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NLIS 6 November 3, 2005 (Finance)   Williams government reports improved fiscal situation; Province still has highest per capita debt in the country The Williams government�s two-year record of sound financial management and strong leadership has resulted in a significantly improved financial situation for the province. Loyola Sullivan, Minister of Finance and President of Treasury Board, today presented the mid-year financial update for 2005-06 and outlined a positive change in the province�s fiscal position. �Since assuming office, government has been working hard to halt past practices and to put the province on a sound financial footing,� said Minister Sullivan. �Just two years ago, analysts projected the province would face annual deficits close to $1 billion, and it was a challenge we faced head on. We delivered difficult budgets, implemented solid fiscal management and Premier Williams successfully led tough negotiations with the federal government on health care funding, equalization and the Atlantic Accord. We are now beginning to see the benefit of all that hard work.� At budget time, the deficit for 2005-06 was projected to be $492.5 million. With increased revenues from oil royalties and a one-time accounting reclassification of $133.6 million for the 2004-05 Atlantic Accord allocation, the province is recording a surplus of $1.5 million. Passage of the Atlantic Accord amendments were delayed in the House of Commons, which meant the province did not receive the money until June 2005. Therefore, under accounting requirements, the portion of the benefit originally expected to be included in the 2004-05 fiscal year, $133.6 million, is now required to be recorded in the current fiscal year. �Without the reclassification of the 2004-05 Atlantic Accord benefit, the province would be projecting a deficit of $132.1 million for 2005-06,� said Minister Sullivan. �Our solid fiscal plan is bringing about real successes, but we know our work to improve the province�s fiscal situation is far from over. We must stop adding to our debt levels and ensure that the fiscal challenges are not passed on to future generations to address.� For revenues, government is projecting an improvement of $320.5 million, with the largest variances related to offshore royalties ($240.1 million) and corporate income tax ($61.9 million). �Oil prices are highly volatile and while we have benefited from higher oil prices this fiscal year, forecasters are predicting the price to decrease next year,� said the minister. �In addition, it is important to remember that there are a wide variety of factors which affect oil royalties - changes in price, exchange rates and production levels can cause offshore revenue to increase or decrease. Government must appropriately use such revenue streams to strengthen our fiscal situation and invest strategically in our province�s future.� Minister Sullivan explained that while the province has been fortunate to experience a significant improvement to the fiscal position for 2005-06, government must remain focused. �The improving fiscal situation demonstrates that government�s work is bringing about positive change, but there is still a long road ahead. Now that we are making progress, we cannot and will not lessen our vigilance on the province�s finances. We have a staggering debt level, and government must ensure our expenditure levels are kept within our means.� On the expenditure side, overall, departments remain on target to meet Budget 2005 spending projections. Anticipated savings in some areas will offset increased expenditures in others. In addition, a number of unforeseen one-time events, including the recent flooding in Stephenville and the Crab Worker Assistance Program, will result in increased expenditures. At this point, net expenditures are projected to be $32.2 million higher than forecast in Budget 2005. Minister Sullivan pointed out that rising fuel prices are also impacting government�s finances. �The impact of the fluctuating fuel prices is twofold for government,� he said. �Government departments are forecasting an additional $10 million in expenditures due to rising fuel costs. Furthermore, revenue from provincial gasoline tax is down by $5 million as a result of a decrease in consumption. With the high prices, people are purchasing less gas, and it is impacting the provincial treasury negatively.� The province�s debt level is now forecast to be $12 billion at March 31, 2006, an increase of $124.5 million over the last fiscal year. Minister Sullivan indicated that Memorial University is now included as part of government�s reporting entity. �Including Memorial University is evidence of our commitment to accountability. With this addition, government�s consolidated financial statements now completely disclose all the assets and liabilities of the province,� he said. Minister Sullivan stressed that the province continues to face financial challenges. �Even with record high oil prices and the Atlantic Accord 2005, we still have the highest per capita debt load of any province at $23,280. While most other provinces have taken steps to balance budgets and reduce debt load, we continue to struggle to achieve a balanced budget,� he said. A copy of the 2005-06 mid-year update is available at www.gov.nl.ca/fin/PUBL/midyear/ Media contact: Diane Keough, Communications, (709) 729-6830, 685-4401 2005 11 03                      2:00 p.m.

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