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.