Protecting Our Future

Government Moves Forward with Two-pronged Approach for Managing the Deficit and Growing the Economy

The Williams government today introduced its first budget which contains a responsible two-pronged approach for managing the province�s deficit, while at the same time making strategic investments intended to grow Newfoundland and Labrador�s economy. Although this budget represents fundamental changes in spending patterns, it maintains a strong financial commitment to helping those groups and individuals who need government�s help most.

"As a result of the serious fiscal problems we inherited from the previous administration, our government has had to make some very tough but responsible choices to protect our province�s future. According to an independent report conducted by PricewaterhouseCoopers (PwC), if we did not act immediately the province would face average annual deficits of approximately $1 billion in each of the next four years. Clearly, that is not acceptable and decisive action was required for Budget 2004," said Loyola Sullivan, Minister of Finance and President of Treasury Board.

The PwC report projected a deficit of $989 million for 2004-05, with a cash component of $602 million. Through an expenditure review process, the cash component has been reduced by $240 million to $362 million, or approximately 40 per cent. The accrual deficit for 2004-05 is $840 million. Growth in annual expenditures has been reduced from the average rate for the last few years of five per cent, to less than one per cent.

"Unfortunately, at $362 million, the province is still incurring the highest cash deficit in its history and significant additional work remains," Minister Sullivan said.

"Prior to forming the government, we knew this province was in a difficult financial position. However, the scope and magnitude of the problem was grossly understated. What�s more, last year�s budget said that the deficit could be eliminated through increased revenues. Obviously, that statement was inaccurate and misleading and has placed the new government in a very difficult position."

"The initial decisions we have made, and the decisions which will follow over the coming years, will impact every Newfoundlander and Labradorian in some form. The responsibility for managing this deficit should not place an unfair burden on any one group or individual. It is a collective problem which we must address together. Likewise, our problems did not occur overnight and can not be solved overnight. Nonetheless, we have developed a comprehensive strategy to get there during this mandate," Minister Sullivan said.

In order to eliminate the cash component of the deficit over a reasonable period of time, government will pursue a two-pronged strategy of managing expenditures and increasing revenues through targeted economic investment and sound policy development. Funds will be targeted for infrastructure maintenance and social programs.

Some of the more substantive actions taken to reduce this year�s deficit include (more information on these items may be found in News Releases and Backgrounders in the Information Kit):

• Removal of 256 teaching positions through attrition.
• Cancellation of the previously announced health care centre for Grand Bank, the cancer clinic for Grand Falls-Windsor, and the redevelopment of the James Paton Memorial Hospital in Gander.
• Closure of one 10-bed unit at the Whitbourne Youth Centre.
• Closure of the Salmonier Correctional Institution.
• Reduction in the number of school boards from 11 to five, which includes the Conseil scolaire francophone.
• Reduction in the number of health boards to a number to be determined in the coming months through the process of health reform.
• The elimination of approximately 4,000 public sector positions by 2008. Approximately 6,000 positions will become vacant during this period through natural turnover and retirement. By establishing targets now, departments, boards and agencies have sufficient time to plan ahead and to reduce the size of the workforce, primarily through attrition.
• Reduction of Municipal Operating Grants by $5 million over the next three years beginning with a $2.1 million reduction in January 2005. In year one, only 14 municipalities will be affected. Municipalities with smaller revenue bases will not be affected.
• The discontinuation of winter and summer maintenance for cabin and class four roads.
• The closure of 20 Human Resources, Labour and Employment offices throughout the province. Improved technology now enables clients to access the Income Support Program from their own homes by telephone.
• Increased tobacco taxes and additional revenues from Newfoundland and Labrador Liquor Corporation.
• A range of fee increases with a view to cost recovery.

"As the premier stated in his January 5 State of the Province Address, government�s initial focus was to review all expenditures to determine what savings could be made to immediately reduce this year�s deficit. This work was successful in that the cash component was reduced by some $240 million, or 40 per cent. However, we fully acknowledge that our province has a structural deficit that can only be corrected through structural changes. Such changes can not and should not be made without a comprehensive review process. A special committee of ministers will commence this process immediately and report to Cabinet in time for next year�s budget," Minister Sullivan said.

"Government will use the process of program renewal to realign government expenditures to better address the needs, values and priorities of Newfoundlanders and Labradorians. We no longer have the luxury of being all things to all people. Therefore, we will focus on the essentials. Program renewal will be the process to facilitate that realignment," he said.

