Loss of Atlantic Accord revenue may mean cuts

Daniel
Daniel MacEachern
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Finance Minister Tom Marshall speaks to the Institute of Chartered Accountants of Newfoundland and Labrador in St. John’s Friday morning. — Photo by Daniel MacEachern/The Telegram

The province’s financial picture was scrutinized Friday morning by a group that knows a little something about the bottom line.

Finance Minister Tom Marshall spoke at the Holiday Inn on Friday morning to the Institute of Chartered Accountants of Newfoundland and Labrador, touting the province’s recent economic good fortunes in recovering from the worldwide recession. The province has seen a rebound in resource revenue and gross domestic product growth in 2010 following an economic slowdown the year before.

Marshall, with deputy finance minister Terry Paddon, gave a broad financial overview of the province’s financial footing relative to Canada and the rest of the world before fielding questions from the audience. The first question was how the government intends to deal with the loss of federal Atlantic Accord funding, which runs out in two years.

“What the future’s going to bring, we have to look at our revenue stream and cut the cloth to fit the child,” said Marshall, but the questioner pressed further, to pin the finance minister down on saying whether the government would cut program or infrastructure spending. “I would say it would have to be both,” said Marshall.

 

Oil production

Marshall also spoke about the boon oil production has been to the province — higher than expected revenue has so far transformed what had been projected to be a $194-million deficit for 2010-11 to a revised $12-million surplus. Marshall said the mid-year revision will likely change again, with political instability in North Africa and the Middle East likely to drive it higher.

“The price was up to $100 before the Middle East even started,” he said after the breakfast.

“So the basic fundamentals of the supply of oil and demand for oil, the price was up anyway. Now the uncertainty, and speculators have driven it up, but once that settles down, you’re still going to see relatively high prices that you’re going to have to deal with.

“Obviously it’ll add to our revenue. If oil prices go up, our revenues go up. If production goes up, our revenues go up. If the dollar goes down, our revenues go up. So there’s those three factors; we don’t control any of them, so we have to see how they all net out.”

Marshall said the province’s most recent budget forecast an average oil price of US$86 per barrel. Brent crude was trading at $111.70 on Friday, after spiking almost to $120 during Thursday trading. And while higher oil prices help government revenues, higher gas prices at the pump hurt consumer spending and business profits.

“We know in 2008 that’s exactly what happend. We went up to $147. I don’t know what the number is, but obviously it’s a concern.

“Obviously you want to see prices higher, and we get more revenue and that gives us more money to spend on the people of the province … but if it gets too high and stays high, you run the risk of potentially higher inflation. Higher inflation leads to higher interest rates, higher interest rates leads to people stopping borrowing, businesses stop investing, things slow down. If things slow down, prices drop and we’ll have even less revenue.”

“When we first got into office, we found there was pent-up demand (for spending) like you wouldn’t believe,” said Marshall.

“The highways were terrible; we had to do all that road work. We’re still doing roadwork. The ferries had to be rebuilt, replaced. Water bombers had to be replaced. Air ambulances had to be replaced. So we’ve been doing that in a major way. We have a $6-billion infrastructure strategy, and we’ve made a lot of progress.

“We’ll be coming to the end of that at some point, although we still need long-term care facilities for our aging population, and hospitals as well. But that will end, and we also had to spend to stimulate, because the economy was dropping in ’09-10 … but now we’re entering into a new model where our revenues are going to be lower. The Atlantic Accord of ’85 will come to an end, so we have to live within our means, like any family has to do.”

 

dmaceachern@thetelegram.com

Twitter: TelegramDaniel

Organizations: Holiday Inn, Institute of Chartered Accountants of Newfoundland and Labrador

Geographic location: Middle East, Canada, North Africa

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Recent comments

  • Randy
    March 02, 2011 - 10:20

    It's very clear,Danny Williams got out at the right time.Why didn't he negotiate the atlantic accord for a period of 20 years ,instead ,of his term in gov. What a moron

  • malcolm
    February 28, 2011 - 23:18

    Michael Don't rant. Explain yourself. Not everyone is as familar with the Atlantic Accord. I thought it went on until the oil ran out. Appearently not. When does it run out? Malcolm

  • Watcher
    February 28, 2011 - 11:16

    Michael, the truth is that over the past few months oil prices have been rising steadily. The Canadian dollar has not. We've been at parity (give or take a cent or two) since last year.

  • Michael
    February 26, 2011 - 11:29

    There is a fourth factor: If the Canadian dollar goes up, the oil revenues go down. Why not state the truth!! Oil is priced in American funds, not Canadian. The high Canadian dollar is negating the jump in oil prices, or partly anyway. Why doesn't Marshall tell us that? Why doesn't he also tell us what the financial loss will be of the Atlantic Accord? Why? No details at all. Don't we deserve to hear the truth? Another typical manipulator who doesn't want to tell the truth!!!! Newfoundlanders want to hear the truth and not the (possibility of truth).

    • Mike
      February 27, 2011 - 21:36

      He did. "If the dollar goes down, our revenues go up" and vise versa