N.L. deficit lower than expected by $231M — but it's not because of oil prices

·4 min read
Finance Minister Siobhan Coady says the reduction in Newfoundland and Labrador's projected 2021 deficit shows the province is heading in the right direction. (CBC - image credit)
Finance Minister Siobhan Coady says the reduction in Newfoundland and Labrador's projected 2021 deficit shows the province is heading in the right direction. (CBC - image credit)
CBC
CBC

Newfoundland and Labrador's deficit is down — but, unexpectedly, that's not because of oil prices.

The latest numbers provided by the province show the deficit is now projected to be about $595 million — $231 million lower than forecast in the 2021 budget.

Revenue has increased by $186 million, mostly from higher-than-expected corporate income tax revenue, more mining and mineral tax revenue, and more sales tax revenue.

Though oil prices are higher than expected — up from $64 US per barrel to $74 US per barrel — production is down, and the net impact to oil revenue is just $23 million higher than expected.

Expenses have also dropped by $45 million, mainly due to delayed municipal projects and vacancies in core government departments.

The province's borrowing requirement is $1.5 billion and net debt is $16.7 billion, both lower than expected due to the decreased deficit.

Finance Minister Siobhan Coady, delivering the province's fall fiscal update Wednesday, said it shows that the province is moving in the right direction.

"We have to continue to hold the line on expenses, invest wisely and purposely to achieve a stronger, more sustainable Newfoundland and Labrador," Coady said.

Coady said the province may consider doing pre-borrowing for next year to avoid increased interest costs for next year.

Real gross domestic product is forecast to grow by 5.8 per cent, slightly higher than expected in this year's budget, due to increases in consumer spending, capital investments and mineral production.

Retail sales, housing starts, home sale units, capital investments and employment are also all higher than expected.

Province still facing significant debt

But Coady also emphasized the magnitude of the provincial debt, noting the entire population is responsible for it.

"A child born in this province today owes debt for its birthright."

She said the government is reducing expenses by eliminating duplication of roles within government departments, bringing institutions like the province's 911 centre into core government and potentially selling off assets like Marble Mountain, among other things.

Watch the full fall fiscal update below:

Coady said the provincial government is bringing in an outside expert to look at the benefits and downsides of potentially selling off the Newfoundland Liquor Corporation, which recently announced record profits, and is also looking at streamlining some government services by moving them online.

She said the province has taken a hard line on expenditures, and pointed to balanced budget legislation she has introduced in the legislature as part of the strategy for eliminating the provincial deficit.

Still reliant on oil

The finance minister also reiterated the province's plan to continue building the oil and gas sector, though she shied away from the government's previous commitment to double oil production by 2030.

She pointed out that Newfoundland and Labrador is still heavily reliant on the oil and gas sector; the province relies on about $1 billion in oil royalties. She repeated government commitments to continue oil and gas production and market the province's oil globally, saying the industry will continue to provide opportunities for years to come.

A report released in September said 60 per cent of the world's oil and gas reserves need to to be left untouched to meet climate goals set out in 2015.

A Fossil Fuel Non-Proliferation Treaty endorsed by climate scientists around the world — including in Newfoundland and Labrador — has called for an end to fossil fuel exploration and a transition to a green economy, based on the recommendations released last summer by the Intergovernmental Panel on Climate Change.

Coady said the province is "very well positioned" to diversify its economy through industries like the technology sector, but also said the province is trying to make its oil industry greener by decreasing the carbon content of the oil it produces.

She also doubled down on comments made by Premier Andrew Furey after attending COP26, saying the oil produced by the province has low carbon content compared with oil from other parts of the globe.

"We are very environmentally responsible in our oil and gas industry," Coady said.

Opposition says deficit lower than expected due to luck

PC opposition finance citric Tony Wakeham said the reduced deficit is good news, but said it's due to good fortune and outside factors like mineral prices, not the actions of the provincial government.

Wakeham said the lower expenditures are partially due to vacant positions within government, which should be filled as soon as possible or eliminated if they are not needed.

He also called on the government for more diversification of the economy to reduce dependence on oil and gas, but said the industry is still needed to generate revenue for the province and help pay down the provincial debt.

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