December 9, 2008
The following statement was issued by the Honourable Jerome Kennedy, Minister of Finance and President of Treasury Board:
Minister Releases 2008-09 Fall Financial Update
In releasing the 2008-09 Fall Financial Update, I will update residents of the provinceon Newfoundland and Labradorís economic and fiscal situation, and will outline our governmentís plan to respond to the current world economic downturn.
When Budget 2008 was delivered on April 29 of this year, the global economic picture was much different than it is today. The global financial crisis has worsened and much of the world is in a recession. However, Newfoundland and Labrador, as a result of prudent financial management, is situated as good as any province in Canada for weathering the financial storm.
Since becoming minister, I have attended a Finance Ministersí meeting in Toronto, and I accompanied the Premier at a First Ministersí meeting in Ottawa. I have met with local and national economists, and I have had discussions with world experts on the pricing of commodities.
The message delivered by economists has been consistent: the plan Premier Williams and our government put in place five years ago is the right plan. The plan is working and we must maintain the course. In the current economic environment, the measures recommended to stimulate the economy are the very things that our government has been doing far in advance of this economic downturn. This includes:
In addition, our government has been investing to secure social programs, such as health and education, and in our Poverty Reduction Strategy. Additionally, we have provided or offered wage increases for our public employees. Our plan is working.
We have an aggressive six-year infrastructure strategy that is valued at approximately $4 billion. The strategy includes the new construction and maintenance of roads and bridges, new ferries, schools and health care facilities, and work on water and sewer projects in communities throughout the province, primarily in rural Newfoundland and Labrador. Unlike some other jurisdictions that are looking for projects to fund immediately to address the current economic situation, our strategy is now into its third year. This means that we have ongoing projects and new projects ready to commence. This year alone, we are investing in excess of $500 million on infrastructure.
The Federal Government also has an important role to play in funding infrastructure projects to stimulate the national economy. Atlantic premiers are working together and have identified three infrastructure projects where the Federal Government can, and should, play an important role: the Atlantic Gateway, creation of a green energy transmission corridor, and affordable housing.
Our infrastructure strategy is aggressive and, when combined with the private sector investment anticipated over the next few years, will ensure the productive capacity of the province continues to be substantively utilized.
Job creation is a key component of any plan to stimulate the economy. Along with the jobs created through our infrastructure strategy, our province can also boast of new resource projects coming on stream, such as the White Rose expansion, Hebron and the Vale Inco hydromet facility in Long Harbour. Based on discussions with the proponents, we are confident that these high value projects will proceed. In addition, Hibernia South Expansion is in the process of completing the planning process towards a decision to proceed.
These projects are expected to inject $2.1 billion in the economy in 2009 and $1.9 billion in 2010. When combined with public sector infrastructure projects, we expect over 10,750 direct jobs and spin-offs next year. That number is expected to increase to 13,800 jobs in 2010. In addition, the Lower Churchill is also on track for development, with the recent signing of the New Dawn Agreement. With the ratification of the New Dawn Agreement by the Innu, Lower Churchill planning and engineering work will continue to progress during 2009 and 2010.
Our government has worked aggressively to ease the burden on residents of the province through substantial tax cuts and reductions. In the last two years alone, we have put $342 million annually directly back into the pockets of taxpayers through reductions in personal income tax; enhancement of the seniorsí benefit; removal of more businesses from the payroll tax rolls; the reduction of motor vehicle registration fees and ferry rates; and the elimination of the 15 per cent tax on insurance.
These reductions have brought our tax rates to the lowest in Atlantic Canada, we are well positioned in the country, and we are making our economy more competitive, which is vital in the current economic climate. Each time you reduce taxes, you free up money for people and businesses to spend and support the provincial economy. These actions were recently recognized by the Fraser Institute, which ranked Newfoundland and Labrador fourth in the country for creating and sustaining a positive investment climate.
Our government has worked hard in the last three years to use unprecedented surpluses to secure our fiscal situation for the future. We have made significant progress in repaying debt and lowering borrowing costs. Our Government has worked hard to improve the financial status of the pension plans. In 2006 and 2007, government took major steps to address the unfunded liabilities of the two largest public sector pension plans. In 2006, government paid $1.953 billion of the 2005 Atlantic Accord advance into the Teachersí Pension Plan and, in 2007, paid a further $982 million into the Public Service Pension Plan.
When we took office in 2003, the total debt was $11.5 billion. It is now expected that net debt will be $9.2 billion by March 31, 2009. Our net debt per capita has declined from $22,974 to a projected $18,158 by the end of the fiscal year. We still have a significant way to go in terms of reducing our net debt, which is still well above the national average of approximately $10,000.
I want to emphasize clearly why it is so important that we reduce debt. In 2003-04, debt servicing costs were $947 million. As a result of paying down debt we estimate costs for this year to be $727 million. We are now saving over $200 million each and every year in our borrowing costs. Money that we were paying to lenders is now being invested in Newfoundlanders and Labradorians. However, we are still paying out almost three quarters of a billion dollars to service the debt, which is too much. This money is lost and could be better spent on programs and services.
