N.L. budget projects smaller deficit but growing debt, aims for surplus in six years

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ST. JOHN'S, N.L. — Newfoundland and Labrador’s second pandemic budget, tabled Monday, anticipates a deficit of $826 million — about $800 million less than the previous year’s shortfall.

Part of that reduction comes from an expected $1.4-billion jump in revenues, bolstered by an anticipated increase in oil royalties totalling almost $500 million.Though the deficit is expected to shrink, the province’s net debt will jump to $17.2 billion, up from $16.4 billion in the last budget. The government has set aside more than $1 billion to pay for debt-servicing costs this fiscal year and will borrow about $1.7 billion, Finance Minister Siobhan Coady said.

“This budget really does set a path forward for Newfoundland and Labrador,” Coady told reporters. “I think we all recognize ... the status quo is no longer possible.”

The document is called “Change starts here” and follows a controversial report tabled earlier this month by the province’s economic recovery team. Chaired by Moya Greene, who’s known for privatizing Britain’s mail service, the recovery team proposed balancing the budget in five to six years through cuts, service amalgamation and privatization.

Known as the Greene report, it estimated the province’s overall “financial exposure” at $47.3 billion, once the debt carried by province-owned corporations is factored in.

Monday’s budget incorporates many of the Greene report’s suggestions and sets a course to balance the books in six years. Coady said she intends to get there primarily through a streamlining of government services, insisting repeatedly she doesn’t anticipate “mass layoffs.”

“What we’re going to try and do is make sure that we have a good solution and ensure our employees are part of that solution,” she said.

The budget foretells an end to the province’s English school district, with a promise to begin integrating its operations into the Department of Education. The stand-alone francophone school district, so far, will remain intact, though the Greene report recommended its dismantling.

The budget also states the government will “immediately begin” restructuring its energy corporation, Nalcor Energy, which has overseen the burdensome Muskrat Falls hydroelectric project in Labrador. The project was sanctioned in 2012 and has since essentially doubled in cost to $13.1 billion.

A yearlong public inquiry into exactly what went wrong with the project began in 2018, and the final, blistering report blamed Nalcor’s top managers at the time.

Last year, it was revealed that Nalcor’s latest chief executive officer, Stan Marshall, took home a $315,000 bonus on top of his $459,400 salary.

According to Monday’s budget, income taxes will go up for high-income earners, beginning with a half per cent increase for people making $135,974 a year. People making $250,000 a year will see a 2.5 per cent increase, while anyone making more than $1 million will pay 3.5 per cent more a year.

The province is also introducing a sugary drinks tax, pegged at 20 cents per litre, and smokers will pay roughly three cents more per cigarette.

Provincial ownership of a western Newfoundland ski hill, a liquor corporation and stakes in offshore oil projects are also under review. The $68.4 million in funding provided to Memorial University to help keep tuition fees low will be eliminated over five years, beginning in 2022-2023, the budget says.

Both the precarious state of the province’s offshore oil sector and the Greene report cast long shadows over the improved deficit outlook Monday. The Greene report urges a prompt transition to a “green economy,” while the fate of two of the province’s four offshore oil projects remains uncertain, despite offers of millions of dollars in aid money to keep them going.

When asked why the budget touted a reduced deficit based on anticipated oil revenues instead of mapping a shift away from dependence on oil, Coady was again insistent. “We are making the transition from oil,” she said, adding that as that transition played out, oil will remain a large part of the province’s economy.

Oil accounted for nearly 21 per cent of the province’s GDP in 2019, according to the budget documents.

Monday’s budget was the second budget from Premier Andrew Furey’s Liberals, though it was their first budget since they won a majority in March.

This report by The Canadian Press was first published May 31, 2021.

Sarah Smellie, The Canadian Press