bailey, The Canadian Press

ST. JOHN’S, N.L. – Newfoundland and Labrador is a newly wealthy province with a growing taste for finer things — a reality reflected as its Tory government opted for two years of overspending rather than “slash and burn” austerity.

The $7.5-billion budget tabled Tuesday projects a $258-million deficit this fiscal year and a net debt that will rise to $8.5 billion by the end of March 2013. That’s up from a net debt of $7.8 billion last year but down from a high of almost $12 billion since 2004.

Program spending will rise by just 1.7 per cent, the first time in years the province has spent less than the rate of inflation.

The financial blueprint also forecasts a deficit in 2013-14 of almost $433 million.

It’s an approach some critics say squanders the province’s chance to tackle debt while offshore oil royalties are still flowing. And it’s a far cry from surpluses worth $5.5 billion racked up in six of the last seven budgets — largely thanks to higher production and oil prices.

Finance Minister Tom Marshall blamed a $1.1-billion hole in the province’s finances this year on a temporary dip in oil production due to refits, plus the loss of federal cash as the Atlantic Accord ran its course. The joint offshore management program with Ottawa put $536 million in provincial coffers last year.

Marshall predicts a return to the black in 2014-15 with a $44-million surplus as higher offshore oil royalty rates kick in.

The temporary cash crunch means a loss of 45 temporary government jobs as the province negotiates new contracts with public servants, Marshall said. But the government decided against balancing the budget with more drastic measures, he told a news conference.

“We decided we’re not slashing and burning this year. We’re not doing it all at once,” he said.

“We’re going to institute a plan, we’re going to determine what our priorities are to diversify the economy for when … the oil is gone.”

There were expectations of much worse after Premier Kathy Dunderdale told the St. John’s Board of Trade in January that it was time to rein in spending.

Still, Marshall said a government-wide review of each department’s core mandates will help focus program goals and increase cash available to diversify the economy. He also hinted of possible cuts through attrition to the public service as 24 per cent of that workforce becomes eligible for retirement in coming years.

The province relies on offshore oil royalties for one-third of its revenues and is also heavily dependent on volatile commodity prices through its mining sector. Budget numbers were based on an expected oil price of US$124 a barrel, up from the US$108 price used last year after consulting with independent forecasters.

Higher than expected production and prices led to a projected surplus of $776 million for last year. One-third of that amount will be invested to fund public service pension plans which, along with other unfunded liabilities, account for about two-thirds of provincial debt.

Marshall said that component of debt and increasing health-care costs that will eat up almost $3 billion of the budget, both require long-term plans.

Renewable energy projects, such as the proposed $6.2-billion Muskrat Falls hydroelectric development in Labrador, would help the province shake its oil addiction, he added.

And Marshall said the province plans to cut per capita net debt of just over $15,000 a person to the national average of about $14,000 over the next decade.

Marshall said the provincial economy has never been stronger with record levels of investment and the lowest unemployment rate in 36 years at just under 13 per cent — still the highest in Canada.

“Our strong economy and our solid fiscal performance are assets that we will manage responsibly to provide continuing dividends into the future,” he said in his speech to the legislature.

The budget includes no increases in personal or other taxes, a continuing freeze on post-secondary tuition fees, a 10-year plan to increase child care spaces and a new foster care funding model to reflect the skills of caregivers.

Targeted spending also includes more than $100 million for apprenticeship training as new projects are expected to create 70,000 jobs over the next nine years.

Liberal Opposition Leader Dwight Ball homed in on how the government has earmarked $664 million for Crown corporation Nalcor Energy as it moves ahead with road construction and other preliminary work on Muskrat Falls even though the project hasn’t been officially approved.

“To me, this is not very prudent at all.”

NDP Leader Lorraine Michael said about $2 billion being held in cash assets could be better invested or used against unfunded public pension liabilities.

Kevin Lacey, Atlantic director of the Canadian Taxpayers Federation, said Tuesday’s budget puts off tough decisions that will cost more later.

“I think he’s just putting his head in the sand,” he said of Marshall. “The cost pressures will increase as time goes on.”

The cost of hefty public service pension liabilities is a problem nationwide, Lacey said.

“What it’s creating are two classes of citizens in Newfoundland. Those who have public sector, expensive benefits and those who are paying for (them) … most of whom have no pensions at all.”

Lana Payne, president of the Newfoundland and Labrador Federation of Labour, said those benefits were earned under contracts bargained in good faith after years of sacrifices in bad economic times.

Newfoundlanders now have a taste of prosperity and they don’t want to go back, she added. Payne suspects that the government’s big talk of spending restraint last winter didn’t go over well.

“I would suggest to you that that wasn’t being received well in any polling that anybody was doing.”

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