Low oil price pushes deficit to $725M

James McLeod
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Finance Minister Tom Marshall speaks to reporters Tuesday in St. John’s. Marshall said lower-than-forecast oil prices means the province’s deficit this year will be $725 million. — Photo by James McLeod/The Telegram

Lower-than-forecast natural re­source royalties blew a massive $725-million hole in the provincial government, and forced Finance Minister Tom Marshall to an­nounce Thursday that the government will have to get more aggressive with planned budget cuts.

During his mid-year fiscal update, Marshall told reporters the Newfoundland and Labrador economy is doing really well, and it’s the economic problems everywhere else in the world that are messing things up for the government.

“The global economy is not doing us any favours, but our own economy is very strong, and will continue to be strong for a while,” Marshall said. “The continued global economic uncertainty has played havoc with our commodity prices and we’re not immune.”


In the spring, the government envisioned a $258-million budget deficit, but several factors conspired to drive that number up.

The price of oil has consistently been well below the $124-per-barrel level that the government forecast last April, and other commodity prices have been down, too.

That translated into lower royalty payments from oil companies and mining companies, and lower corporate tax revenue.

“There will be cuts,” Marshall said. “We have to reduce our spending to what our revenues are. We’ll do that. We’ll do that in a measured way, but we’ll do it.”

Everything is on the table as the government does a “core mandate analysis” and tries to figure out which current programs and services are unnecessary.

That’s something the St. John’s Board of Trade has some suggestions about. CEO Nancy Healey suggested a much more aggressive review, with an eye to cutting or privatizing arms of government that aren’t needed.

For example, the Board of Trade would like to see the government privatize the Newfoundland and Labrador Liquor Corp.

“We do believe that government is doing some things that they don’t necessarily have to do,” she said. “Why do they need to sell liquor? Why do they need to do laundry services? Why do they need to provide cafeteria services in hospitals and the like?”

Opposition politicians focused mostly on the fact the government has been spending money as fast as it comes in, and flubbed the oil price forecast.

“I’d hate to think that was done deliberately, but we said at the time that $124 a barrel for oil was completely unrealistic, and the figure they’re now saying is more what we said it should have been,” New Democratic Party Leader Lorraine Michael said.

Liberal Leader Dwight Ball said non-renewable resource revenues should be totally separate from the regular budget process, because the revenue swings around too wildly.

“I’m not of the opinion that royalties should actually be a direct line into our budget,” Ball said. “We will never be able to actually put together a budget that we will actually depend on. This is a problem we’ve had for a number of years now. We’ve had this problem even when we’ve had surpluses. You cannot depend on this budgeting process that this government uses.”

The government will not have to borrow money to pay for the

$725-million deficit, because it still has cash reserves in the bank.

But starting next year, the government will likely have to go to the bond market to raise money — something Marshall said it hasn’t had to do since 2004.



Twitter: TelegramJames


Organizations: Board of Trade, Newfoundland and Labrador Liquor, New Democratic Party

Geographic location: Newfoundland and Labrador

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Recent comments

  • david
    December 15, 2012 - 10:23

    Marshall announces he's not running in the future, and the newly-minted "lame duck" finance minister trots out 2 days later and delivers this "news" in a state of complete indifference, ready to deflect all questions with a carefree shrug of his shoulders. With this kind of political accountability, you can guess how the Muskrat Falls billion-dollar overrun anouncements will be made...yelling the news over their shoulders as they board their plane to Florida. We are complete fools and stooges, and we get the government we deserve.

  • david
    December 14, 2012 - 13:29

    Newfoundland: 1) the world's first ever petro-economy to accelerate its own financial demise while still producing oil; 2).....at a time when oil traded in the range of $100 a barrel for the first time ever; and 3) .....after 2 full decades of which, a jurisdiction with precisely nothing to view as any kind of significant social achievement, progress or accomplishment.

    • Scott Free
      December 14, 2012 - 13:49

      An awesome, albeit woefully correct, observation David; we simply cannot handle anymore prosperitiy here in NL. Our over-abundance of riches in oil and minerals, and indeed all natural resources, is lost on the ineptness, corruption and mismanagement of those in power; in the past, the present, and sadly, into the future.

    • david
      December 14, 2012 - 19:01

      Scott Free: You're very quick to project blame on "those in power"...we elected every single one of them, with a clear and immense satisafaction. We got exactly what we deserve.....I'm just pointing out what it was.

