On the day the provincial government announced a hiring freeze, a new report says the province’s declining oil revenues highlight the need to reduce spending.
The Atlantic Provinces Economic Council’s pre-budget fiscal update, released Monday, noted the province posted healthy economic numbers in 2012, including growth in employment and average weekly wages, although decreased oil production dragged overall GDP growth to an estimated 0.1 per cent.
“Newfoundland and Labrador is still the growth leader in Atlantic Canada, even though with oil production down this year it’s taken a hit on the GDP side,” said council president Elizabeth Beale. “But outside of that, it’s still relatively strong in terms of a number of other indicators.”
The province’s employment growth — 2.1 per cent, nearly twice the national 1.2 per cent average — put it behind just Alberta and Saskatchewan last year, accelerating in the second half of the year, and there has been growth on the investment side, said Beale.
“We’ve seen the numbers for a number of projects being revised upwards, the Hebron project being the largest one,” said Beale, who noted that average weekly wages grew 5.6 per cent, tops in Canada, and retail sales grew five per cent.
But declining oil production in 2012 was a problem, especially considering the growth in public spending, said Beale. “The province has ramped up its spending considerably on provincial goods and services, and it’s now going to have to bring that down somewhat, and that’s going to be tough,” she said.
“It’s so hard because the GDP’s now so linked in to what happens with respect to offshore oil production, it’s such an enormous factor,” she said. “You see these big, volatile jumps, 15 per cent down, contracting, and then the next year back up again, so it’s hard to say what normal is anymore, when everything is so volatile.”
Legislating balanced budgets — as some have called for during the provincial government’s ongoing pre-budget consultations — will be tough for an economy so tied to commodity prices, said Beale.
“There have been other calls for the province to set aside a portion of its royalties on an ongoing basis to cover these kinds of variations on a year-to-year basis, or to set up a larger innovation fund,” she said. “The government would argue they’re already doing that. In other words, they’re spending at the current time to diversify the economy and to strengthen the economy over the long run.
“It does have choices on that side, and there’s no doubt that there’s reasons why per-capita spending should be higher in a province such as Newfoundland and Labrador, with a large, dispersed population, and it’s very costly to provide services to people,” she added. “But nevertheless, that spending has risen so sharply that there’s got to be some retrenchment from those growth rates, and that’s going to mean cuts.”