"The first priority for the people of the province is to have access to quality health care. People want to know that health care services will be available when they need them," said Minister Sullivan. To strike the right balance between quality health care and an efficient, sustainable system, the provincial government is adopting a health strategy consisting of four major parts: an integrated, efficient and smaller governance structure; a fair and equitable approach to locating health services; a skill-mix framework to ensure the right mixture of health care professionals; and development of a "best practices" culture.

Several Budget 2004 measures will enhance the quality of care available to many people in the province, including:

• $4.3 million this year to implement seven primary health care projects and allow expansion for the development of additional primary health care networks.
• $1 million in support of community mental health services in response to the recommendations of the Luther Report on the Reid/Power Inquiry.
• Implementation of year five of the Personal Care Home Strategy in order to increase personal care home rates for those who provide care to our seniors.
• $200,000 to establish the new Ministerial Advisory Council and Division of Aging and Seniors within the Department of Health and Community Services to ensure the needs and concerns of seniors are properly understood and addressed.
• $8.6 million increase in the provincial drug programs, including an allocation of $800,000 to cover a new chemotherapy drug, Gleevec, to help fight cancer.
• Establishment of a new Chief Nurse position within the Department of Health and Community Services.
• $500,000 for additional social workers in Labrador, and $400,000 for social workers in St. John�s.
• A new direction for the delivery of provincial health and community services aimed at protecting the sustainability of a publicly-funded system, that will create a foundation for safe, quality and accessible health and community services.

"Our government will not look to eliminate the deficit solely by reducing expenditures. Instead, we will also look to increase revenues by facilitating economic growth. To accomplish this, we will be moving forward with an agenda of targeted investments intended to grow our economy. These investments will bring increased revenues to government�s coffers and increased employment opportunities for the people of Newfoundland and Labrador," Minister Sullivan said.

Some of the strategic investments government will be pursuing this year to support its economic agenda include (more information on these items may be found in News Releases and Backgrounders in the Information Kit):

• Increase the Provincial Roads Program by $7 million to $30 million.
• Complete Phase 2 and begin construction of Phase 3 of the Trans Labrador Highway. This year�s expenditure is $24 million.
• Increase the annual tourism marketing budget by $1 million.
• Provide the Department of Business, with the Premier as the responsible minister, with an annual budget of $1 million.
• Provide $1.2 million to assist community and regional groups to leverage federal funding for Broadband expansion in support of local economic development.
• Provide $1.7 million for the Rural Secretariat to promote longer term, sustainable development activities.
• Allocate $200,000 for the development of a comprehensive innovation strategy.
• Hire a new Chief Information/Innovation Officer.
• Implement the recommendations of the Dunne Report on fish processing policies. Costs to be offset by higher fees for seafood producers.
• Invest $550,000 to support technology improvements and new investment in aquaculture.
• Allocate $2.5 million to encourage and support continued success and growth of artists and cultural industries in the province.
• Provide $10.8 million for silviculture and the construction of forest resource roads.

"Despite our fiscal challenges, government recognizes that it has a social responsibility to protect the most vulnerable citizens in society, including our children, women and low-income earners. Therefore, new investments have been made in key areas that will protect those who need help most," said the minister.

Some of the measures designed to protect those who need help most include (more information on these items may be found in News Releases and Backgrounders in Information Kit):

• Elimination of provincial income tax for individuals with incomes less than $12,000 and families with incomes less than $19,000.
• Indexing both the Newfoundland and Labrador Child Benefit and the Seniors� Benefit to the Consumer Price Index - $400,000.
• Freezing tuition at Memorial University and College of the North Atlantic.
• $108,000 towards a Mother-Baby Nutritional Supplement.
• $500,000 for the Kids Eat Smart Foundation.
• Increased funding for the Provincial Advisory Council on the Status of Women and Women�s Councils/Centres located throughout the province.
• Establishment of a Ministerial Council for Aging and Seniors to co-ordinate government services for seniors.
• Train a total of 75 RNC officers at Memorial University and hire an additional four RCMP officers for Labrador.
• Begin to phase-in caps for classrooms of 25 students for primary schools starting with Kindergarten.
• Establishment of a Ministerial Council on Early Childhood Learning.
• Additional funding of $400,000 for the Centre for Distance Learning and Innovation for a total commitment of $4.5 million in 2004-05.
• Provide $250,000 for a white paper on public post-secondary education.
• Additional funding of $400,000 to expand the Supported Employment Program which assists individuals with developmental disabilities to find and maintain employment.
• $100,000 to address gambling addiction.

Media contact: Diane Keough, Communications (709) 729-6830

2004 03 30                                    2:15 p.m.