Newfoundland and Labrador is projecting a $750-million deficit this coming fiscal year, but Finance Minister Jerome Kennedy says that number could be slashed if oil prices rise above government projections.
"One of the reasons that we feel cautiously optimistic in this province is that ... the difference between a $750-million deficit and a balanced budget is $20 a barrel," Kennedy told reporters prior to delivering last week's budget speech.
In calculating budget projections for the coming year, the province used a US$50 barrel of oil with an exchange rate of the loonie at 80 cents.
Higher oil prices over the next 12 months would help chip away at that deficit.
The province would move from the red to the black if prices average between US$65 and US$70 a barrel, Kennedy indicated.
"While it's very unlikely, and I would say it's remote, there is a chance that we could actually go from a $750-million deficit to a potential balanced budget or surplus this year, but certainly within two or three years," the minister noted.
On Friday, the price of a barrel of Brent crude - a close, but not exact, reference point for local product - was trading at just over US$51.
The province enlists the expertise of a New York-based oil-pricing agency to help make its projections.
"Basically, we feel that $50 a barrel is a very sensible and reasonable figure at this point," Kennedy said.
In past years, the government has - by accident or design - lowballed projected oil revenues.
In 2008-09, for example, the province initially indicated it expected to collect under $1.8 billion in oil royalties. But revised estimates released last week saw that number balloon to more than $2.5 billion.
Complicating the entire budgeting process is the fact that oil prices - and related revenues for the government - are out of the province's control.
Windfall petro-bucks from skyrocketing oil prices pushed the province to four straight surpluses totalling more than $4 billion up to this year.
But a drop in oil prices and planned production levels are now combining to plunge Newfoundland and Labrador into the red.
Prices lower than US$50 a barrel would further dent the province's fiscal health.
Despite a massive projected drop in oil royalties - down more than $900 million compared to last year, according to government figures - the Williams administration will crank up program spending by a whopping 10 per cent in 2009-10.