ST. JOHN’S, N.L. – Tax hikes, job losses and spending cuts are among grim expectations for Newfoundland and Labrador’s budget Thursday as the oil price slide takes its toll.
“It is not something that we take pleasure in. It is a very difficult situation,” Finance Minister Cathy Bennett told the legislature this week as the Liberal government prepares to deliver its first spending blueprint since winning power last fall after 12 years of Progressive Conservative rule.
Bennett asked officials across departments and agencies to brainstorm spending cuts of up to 30 per cent.
The new government’s first throne speech last month warned of hard times as the province confronts the prospect of successive deficits nearing $2 billion or more.
“The choices ahead of us will not be easy,” it said. “Everyone will have to accept some level of sacrifice in the months and years ahead if we are to provide critical services, while restoring accountability and stability to government finances.”
It’s an ugly fiscal picture traced back to the collapse of oil prices, lower production and higher spending in recent years.
About one-third of government revenues over much of the last decade came from the offshore oil sector, including several surpluses worth $5.5 billion that vaulted Newfoundland and Labrador to historic wealth. It became a so-called “have” province for the first time in 2008, getting off federal equalization payments on the strength of oil and mining earnings.
But the collapse of Brent crude values since mid-2014 has hit the treasury hard. Prices nosedived from US$115 a barrel to hover between US$30 and US$40 for much of the last year. Brent crude was trading Wednesday for about US$44.
Premier Dwight Ball has said equalization payments would come in handy now. The province would first have to meet complex requirements, he stressed.
The federal budget last month included some help through the seldom-used fiscal stabilization program to compensate provinces for sudden economic slumps. Ottawa committed almost $32 million to Newfoundland and Labrador.
Still, it will take a lot more than that as the throne speech made clear. It said net debt would top $23 billion in just five years if the province does nothing to correct course. It would have to borrow $15.4 billion by 2020-21, the head-spinning equivalent of racking up more than $7 million a day.
Standard and Poor’s Ratings Services in January lowered the province’s credit rating from an A-plus to an A, with a negative outlook. Further reductions would only add to the costs of borrowing.
Provincial auditor general Terry Paddon has repeatedly warned that the pace of forecast deficit growth is unsustainable — especially in a comparatively small province of 527,000 people. A projected $2 billion deficit for the last fiscal year is more than three times greater than the next highest province when relative economies are compared, he reported earlier this year.
Ball himself has described the province’s finances as “terrible.”
“They will be difficult decisions that we’ve had to make,” he told the legislature on Tuesday. “But they are the right and they are the necessary decisions that will have to be made to get our province back on track.”
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