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November 16, 1998
(Finance)


The following statement was issued today by Paul Dicks, Minister of Finance and President of Treasury Board. It was also read in the House of Assembly:

Mid-Year Financial Report

I am pleased to provide this House with an update on the status of the 1998-99 Budget.

WORLD ECONOMIC SITUATION

We operate in a dynamic economic environment. Many of the factors that affect our economy occur beyond our provincial boundaries. Over the last number of months, there has been global instability in economic markets. Exchange rates have fluctuated widely, and commodity prices have declined. This international instability is having an impact on every jurisdiction, including Canada, which is seen to be very reliant on trade and commodities.

The Asian situation has created a problem in world-wide financial markets. The International Monetary Fund has revised its economic forecast downward, predicting that the global economy will slow to 2 per cent growth from the predicted 3.1 per cent, the poorest showing in seven years. Since April 1, the Toronto Stock exchange has fallen by 16 per cent. This situation requires that all governments practice prudence and caution in the face of ongoing economic uncertainty. What the total impact will be is a question no one can answer today.

ECONOMIC PERFORMANCE

Despite this international uncertainty, the economic performance of Newfoundland and Labrador will likely meet our Budget projections. The province's real GDP will likely realize close to four per cent growth, the highest in Canada. This will occur despite a five month strike at Abitibi-Consolidated which has recently ended. Employment will grow by at least two per cent. The consumer price index will be substantially lower than forecast and retail sales will grow by 2.6 per cent rather than the zero growth projected at Budget. In all likelihood these indicators will remain on target for the remainder of this fiscal year.

FINANCIAL UPDATE

Permit me to provide an update on the province's financial performance since the Budget.

When this government took office in February 1996, we faced a potential deficit of $230 million. Difficult decisions were necessary to ensure the future financial integrity of the province. We have been prudent and responsible in managing our finances. Our objective was to reach a balanced position within the term of our mandate and through the introduction of the province's first multi-year plan. We have made major progress toward this goal. Last year we reduced the deficit to $20 million.

The March 1998 Budget provided for a $10 million deficit. Given international economic conditions and their effects on the Canadian economy, our deficit target of $10 million may have to be revised upward. Our situation is no different from those of other governments. Paul Martin, in his update of October 14 remarked: "It is likely to be a year of heavy weather ahead. The winds of financial turmoil will continue to blow and Canada is going to feel the effects - even if we are well prepared, and even if we are only at the edge of the storm."

Weakening national economic performance may result in revisions to federal transfer estimates and our own source revenues. Further re-estimates of payments under the Equalization and Canada Health and Social Transfer programs will be received in February 1999, likely around the time of the federal Budget, at which time the final budgetary position will become clear.

Because we have managed the finances of the province in a prudent and responsible manner, because we have made the difficult decisions necessary to achieve fiscal stability, we are able to make corrections to our budget targets without affecting our fiscal integrity.

EXPENDITURES

The revenue uncertainty underscores the need for the province to continue to exercise prudence and remain disciplined in its spending.

The current fiscal situation must be viewed in the context of a sound fiscal plan. Our three-year budget has provided stability to government operations and services. This plan makes provision, not only for essential services, but also for economic development and for public service wage increases.

The financial status of both the Public Service Pension Plan and the Teachers' Pension Plan are now improving. Government has negotiated an agreement with teachers to place their plan on a sound financial footing. This fiscal year, the province will commence a series of special payments to address past service liabilities. This year's payment to these two plans will total $196 million. In addition, contributions by both employees and employers will increase. Together with our employees we have addressed the long-standing concerns about the financial health of public sector pension plans.

The stability we have achieved has allowed the province to make strategic investments in our future as circumstances arise. In 1996/97, we paid down school board debt of $24 million to ensure that boards would not be burdened with prior debt as we proceeded with education reform. In 1997/98 we created a $50 million fund to be used for school construction. In 1996/97 and 1997/98 we allocated an additional $5.5 million for the purchase of new equipment for our hospitals and in 1997/98 in excess of $20 million was added to the budget of the Department of Health as a result of the Health Forum. We were able to make these expenditures in the crucial areas of health and education because we had achieved fiscal stability through a long term approach to financial planning.

Economic development expenditures contribute to economic diversification and long-term job creation. The new aerospace fabrication facility at Gander and the proposed fluorspar mine at St. Lawrence will generate in excess of 500 jobs at full operation. The snowmobile trails and golf courses will enhance our tourism industry. It is sound business logic to invest for future prosperity, particularly when that commitment secures additional investment by other parties. In order to provide the revenues necessary to maintain 75 per cent of the province's program expenditures in the priority areas of health, education and social, we must invest prudently and strike a balance between social needs and economic initiatives.

OVERALL - A PROVINCE ON TRACK

Some have suggested that the province is in a crisis. It is not. Some have suggested that the province's finances are out of control. They are not. These statements, combined with demands for increased spending, are, in short, irresponsible.

What is required and what we have and will continue to provide is prudent management of the province's finances and controlled and balanced spending. This results in stability, stability which has been provided by this government. As always, we will continue to carefully monitor the province's budgetary position and make adjustments as necessary.

One must question the motives of those who would raise the specter of wage rollbacks or job cuts. I would like to be clear on this matter. There will be no across the board pre-Christmas layoffs. There will be no wage roll backs. There will be no broken collective agreements. In fact, over the past 18 months government has been successful in negotiating 20 collective agreements with its employees and 20 additional agreements are in various stages of discussions. We will stand by our commitments.

Despite worldwide economic setbacks, the economy of Newfoundland and Labrador will achieve its highest real GDP growth since 1989. Growth will continue in the coming years. The efforts and diligence of the people of this province are being rewarded.

Many groups outside the province confirm our confidence. Just last week Standard and Poors confirmed our bond rating, and in July, Dominion Bond Rating Service increased the province's bond rating.

There are many reasons for us to be confident in our future. The oil and gas industry is growing. Hibernia has been in production for one full year, the Terra Nova construction phase is progressing and other projects are on the horizon. CNOPB's 1998 Call for Bids resulted in $175 million in work expenditure commitments.

Voisey's Bay continues to be one of the richest, lowest-cost nickel deposits in the world, and once nickel prices begin to rise, we are confident that a mine/mill and smelter/refinery will proceed. The Labrador Hydro Project negotiations are progressing well.

Our diversified fishery is flourishing, with an expected export value of more than $600 million this year, the highest since before the moratorium. As well, the total volume of fish shipments, year to date, is up by 40.3 per cent. The value of manufacturing shipments has increased 10.5 per cent year to date and the recent settlement of the Abitibi-Consolidated strike will only strengthen this number. Iron ore production is up by 4.9 per cent. The Information Technology Sector has grown by about 23 per cent in the last year, and non-resident tourist visits increased by 22 per cent in 1997. We will maintain and improve upon that momentum in the coming year with our Soiree '99 celebration. These are just a few examples of growth sectors in this province.

In concluding, we must remember that we live in an environment that often experiences economic uncertainty. Through multi-year planning we have been able to create and maintain expenditure stability here in Newfoundland and Labrador. As revised revenue numbers are received from the federal government, we may have to revise our deficit targets. However the magnitude of this change will be within an acceptable range. With a positive attitude, committment to our goals, hard work and confidence in ourselves we will secure a better, more prosperous future for ourselves and our children.

1998 11 16          2:20 p.m.


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