Big deficit, mounting debt but no tax hikes in Newfoundland and Labrador budget

JOHN’S, N.L. — Taxpayers who helped pull Newfoundland and Labrador from a fiscal cliff got a slight break in the latest provincial budget, but debt will soar even as costs are slightly cut.

The $8.1-billion spending plan released Thursday has no tax or fee hikes and trims expenses by $283 million. It forecasts a $778-million deficit, down from $1.1 billion last year.

Higher-than-expected offshore oil royalties helped brighten a bleak financial picture and there were no deep public-sector job cuts as widely feared. But critics were quick to say the governing Liberals could have done more.

“We still have a massive spending problem,” said Richard Alexander, executive director of the Newfoundland and Labrador Employers’ Council. “We still have a fiscal crisis.

“Taxpayers … have bailed out this government basically from bankruptcy.”

Finance Minister Cathy Bennett said the province will be in the red for several more years before returning to surplus in 2022-23. Her budget last April — the first for the Liberals after they took office in late 2015 — was rife with tax and fee hikes on everything from books to ferry rides.

It became a lightning rod for public fury as government approval ratings tanked. Bennett has acknowledged tax fatigue but said Thursday there will be more belt-tightening.

“We continue to have a spending problem,” she told a news conference. “We are grateful that oil revenues continue to help us but it simply highlights the fact that we cannot afford the government services we have now with general revenue alone. We must continue to reduce spending in the years ahead.”

Still, the budget includes cutting an unpopular tax on gasoline by 8.5 cents per litre as of June 1 and another four cents on Dec. 1.

It also says there will be new legislation to freeze wages for public-sector managers and non-union workers. The province recently announced almost 400 management jobs will be eliminated.

Bennett said she anticipates no “massive layoffs” among other public-sector staff but bargaining is underway with several union groups.

Alexander said there will have to be sacrifice.

“Wages in the public sector are 27 per cent higher than the rest of Atlantic Canada. There’s room for unions to make concessions on those things. If they do that, it will mean fewer job layoffs in the future.”

The budget forecasts net debt will rise by almost $1 billion to $15.2 billion this fiscal year for a population of just 527,000 people.

About 13 cents of every tax dollar now goes to debt servicing, Alexander said. “We’re spending more on interest for the province’s credit card than we are on education.”

Bennett concedes it’s a staggering amount that, on a per capita basis, far exceeds other provinces.

“We need to continue to work on lowering the cost of delivering services and lowering the cost of borrowing,” she said.

Bennett spoke with the province’s main credit rating agencies prior to the budget and said she does not expect a repeat of recent downgrades that rack up interest.

The governing Liberals have trimmed almost $500 million in spending since taking office, she added. Bennett said those results have come from efficiencies and not diminished government services — a claim opposition critics have challenged.

The province has been financially hammered since oil prices collapsed from US$115 a barrel starting in mid-2014. Bennett had counted on an average oil price of about US$45 for the last fiscal year but prices were slightly higher.

Brent crude was trading early Thursday at about US$54 a barrel.

Higher prices and production put just over $962 million into provincial coffers last year, almost double what was forecast. Almost $882 million in offshore oil royalties are expected this year.

Bennett has anchored this year’s budget on an average oil price of US$56 a barrel, drawing on 30 forecast reports.

She has also asked Crown corporation Nalcor Energy to find savings to help lower electricity rates starting in 2020-21.

It’s a measure to offset another major drain on provincial finances: the delayed $12-billion Muskrat Falls hydroelectric project in Labrador. It’s almost double the cost forecast when the former Progressive Conservative government approved it in 2012. It’s also expected to add as much as $150 a month to an average heating bill when it comes online in about three years.

The province has borrowed $4.9 billion since 2016 to get through a funding crunch caused by over-reliance on once-lucrative offshore oil earnings, Bennett said. Borrowing will be down to $400 million this year, she added.

“I’m confident that the work we’re doing is getting us on the right track.”

Outside the legislature, demonstrators who gathered for a tail-gate style barbecue and protest said more tax relief can’t come soon enough.

“This government is putting the people in the hole,” said Andrew Young, a 66-year-old retiree. “The poor people can’t survive anymore. It’s too high, the taxes. It’s ridiculous.”