Office of the Auditor General
October 24, 2017
Auditor General says Province continues to face a challenging fiscal situation
“While the deficit for 2016-17 has been reduced to almost half the deficit of the previous fiscal year, it is still not sustainable. The deficit as a percentage of GDP in Newfoundland and Labrador for 2016-17 is the highest in Canada and substantially higher than most other provinces. Even though the Province expects a surplus in 2022-23, it continues to forecast significant deficits up to that time. Furthermore, there is risk that the forecasted results may not be achieved and the Province has limited options to address this situation.”
- Terry Paddon, Auditor General of Newfoundland and Labrador
Auditor General, Terry Paddon, delivered his Report on the audit of the financial statements of the Province of Newfoundland and Labrador for the year ended March 31, 2017, to the Speaker of the House of Assembly today. In his Report, Mr. Paddon expressed concerns regarding the Province’s deficit for 2016-17 and shared observations about the fiscal challenges facing the Province in the future.
“While the deficit of $1.1 billion recorded in 2016-17 represents a significant improvement over the deficit recorded in 2015-16, it is the second highest deficit ever recorded in Newfoundland and Labrador,” said Mr. Paddon. “The deficit for 2016-17 contributed to a substantial increase in the net debt of the Province - now at $13.6 billion - the highest in the history of the Province.”
“The Province of Newfoundland and Labrador generates more revenue, on a per capita basis, than every other province and has one of the highest tax burdens, an indication that revenue is not the primary issue creating deficits,” noted Mr. Paddon. Per capita spending in this Province is substantially higher than per capita revenues and the Province spends more per capita than every other province. “This suggests that the level of spending in the Province has the biggest impact on deficits,” said Mr. Paddon.
“Newfoundland and Labrador faces significant challenges in providing efficient and economical public services because of its older population and geography,” observed Mr. Paddon.
Newfoundland and Labrador has an older population - almost 20% of the population is older than age 64 – and this is a contributing factor to higher demand, and cost, for public services. The Province’s geography is also a contributing factor to a higher cost of delivering services. A sparse population, spread out over a large land mass, creates challenges to providing efficient, economical public services.
“If the Province is unable to achieve its budget targets, there are limited options available to generate significant additional revenue and, if the Province has to reduce expenditures, it will have to consider hard choices around the types of public services provided and how they are delivered,” noted Mr. Paddon.
The Province expects a surplus in 2022-23. Realizing this milestone is dependent on achieving the forecast assumptions and considerable risk surrounds achieving the targets.
Revenues may not rise to expected levels by 2022-23. More than 25% of the revenue growth is expected from oil royalties. Oil prices may not rise to expected levels by 2022-23 and expected levels of oil production may not be achieved. A slowing economy may impact revenue growth from other sources, including tax revenues.
Also, the Province’s forecast of expenses shows an expected decline by 2022-23. Holding expenses to the forecast levels will be challenging given current demands and the impact of expected future demands resulting from such things as demographic change and any potential measures to offset higher electricity rates.
The Auditor General’s Report is available on the Office of the Auditor General website at www.ag.gov.nl.ca/ag/reports.htm
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2017 10 24 11:40 a.m.