Professor of economics at Memorial University of Newfoundland and Labrador Wade Locke wasn’t sugar coating the province’s financial outlook on Saturday.
“There’s no good story here,” he said.
Locke was giving a talk titled “An Economic Perspective on Newfoundland and Labrador” for the Newfoundland and Labrador Construction Association’s (NLCA) 44th annual conference at the Delta Hotel.
It was just last month that the province forecasted the prospect of a $1.6-billion deficit next year.
“We have a fiscal problem in this province,” Locke said.
And the government has recently availed of Locke’s expertise to soften the blow of what is predicted to be much different economic times than the province has experienced recently. He has been appointed senior policy adviser for this year’s budget cycle and will be working with the government briefly, but intensely, until March 31.
Locke gave a sobering overview of what this province is facing.
“The future is still bright but there are two things we need to think about,” he said.
One of those things is the demographic shift taking place in the province. The population fell almost 13 per cent in the 15 years following the moratorium. It has risen slightly in the last five years or so, but there is still something of a trap here with regards to the resource projects planned for the province. Taken directly from Locke’s presentation is the statement, “If the resource projects that are expected for the province proceed, we are likely to see a significant increase in population. Otherwise they cannot proceed because we do not have enough workers and we have an aging population.”
The second thing we need to consider, he said, is an aging population. With a demographic that’s aging so dramatically, both the work force and health care are affected. There are some pressures that an aging population will place on available health-care resources: in the workforce, there are fewer people entering the labour market than are expected to retire. Currently, the potential retirees exceed the new entrants into the workforce by 34 per cent.
“That’s not a good sign,” said Locke.
Some cushioning, though, is provided by the higher wages that are being offered in this province, a temptation that will delay retirement for some and attract others into the work force. The resource industry is known for paying well, but the average taxpayer has seen an increase in their pay too, said Locke.
“Their normal incomes have gone up significantly,” he said, adding that the increase is probably not as much as people would like, but the proof is in the numbers, nonetheless. The average weekly wage in this province is above the Canadian average.
What’s really the most foreboding for the overall outlook of the province is the turn the provincial budget is about to take. According to Locke’s presentation, from 1949 to 1993 there were cash surpluses in only two years. However, there have been budget surpluses in six of the last eight years. Now, there’s a deficit of $1.6 billion expected next year.
According to Locke’s slides, government assumed oil prices of $124 per barrel at budget time, but prices have averaged $109.87 per barrel since April and $111.54 per barrel since August. This false prediction, coupled with historic government spending, means things are about to change. “We have to think about how we move forward from here”, said Locke. “Things are looking OK. We have to be careful how we handle the fiscal situation.”
Long before the government took Locke on as its senior policy adviser, he was offering advice to the government. In an article from The Telegram in 2011, Locke was raising concerns about the province’s financial future. “There is a serious problem in terms of debt and deficits,” he was quoted as saying at the time.
At the NLCA talk, Locke said there was no point in regretting decisions made in the past.
Following his presentation, he said he didn’t have any specific details yet as to what he’ll suggest to the government, but what’s needed is a credible debt-reduction strategy that expands over a number of years. If that’s done carefully and not too dramatically, there’ll be a less negative effect, he said.