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January 14, 1999
(Finance)


The Minister of Finance, Paul Dicks today released the following statement with respect to the province's fiscal position:

Province of Newfoundland and Labrador
Fiscal Update - January 14, 1999

In November 1998, I provided to the people of our province a mid-year financial report. Given the uncertain economic environment in which we operate, I felt then that our deficit target would have to be revised upward. As we come closer to the end of the fiscal year, it has become clear that a revision is now warranted.

The May 1996 and the March 1997 budgets included stringent expenditure reductions. These stringent measures eliminated a budget shortfall of over $200 million and stabilized our fiscal situation. Because of this hard-won stability in our fiscal situation we can approach the uncertainty in the global economy with a degree of confidence.

The May 1996 budget set a deficit target of $45 million. The March 1997 budget set out a three year fiscal plan with a deficit target of $20 million for 1997-98, $10 million for 1998-99 and a balanced budget for 1999-2000.

Through careful fiscal management, the deficit in 1996-97 was $18.6 million, rather than the projected $45 million. In 1997-98, it was $6.7 million, rather than the projected $20 million. This year, we expect that our deficit will rise to about $30 million, up about $20 million from our original $10 million target. The combined deficit for the three year period having been budgeted at $75 million will come in at $55 million which is an improvement of $20 million over the period.

Provincial finances are impacted by a variety of factors including local, national and international economic performance and population changes. While there have been negative pressures on revenues, the province did experience some positive gains in equalization revenues, primarily as a result of federal revisions to original estimates of transfers. The net result is that total revenues are expected to be greater than originally forecast allowing for some degree of strategic investment this year.

On the other hand, the slowing of economic growth in Canada and globally, low commodity price levels, as well as the uncertainty around exchange rates means that achieving a balanced budget in 1999-2000 is not realistic, unless government does one of two things: raise taxes or cut spending on things like health care and education.

The government did not impose any tax increases this fiscal year, nor will it impose any tax increases next fiscal year. We simply cannot ask the taxpayer to pay more. We will not reach into the pockets of Newfoundlanders and Labradorians for more money.

The other alternative is to reduce expenditures. Stringent expenditure reductions were made by this government when a serious fiscal situation required it. However, having made those reductions in 1996-97 and in 1997-98, the province's fiscal situation is such that we can increase borrowings slightly, rather than face the prospect of cutting expenditures for things like health and education.

This government's fiscal track record is the best in our province's history. One has to go back over 30 years to the early 1960's to find a three year period when the combined deficit was comparable or lower. As a percentage of expenditures, a three year combined deficit has never been lower since Confederation.

Put another way, on total expenditures approaching $10 billion over the past three years, government has limited the total deficit ($55 million) to just over one-half of one per cent. This is fiscally prudent and indicates careful financial management. Because of this we have the leeway to incur modest deficits this year and next, rather than imposing tax increases or cutting expenditures for needed public services.

Those are some key points about our province's fiscal situation. Let me now deal with our economic outlook.

The economy of Newfoundland and Labrador is expected to meet the targets forecast during the March 1998 budget with GDP growth expected to exceed four per cent, the strongest growth this decade and the highest in Canada. The province has also recorded job growth of 3.1 per cent in 1998, the strongest since 1989, with a resulting average unemployment rate for 1998 of 17.9 per cent, the lowest since 1990.

Consistent with forecasts from the major banks and the Conference Board of Canada, we are also optimistic about the economic prospects for the coming year. We should lead the country in economic growth. Growth and employment will both increase, led primarily by oil production, the fishery and a rebound in newsprint shipments.

A strong economic performance will not, however, translate into revenues sufficient to close the small budget gap, but it does add to our confidence that our fiscal situation is sound and we are able to revise the deficit forecast without having to make cuts to essential public services.

This government has made significant strides over the last few years to ensure the financial integrity of the province. The hard work and discipline which has reduced provincial deficits from in excess of $200 million annually to a near balance has given us the flexibility needed to respond to changing economic circumstances and increased need for investment in social programs.

A relatively modest increase in the deficit target for 1998-99 from $10 million to $30 million, with that figure sustained in 1999-2000, is achievable and necessary to provide services to the public when they are needed most - today.

1999 01 14                                  11:35 a.m.


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