March 26, 2013
Backgrounder - Overview of Provincial Government’s Fiscal Plan
The projected deficit for 2013-14 is $563.8 million, down from the $1.6 billion previously projected at mid-year. The decrease in the projected deficit is a result of a combination of increased revenue and expenditure reduction.
Projected Revenue
Projected revenue has improved by $695.8 million from
earlier projections and is broken down as follows:
- Oil royalties are projected to increase by $265.5 million primarily due to an expected increase in production of approximately eight million barrels;
- HST revenues increased by $152.6 million as a result of a change in the methodology used by the Federal Government to allocate HST revenues to the Province;
- Mining tax increased by $148.4 million; and,
- Revenue from Personal Income Tax, Corporate Income Tax and other revenue is projected to increase by $129.3 million.
Oil production is expected to increase to 85.2 million barrels in 2013-14, following extended maintenance shutdowns last year and revisions to production volumes previously forecasted by the CNLOPB. However, total production is still down compared to 2011 when 96.8 million barrels were produced. While there has been expansion in existing oil fields and there is promise of future growth from exploration activity, oil production is in decline. The price of oil for 2013-14 is forecast at $105 per barrel. After taking into consideration the forecasts of major oil forecasters, this year’s oil price reflects a balanced view of predictions by all major forecasters including Sproule, GLJ, EIA, Consensus, and PIRA, as well as advice from various bank economists.
Expenditure Reduction
The decrease in the projected deficit is also a
result of reduction in net expenditure of $301.4 million. This includes $410
million resulting from the core mandate review, offset by increased expenses
associated with new or expanded programs, and costs associated with
workforce adjustments.
An important part of government’s expenditure reduction plan for Budget 2013 was for departments to review existing programs and services to ensure they are effective and efficient, and that they align with their core mandates. As a result, there have been decreases to operating expenditures within departments, in addition to workforce adjustments (see attached Backgrounder: Workforce Adjustments).
The expenditure review exercise included a review of funding provided to community organizations. Budget 2013 provides $78.3 million for community-based grants, which represents a reduction of $5 million.
The combined result of revenue increases and reduction measures has resulted in a reduction of debt servicing costs by $62 million.
Sustainability Plan
As part of Budget 2013, Premier Dunderdale released a
10-year Sustainability Plan that lays out the province’s fiscal plan. This
plan includes a return to surplus by 2015-16. The plan is based on
projections around oil price and exchange rates, which are volatile, so it
remains a living document.
The Provincial Government’s sustainability plan will build on work that has occurred since 2003, including the commitment in Budget 2012 to reduce the province’s net debt per capita to the all-province average within 10 years; modest spending growth in last year’s budget; and an ongoing review of core programs and services. The plan also builds on a strong foundation of debt reduction demonstrated by a decrease in net debt by approximately 28 per cent since 2004 and the recognition by credit rating agencies of government’s responsible fiscal management.
A separate review of procurement being undertaken by Deloitte is projected to achieve minimum targeted operational savings of $15 million annually in the areas of fleet purchasing, travel, facilities management, laboratory and medical equipment.
More work will continue to be done on expenditure reduction to align with the long-term fiscal plan.
Economic Indicators
Building on the strength of the economy in recent
years, the province is expected to have a robust economy again in 2013, with
increased exports, investment and consumption more than offsetting a
reduction in government spending. The following are projections for 2013:
- Employment growth of 2.8 per cent. Average employment in the province was 230,500 in 2012, representing an increase of 18,700 or 8.8 per cent since 2003. More people are working than at any other time in the province’s history;
- The unemployment rate is expected to decrease by 1.0 percentage point. Since 2003 the unemployment rate has declined by 3.9 percentage points;
- Personal income growth of 7.3 per cent. From 2003 to 2012, personal income increased by 61.3 per cent;
- Disposable income growth of 7.1 per cent. From 2003 to 2012, disposable income increased by 63.7 per cent;
- Retail sales growth of 4.2 per cent. From 2003 to 2012, retail sales increased by 43.0 per cent;
- Population increase of 0.3 per cent in 2013 due mainly to positive net in-migration;
- Capital investment growth of 17.4 per cent to $11.8 billion in 2013. From 2003 to 2012, investment increased by 170.4 per cent;
- Mineral shipments to increase by about 23 per cent to $4.7 billion. From 2003 to 2012 mineral shipments increased by 393.6 per cent; and,
- An increase in total overnight tourist visits by about 1.4 per cent.
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Media contact:
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Tansy Mundon Director of Communications Department of Finance 709-729-6830; 693-1865 tansymundon@gov.nl.ca |
2013 03 26 2:40 p.m.