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December 15, 2004


Mid-Year Financial Update

Loyola Sullivan, Minister of Finance and President of Treasury Board, today provided a mid-year update on the province’s finances.

"Last March government brought down a demanding budget which required difficult decision-making. Our goal was to turn around the serious fiscal situation we inherited one year ago, and we are beginning to make progress. At this point in the fiscal year, we are ahead of our budget targets," said Minister Sullivan.

At budget time the deficit was projected to be $839.6 million. Based on results to date, the deficit for 2004-05 is now expected to be $707.5 million, an improvement of $132.1 million, of which $102.5 million is one-time revenue as a result of prior year adjustments.

"While the deficit has improved since budget time, it is still the second highest in our province’s history, and record deficit levels only add to our record debt levels," said the minister. "There is still much work to be done to gain control of our province’s finances."

With the revised deficit, the province’s net debt is now projected to be $12.2 billion. "This is almost double what it was 10 years ago, and for a smaller province like Newfoundland and Labrador, this is a crippling debt-load. We must work hard to ensure that the debt does not increase," said Minister Sullivan.

The variance in the deficit results primarily from an increase in oil prices, revised federal estimates of equalization and new health care money.

  • Oil royalties are currently expected to be $78.5 million higher than forecast at budget time, reflecting higher oil prices.
  • Equalization and Atlantic Accord offset payments from the federal government have increased by $89.6 million from the budget forecast, as a result of a positive adjustment with respect to federal re-estimates.
  • Health and Social Transfers are expected to be $30.1 million higher than projected in the budget. The main reason for the increase is additional revenue from the federal government’s new Ten Year Plan to Strengthen Health Care. (The province expects to receive $34.4 million for the 2004-05 fiscal year, which will be offset in part by federal re-estimates to the health and social transfers.)
  • Personal income tax is anticipated to be $4.2 million higher than forecast last March.
  • For HST, the province has received indications from the federal government that there could be large negative adjustments to HST revenues. The preliminary estimate for the 2003 and 2004 tax years shows possible negative adjustments of over $64.2 million. This has been factored into the estimate for the accrual deficit.

"On the expenditure side, the budget projections overall remain on track," said Minister Sullivan. "Throughout the year, it is common to experience variances in expenditures, and overruns in one area are offset by savings in another. With continued vigilance, we expect to maintain budget targets for expenditures."

In terms of cash requirements, the 2004-05 budget projected a need of $361.6 million. The total cash requirement is now projected to be $118 million, an improvement of $243.6 million. This change is primarily due to the variances listed above, as well as the deferral of the census loan repayment.

"From a cash-flow perspective, one-time revenues have contributed significantly to the improvement. Those revenues will simply not be available for the next budget," said Minister Sullivan.

The minister said that while some progress has been made in addressing the province’s fiscal situation, the work is far from over. "We have experienced some improvements in revenues for this fiscal year, but it is unrealistic to expect these to continue on an on-going basis. We will have to find further ways to generate revenue while still controlling our expenditure base. We will continue to carefully monitor budget pressures, with the focus on maintaining our budget targets," concluded Minister Sullivan.

Media contact: Diane Keough, Communications, (709) 729-6830 or (709) 685-4401

  Ministerial Statement - Mid-year Fiscal Update

2004 12 15                   3:35 p.m.

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