Prudent fiscal management
Prudent fiscal management has been a cornerstone of our administration, and we continue to receive recognition from credit rating agencies for our governmentís commitment to reducing debt, decreasing taxes and making sustainable investments to further enhance economic growth.
I was advised on November 3 by the federal Finance Minister, Jim Flaherty, that Newfoundland and Labrador will no longer receive equalization. This extraordinary moment in our province's history is significant from both a financial and a psychological perspective. Never before in our 60-year history as a partner in the Canadian federation have we been financially self-reliant, no longer dependant upon the federal government for equalization payments. Though we contributed significantly to the federation, particularly from our rich natural resources, as well our outstanding cultural contribution, we have never been recognized for these contributions. Finally, Newfoundland and Labrador is being recognized for our tremendous contribution to this country and we are standing proud as a strong and self reliant partner in Canada.
Being a "have" province means that our ability to generate revenue is above a national average as determined by the Federal Government, and we donít receive equalization. It does not mean that we have an abundance of money to meet all the demands, expectations or needs of the people or our employees. It is not dependent on whether or not the province records a surplus next year.
Despite the global financial crisis and subsequent world economic slowdown, we still expect sound fiscal performance for the current fiscal year. However, we expect the impact will be felt more in the coming year and potentially beyond, depending on the duration and depth of the current economic downturn.
At budget time, we forecasted a surplus of $544 million. Higher than average oil prices in the first eight months of the fiscal year, as well as higher oil production and a number of other variances in revenues will result in a revised surplus forecast of $1.27 billion for 2008-09.
I want to explain clearly for Newfoundlanders and Labradorians that this surplus doesnít mean we have endless money to spend on new programs and services. In this current economic climate, we are investing our resources very wisely. We have committed $1 billion in infrastructure over the next two years, and we will evaluate our capacity to do more. We have invested $320 million in our energy corporation to support resource projects such as Hebron, White Rose and the Lower Churchill. And, we have committed a further $500 million for wage increases for public sector employees.
At budget time we forecast the provinceís Gross Domestic Product (GDP) to decline by two per cent in 2008. We are now forecasting that it will increase by 2.2 per cent. Retail sales are expected to increase by 8.1 per cent this year, and housing starts are expected to increase by 17.4 per cent for the year to 3,111 units.
Newfoundland and Labrador is well positioned, but not immune, to this global financial turmoil. And, make no mistake about it, we are seeing an impact. Some individuals and businesses, such as Wabush Mines and the pulp and paper mill in Grand Falls-Windsor, are already experiencing the impact of the global economic downturn through loss of business profits, employment and investment. Our pension funds have also been impacted.
We have recently witnessed the extent of the volatility of commodity prices as oil has dropped significantly from the almost US$150 per barrel prices we saw earlier this year, and is currently trading around US$40 per barrel. Some analysts are predicting that oil prices may go as low as US$25. Oil prices, production and the exchange rate are the three primary factors in the determination of royalties. There are no certainties in any of these factors. Based upon what we understand today, if oil prices continue at below US$60 per barrel, we could be facing a deficit of several hundred million dollars next year, and could potentially be facing deficits in the years to come.
When the economic picture was much better we committed to a 20 per cent pay increase over four years to our public sector employees. To date, CUPE has been the only union to accept this offer. As a sign of good faith to our unions and to demonstrate how we value their contribution, that offer is still on the table, for now. However, the unions have been informed that unless a deal is reached by the end of this year that we cannot guarantee that the 20 per cent will be on the table after that date. So much depends on the price of oil and the state of the economy.
While we cannot guarantee the 20 per cent wage offer will be on the table after December 31, we will guarantee an eight per cent raise in year one for our public employees; however, that is contingent on the acceptance of a four-year agreement. If an agreement is not reached by the end of the year, it may be more realistic to offer a deal similar to that reached by the Public Service Alliance of Canada for the remaining three years of a four-year agreement.
Our government wants to assure Newfoundlanders and Labradorians that while there will be an impact, overall the province is expected to retain employment and income growth as the global downturn runs its course.
Our province has a plan and, unlike some other jurisdictions, our plan is well underway. It began when the Williams Government came into power and weíve been building on it ever since. Employment is increasing, unemployment is decreasing, and for the first time in a generation we are experiencing positive net in-migration. To repeat my comments earlier, our plan is working. Our goal is to stay the course. Our actions have placed us in a strong position to weather this economic storm.
Economists have predicted that the economy will worsen over the next six to 12 months but begin to improve in late 2009 or early 2010. We will get through this difficult year by continuing to take the actions as recommended by leading economists and consistent with our plan. We will maintain a prudent financial approach and continue on the course we have been on since 2003. We will monitor on a daily basis the global economic situation. We will continue to spend on infrastructure, work to create employment, allow tax reductions to stimulate the economy and reduce debt and continue to have a strong social conscience.
Make no mistake about it, our government takes this
issue very seriously. We recognize the challenges that exist and we are
committed to working hard to address them. Our plan is working and we
will continue to follow through in the best interests of all
Newfoundlanders and Labradorians. Thank you.
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2008 12 09 12:40 p.m.
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