  • Cold Future
    December 14, 2012 - 12:24

    No problem just a half a billion (peanuts anyway). Its the rest of the world who can't manage their ecomomies and are messing it up for us. We just have got to get the word out to Angela Merkel and Obama and get them to pull their socks up and get the price of oil up so we can continue to be a have province. Let them know we have Mu$krat to deal with.

  • The taxman cometh
    December 14, 2012 - 11:51

    During the entire Muskrat Falls debate, there wasn't a peep out of the public sector unions. This thing is not even sanctioned yet but we can already hear that great sucking sound - the sound of tax dollars being sucked out of every pocket, every department, every agency, every public service to pay for this monument to political arrogance and corporate greed. Get ready for even larger deficits as this giant financial farce moves forward. Watch your personal taxes go through the roof while the companies sucking on the hind-tit of NALCOR earn record profits. Watch your monthly electrical bill more than double before they even flick the switch on this thing. Watch your property taxes resume their rapid upward trajectory as soon as municipal elections are over next fall. Watch government introduce fees for everything from berry-picking to breathing. The middle class in this province is about to get screwed in ways it didn't know were possible.

  • James
    December 14, 2012 - 11:23

    Where are you lapdog Johnny? Surely you've been given your talking points this morning. Why aren't you wading in there with your usual offensive comments -Jattacking government's critics. Shouldn't you be insisting by now that this three-quarter billion deficit has nothing to do with Muskrat Falls? That the half-billion slipped under the table to NALCOR is really a great investment and not just another cash deposit in the greatest fiscal sinkhole in the history of this or any other province. Com'on Johnny - there's no rest for the evil.

  • comical
    December 14, 2012 - 10:02

    So on the same day that we are told we have to prepare for the worst, and get ready for cutbacks, layoffs, etc, we allow a bunch of well paid "Board Members" cave in to some angy parents and keep schools open. Too funny. Amazes me how this government, and the two or 3 before them have no problem spending money in certain areas but "making the tough decisions" in other areas. I like the idea of cutting the number of MHA's. Lets be real, one MHA salary is equal to 2 or 3 salaries of people who are actually working, LPN's come to mind. And the sad part is that the MHA salarie is the least of our worries. Look at what's wasted in travel for these "elected officials". One good example is Gander, a service town, we deal with a population of about 50,000 people if you take in the areas within 1 hour drive. Yet within 1 hour we have to deal with 5 MHA's? hahaha. Money well spent? Again, as I said earlier. Comical.

  • saelcove
    December 14, 2012 - 08:34

    NLC would make a lot more money if privatize no payroll to meet no unions to deal with

  • Scott Free
    December 14, 2012 - 08:13

    A 300% miscalculation on the budget; hundreds of millions in lost legal battles and cleanup bills; hundred more millions of dollars poured into a yet to be sanctioned project; ask yourself, where else in the world could this go on? Just wait til the real numbers come out on the Muskrat project; but, by then, all the honourable members of the Blunderfest Administration will be long forgotten but the pain of the Danny Damage Era will be felt for generations.

  • derek
    December 14, 2012 - 08:06

    Its time to cut our number of MHA's to a normal level, say 26 instead of 48. That means 20,000 constituents each. Think you legends can handle that simple task and save our province millions?

    • Early August
      December 14, 2012 - 08:33

      Not a bad idea, Derek! Virtually everyone has been effected by budget cuts of some sort, in this economy, so if it's time to get "aggressive" as the Finance Minister states, then perhaps we should start at the top and work our way down (instead of the opposite that our current government has chosen to do).

    • joe
      December 14, 2012 - 10:12

      They can eliminate the new Office of Public Engagement and get rid of the minister and Deputy, ADM, Exec Etc and save a fortune, while they are add it get rid of the volunteer and non profit sector group. There is lots of fat that can be trimmed by getting rid of the PCs in general. Remember next election ABC in NL.

  • Steve
    December 14, 2012 - 08:02

    It seems like on a weekly basis for the past seven or eight years (since the Atlantic Accord), they have been shoveling new fire trucks and school roofs out the door faster than you can skin a cat. Hasn't every last village received one of these now? The town halls have all been painted, playgrounds have all been upgraded everywhere. Can we please stop shoveling money out the door to buy votes? The news releases from government are a constant stream of money being spent, and I have a hard time believing we can't slow that down a bit.

  • The poor Conservative face
    December 14, 2012 - 07:13

    Marshall wants the people of the province to be accountable to oil and not to him and the governments poor accounting and forecasting. Tommy has oil to thank and hide behind again, it works both ways. This makes dunderdale look bad, like a couple of weeks ago in labrador, the BS show signing with harper, penashue and mckay. She didn't know that was happening then so why the budget be any different.

