Lowballed projections could cut N.L. deficit

Rob Antle
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Province's fiscal situation at the mercy of oil markets

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.

Finance/Energy -

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.

Geographic location: Newfoundland and Labrador

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Recent comments

  • leo
    July 02, 2010 - 13:22

    Do you have a backup job if you lose your present one to pay the bills? i doubt it. Same thing with government, they live off the day-to-day revenues. If things go bad we have to make adjustments. We all wish there was a gold mine available when we needed it.

  • I Have
    July 02, 2010 - 13:18

    Hey Jack, will the government be footing the bill to build these of which you speak? Try asking the companies that had plans for these projects, and where they sit today. Bet they will tell you the same as they told me. It will be a wait and see from now on if we go ahead. No money left to begin projects when the demand for products are down. They need to pay other bills before spending big bucks on projects that take years and years to turn a profit.

    Thats where we sit. Just like before, wait and collect EI till thats gone, then get in line for welfare. Welfare still pays better at the end of the day then spending money on gas, insurance and repairs to get to a job that see's people spending more to keep a job then they make.

  • Say
    July 02, 2010 - 13:17

    $60,000 For a first year Nurse fresh out of school!!! I was pulling in over $100,000.00 a year with full benefits after 14 years and 2 post secondary degrees. But here and now I would take $50,000.00 just to have a job.

    Debbie your greed is too much. I hope you like rotten eggs on the line, because not a chance in hell will people put up with your demands after knowing what you are forcing your membership to turn down.

    You my dear are a fool.

  • Cheers To
    July 02, 2010 - 13:15

    I think someone forgot to look at the recent dealings of the majority source of the oil bucks in this province. Since it began in 1917, and then with oilsands in 1967 Suncor has called the shots in Alberta. They do what they want, where they want and how they want.

    You really think they are going to rollover for poor little Danny! Think again. Did you know that Suncor is Non-Union, so what do you think will happen to the offshore here now? Did you know that they will do the same here, and laugh all the way to the bank? Did you know that each year they dump more and more toxins into the Athabasca River with little to no recourse?

    They are going to tell Danny what they will pay him, not Danny trying to play hardball. This province and Danny Williams will learn a very hard lesson if they think they can bully the best bully in the business. Get ready for cheap Asian labour and no jobs for us.

    Fun times I tell ya.

  • AT
    July 02, 2010 - 13:13

    Just imagine if this government had to balance the budget without oil money. They would not be able to buy a free lunch. Oil money paid down our debt and gave us a balanced budget. Nothing has been done by this government as a contingency plan (for employment) in the event there would be no oil money.

  • Jack
    July 02, 2010 - 13:10

    The government has worked hard to give employment opportunities in the province the inco project in placentia area and the new GBS to be built in Bull Arm for examples that spring to mind right away.

  • leo
    July 01, 2010 - 20:07

    Do you have a backup job if you lose your present one to pay the bills? i doubt it. Same thing with government, they live off the day-to-day revenues. If things go bad we have to make adjustments. We all wish there was a gold mine available when we needed it.

  • I Have
    July 01, 2010 - 20:00

    Hey Jack, will the government be footing the bill to build these of which you speak? Try asking the companies that had plans for these projects, and where they sit today. Bet they will tell you the same as they told me. It will be a wait and see from now on if we go ahead. No money left to begin projects when the demand for products are down. They need to pay other bills before spending big bucks on projects that take years and years to turn a profit.

    Thats where we sit. Just like before, wait and collect EI till thats gone, then get in line for welfare. Welfare still pays better at the end of the day then spending money on gas, insurance and repairs to get to a job that see's people spending more to keep a job then they make.

  • Say
    July 01, 2010 - 19:58

    $60,000 For a first year Nurse fresh out of school!!! I was pulling in over $100,000.00 a year with full benefits after 14 years and 2 post secondary degrees. But here and now I would take $50,000.00 just to have a job.

    Debbie your greed is too much. I hope you like rotten eggs on the line, because not a chance in hell will people put up with your demands after knowing what you are forcing your membership to turn down.

    You my dear are a fool.

  • Cheers To
    July 01, 2010 - 19:54

    I think someone forgot to look at the recent dealings of the majority source of the oil bucks in this province. Since it began in 1917, and then with oilsands in 1967 Suncor has called the shots in Alberta. They do what they want, where they want and how they want.

    You really think they are going to rollover for poor little Danny! Think again. Did you know that Suncor is Non-Union, so what do you think will happen to the offshore here now? Did you know that they will do the same here, and laugh all the way to the bank? Did you know that each year they dump more and more toxins into the Athabasca River with little to no recourse?

    They are going to tell Danny what they will pay him, not Danny trying to play hardball. This province and Danny Williams will learn a very hard lesson if they think they can bully the best bully in the business. Get ready for cheap Asian labour and no jobs for us.

    Fun times I tell ya.

  • AT
    July 01, 2010 - 19:50

    Just imagine if this government had to balance the budget without oil money. They would not be able to buy a free lunch. Oil money paid down our debt and gave us a balanced budget. Nothing has been done by this government as a contingency plan (for employment) in the event there would be no oil money.

  • Jack
    July 01, 2010 - 19:46

    The government has worked hard to give employment opportunities in the province the inco project in placentia area and the new GBS to be built in Bull Arm for examples that spring to mind right away.