March 22, 1999
(Finance)
BACKGROUNDER
ADDITIONAL REVENUES
In the 1999-2000 Budget,
government is committed to re-investment in the priority areas of health
care and education. To assist in the funding of these re-investments,
government will access additional revenues from several sources. These
include: Newfoundland and Labrador Hydro, Newfoundland and Labrador
Housing Corporation, Newfoundland Liquor Corporation and Sinking Funds.
Government is utilizing these
funds now because careful investment and restructuring over the past
several years has put the province in a more stable position, allowing it
to make strategic investments now that will have a long-term positive
impact.
NEWFOUNDLAND AND LABRADOR HYDRO
- $82 MILLION
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As sole shareholder of
Hydro, the province is able to exercise discretion with respect to the
receipt of dividends. This gives government some flexibility in
designing budgets.
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In 1999-2000, government
will receive dividends of $145.9 million, including regular dividends
of $37.9 million, special dividends of $60 million, and a further $48
million from the new recall arrangements and Guaranteed Winter
Availability Contract related to the Upper Churchill.
-
The $82 million of the
$145.9 million to be received in 1999-2000 represents $45 million in
special dividends and $37 million in regular dividends deferred from
the last two fiscal years.
GUARANTEE FEES - $8.1 MILLION
-
Government guarantees all
of Hydro's long-term debt and short-term borrowings, and as such
receives a guarantee fee. This fee is based upon the total debt of
Hydro guaranteed by the province as of the preceding December 31 (i.e.
Hydro's fiscal year end) and is paid quarterly.
-
In the 1999 Budget,
government has requested Hydro to pay the regular guarantee fee based
upon its December 1998 year end, plus to accelerate payment of the fee
for those three quarters of its current fiscal year which fall within
government's 1999/2000 fiscal year. This is a one-time action will
result in $8.1 million in additional revenues.
NEWFOUNDLAND AND LABRADOR
HOUSING CORPORATION - $10 MILLION
-
Over the years,
government's capital contributions have resulted in a build up of
equity in NLHC, currently amounting to approximately $70 million.
-
Ordinarily, NLHC would use
excess revenues to reduce its outstanding debt. For 1999-2000, the
province has directed NLHC to pay excess revenues of $10 million to
government for investment in the priority areas of health care and
education.
NEWFOUNDLAND LIQUOR CORPORATION
- $12.5 MILLION
-
Government will receive an
additional $12.5 million in revenues from NLC in 1999-2000. More than
one-half of this additional revenue represents cash NLC has
accumulated over recent years which has not yet been remitted to the
province. This amounts to approximately $7.5 million, which will be
recovered in 1999-2000.
-
The balance of the
increased payment to the province will be realized through a change in
the way NLC finances its inventory. In the past, NLC has used its cash
resources for inventory financing, but commencing in 1999, NLC will,
like most commercial operations, arrange a line of credit for this
purpose. NLC will finance approximately one-third of its inventory in
this manner, and this will free up additional cash which will be paid
to government.
SINKING FUND REVENUES - $27
MILLION
-
The province established
sinking funds for the retirement of all of its long term debt. These
sinking funds comprise annual payments by government, plus interest
earnings on investments purchased with sinking fund monies. The
objective is to accumulate sufficient monies in the sinking fund to
retire the related debt at maturity.
-
The restructured Canada
Pension Plan investment program now allows provinces to roll over
maturing borrowings for one final 20 year term. As a result, the
sinking funds which had been created to retire 1999/2000 maturing CPP
borrowings will not be needed for that purpose. Those sinking funds
will be cancelled and the monies paid to the province.
-
As a result, in 1999-2000,
$27 million, representing interest earnings, will be accounted for as
current revenue and used for priority spending needs.
-
This process will continue
on a year to year basis, such that similar additional revenues will be
available in subsequent years.
Media contact: Paula Dyke,
Communications, (709) 729-0329.
1999 03 22
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