  • George S.
    December 14, 2012 - 07:12

    One variable (price of oil) predicted for a one year period in the future in one province was woefully incorrect causing a one half of a billion dollars fiscal projection error. Muskrat Falls' financial projections consist of hundreds of variables (prices of oil, electricity, copper, tariffs, inflation, etceteras) in several provinces and two countries for five decades. Sleep well Folks. Nothing to worry about. Dunderdale, Martin, Kennedy, Williams have everything worked out.

  • Pensioner
    December 14, 2012 - 07:10

    This makes you look incompetent. Is this what people voted for?

    • Eli
      December 14, 2012 - 08:39

      PENSIONER...You have it 80% right, add stupidity and you got 100%. But YOU hit the key button.

  • Disappointed
    December 14, 2012 - 07:06

    Farce, lies!!! Attempts to turn people against Unions. Must be negotiationing the wages with the unions now. And making themselves look like fools. One minute they brag about being "a have province" and bank on money they don't have spending for brag political gain. The next they poor mouth so they can attact workers. Budget cuts! Well, I say start with yourself Primer... reduce your wages and pension Primer and Ministers, all with overpaid staff. Start at the top not the bottom, show you care. But you don't, do you because your plan is not to do right but to make regular people pay. Don't be fooled be this because these oil prices were predicted long ago. So this government is really admitting that they were banking on money they knew wouldn't be there. Provincial pensions aren't even indexed like the federal pension is. To attack the province's workers this way is really low. Politicans are such a disappointment, you vote for someone and then watch her/him try to keep you poorer. And for what, to spend money on bragable things to further their reign, power and fame. Change this or you've lost my whole faimiy's votes and we will campaign against you.

  • gee
    December 14, 2012 - 07:06

    Did I read right that the st. john's board of trade suggested the government privatize NLC? why would they? pure money maker for the government.

  • J
    December 14, 2012 - 07:06

    Interesting. Most normal oil companies use a more conservative number when doing their annual budgets. Maybe $80-$90 a barrel if oil was trading at $120-$130. If next years budget has the same unrealistic forecast then I think we can all makes some safe assumptions about this Government. As someone who has just moved back here with 3 kids I see that as things are currently going this place will be bankrupt just as the oil runs out, and given the lack of discovery successes lately that won't be long coming. Might as well pack the bags and leave them by the door. Mizzen might have oil but as it currently stands 200MMBbls is not currently a commercial development offshore Newfoundland in deepwater. This Progressive Conservative government, and I use the term Conservative loosely because these people are not Conservatives (fiscal or social), will be the ruination of Newfoundland. Is there a plan by any politician to pay down the debt? Especially seeing how the province has a very positive cash flow? They are spending money like it grows on trees. Yet, looking at the infrastructure you just know nothing substantial is being reinvested on that side. Where is it being spent? I've read the Budget and all I know is that I am getting fleeced in taxes but see no noticeable indication that this Government has the taxpayers best interested in mind. I vote Conservative but not yet in this province.

  • economist
    December 14, 2012 - 07:03

    $124 barrel of oil, you guys were and still are on glue.

  • the grinch
    December 14, 2012 - 06:35

    it doesn't take a rocket scientist to figure that out mr. minister. we can go to a kindergarden class and get the same answer. whats needed now are cuts, and i mean cuts. not on the little man, but on you politicians who abuse our money, wine/dine, travel the world, and so on. instead for example: travelling to ottawa for a meeting, wine/dining, fancy hotel, limo service, first class flights, so on . a conference call works just fine.

  • Brad Cabana
    December 14, 2012 - 06:35

    Privatize the Liquor Corp? It makes money for the treasury after expenses - about $130 million a year, which is more than Nalcor makes. In so far as not havinf to borrow money to pay the deficit that is technically true, but what it ignores is the money was pulled from a cash reserve which should be returned. As a result, and with next years billion dollar deficit added, almost all NL cash reserves of $2 plus billion will be gone, and these jokers will have to borrow the down payment for Muskrat Falls as well. In addition, we will have a roughly $1.8 billion accumulated deficit on annual revenues of $7 billion - or almost 30%. THat means a structered defecit that will take atleast 5-7 years to bring down if cuts are hard enough. The PCs have well and truly messed this province's economic future up. This is real. It's no longer hypothetical.