Mid-Year Financial Update Released; Government Remains
Focused on Long-term Fiscal Stability
Economic uncertainty continues to affect global markets and is having a significant impact on the fiscal situation in Newfoundland and Labrador. Today the Honourable Tom Marshall, Minister of Finance and President of Treasury Board, released the province’s mid-year fiscal update, noting the impact of a significant decrease in resource revenues. The projected budget deficit for 2012-13 is now expected to be $725.8 million as compared to the projected deficit of $258.4 million at the release of Budget 2012.
“We were aware at budget time that revenues this year would decline due to the planned maintenance programs for the White Rose and Terra Nova FPSO’s and the loss of offset payments under the Atlantic Accord,” said Minister Marshall. “However, the sustained global economic slowdown and lower commodity prices have further reduced revenues from oil and mining. The same trend can be seen with other provinces that rely on nonrenewable resources for a major portion of their revenues.”
In anticipation of lower revenues, at budget time the Provincial Government began the process of managing expenditures. Since then the government reduced discretionary spending, focused on attrition management and is now reviewing all programs and services through a core mandate analysis. These measures all support necessary expenditure reduction and the long-term, ten-year plan to lower the province’s net debt per capita to the all-province average. The results of these efforts will be reflected in Budget 2013.
“This government has a solid history of sound financial management and we have worked very hard to get our fiscal house in order as evidenced by the fact that we have successfully lowered our net debt by approximately a third,” said Minister Marshall. “We have always balanced investments in programs and necessary infrastructure with debt reduction - an approach that continues to be endorsed by credit rating agencies. Now, we must address the new fiscal reality in that same responsible way while still providing priority services to residents.”
As the global economy has not shown the robust growth that many had hoped for, the fiscal challenge has now grown significantly and the measures required to address the situation have grown as well. The Provincial Government must undertake initiatives that will bring future expenditures in line with forecasted revenues, while maintaining the financial and economic progress that has been achieved to date. It will be critical to manage within a framework that creates fiscal stability over the long term, exercises fiscal restraint in the collective bargaining process and explores options to manage the cost of pensions and post-retirement liabilities.
“The level of expense growth we have seen over the past number of years was vitally important as it enabled us to address significant infrastructure and program shortfalls while allowing us to stimulate the economy after the 2008 recession,” said Minister Marshall. “But that level of spending is not sustainable and to continue on this path would set us on a course that reverses the gains we have achieved over the past nine years. The financial stability we enjoy today must be preserved to be enjoyed by future generations.”
While the province is facing fiscal challenges, the fundamental drivers of economic growth continue to be very strong. Development of major projects has boosted capital investment to record levels, employment has reached a record high and workers are earning more than ever before.
“What is remarkable is that with capital investment expected to reach $9.7 billion this year, the province’s economy continues to be robust despite the global economic uncertainty,” said Minister Marshall. “The province’s growth in capital investment is leading the country; housing starts are projected to be the highest in more than 35 years; average earnings are the second highest among provinces, and retail sales, including car sales, are experiencing significant growth. The infrastructure investments made by this government over the past few years have certainly contributed to this position of strength, while allowing us to support growth and business development in communities throughout the province. We must build on this momentum to advance a fiscal framework that is sustainable.”
Minister Marshall also noted that one third of the province’s revenue is dependent on volatile oil prices and as a result, economic diversification will be a key factor in addressing the province’s fiscal challenges. The development of Muskrat Falls is part of the solution as it brings with it a stable, reliable revenue stream from a renewable resource.
“Muskrat Falls is a project that will not impact net debt by a single dollar while providing us with an affordable, reliable, environmentally-friendly source of electricity for generations to come,” said Minister Marshall. “It will also be a major revenue generator for the province as we diversify our economy. We estimate that the province will see revenues in excess of $20 billion over 50 years beginning in 2017, with average annual revenues of $450 million over this period”
A copy of the fall financial update can be found at:
- 30 -
Director of Communications
Department of Finance
2012 12 13 11:50 a.m.