Newfoundland and Labrador deficit expected to hit $2.1 billion for current fiscal year, up $1.35 billion from previous forecast, as new numbers paint grim picture provincial finance.
Finance Minister Tom Osborne delivered the financial update on the shape of the province’s coffers for 2020-21 on Friday morning.
“It’s unusual to provide a budget update ahead of a budget, but the unusual seems to be the new normal these days,” he said.
The bloated deficit is the result of skyrocketing spending combined with falling revenues since the start of this fiscal year in April, two weeks after the COVID-19 pandemic shutdown gripped the province.
The province reports a projected increase in spending of $720 million for the year, with health care costs and the province’s response to the pandemic contributing heavily to the figure.
Health care costs alone are expected to rise by $261 million, of which $90 million is directly related to the pandemic, with personal protective equipment costs cited as the bulk of that money. The rest, Osborne said, involves overall pressures on the healthcare system, such as the rising cost of goods.
The province’s $200 million contingency fund, approved by the House of Assembly in March, is also contributing to increased spending, of which $118 million has been spent so far, pending reimbursements from the federal government.
This money was used to pay for child care spaces and child care workers, a house building discount packagethe tourism sector and compensation for people who have had to self-isolate due to travel restrictions.
In a dubious silver lining, the projected deficit of $2.1 billion this year is lower than the worst deficit ever, the $2.2 billion in 2015-16.
The woes of oil
The economic effects of the pandemic are compounded by several factors involving the province’s biggest silver producer, its oil sector.
The province’s projected revenues are expected to decline by $631 million, the lion’s share of which — $560 million — is due to lower offshore royalties.
The province previously budgeted 2019 oil revenues based on US$68 per barrel. Currently, oil costs half that, at US$34 a barrel, which in itself is an improvement over previous months as a global price war unfolded, causing oil markets to collapse.
This is in no way unexpected.-Tom Osborne
At the same time, the offshore sector has been hampered by closures.
Osborne said the province has prepared for an impact from the Terra Nova FPSO shutdown, which began in December and was expected to last six months. He still hasn’t resumed his activities. and Osborne said the shutdown should last at least a year, if not longer.
Another unexpected revenue loss came from the Atlantic Lottery Corporation. Although the province did not provide a dollar figure, the closure of its retail outlets and video lottery terminals due to public health restrictions resulted in lower revenues.
More debts and deficits
Friday’s numbers mean the province is now projecting net debt of $16.7 billion. This figure previously stood at $14.6 billion.
“That’s obviously a major concern,” Osborne said.
Even last year’s budget, which has already come and gone, is impacted by Friday’s update, as Obsorne said “new information” from Nalcor in recent weeks reveals $225 million less revenue for the year 2019-20, related to its interest in the Hibernia Extension and West White Rose Oil Projects.
The province will need to borrow $3 billion to make it happen, though Osborne didn’t expect to have trouble getting the money, citing the positive market response so far. Early in the pandemic, when Newfoundland and Labrador was looking for money, lenders had questioned Newfoundland and Labrador’s ability to pay, and the Bank of Canada stepped in to help.
While the numbers are staggering, Osborne said they weren’t surprising, and Newfoundland and Labrador’s economic hit mirrors that of other jurisdictions across the country amid the pandemic.
“It’s nothing unexpected,” he said.
“We’ve been clear for months, as recently as our June update, that we expect revenue to decline and expenses to increase, and that’s what we demonstrate in today’s update. today.”
Any recovery going forward, Osborne said, is hard to predict and depends on a COVID-19 vaccine, and before that, toeing the fine line of reopening the economy and obeying public health measures. .
“Our economic trajectory will largely be determined by how we fight the virus,” he said.
Budget to come after the appointment of the new Liberal leader
While in the past Osborne has said his projected numbers were 99% true by the end of the fiscal year, Friday’s portrait is “the least certain I’m of the numbers,” he said. .
The province has yet to release a budget for the year, as it normally does in April, due to pandemic-related disruptions. On Friday, Osborne promised the budget would arrive in September, although it would be “premature” to set an exact date now, and the figures he presented are “subject to change” pending the 2020 budget.
“We will wait for a new leader before making final budget decisions,” he said.
The new Liberal leader will be elected on August 3, with Andrew Furey and John Abbott vying for the job.
“There’s no question the new leader will have to get down to business,” Osborne said, adding that the timelines for presenting a budget to the public presented some challenges.
Friday’s figures do not include the $146 million pledged by Ottawa as part of its assistance package for provinces and territories, the Safe Restart Agreement. Osborne said the money would be considered at budget time.
The “difficult” emigration
The province also expects 3,700 people to leave Newfoundland and Labrador, with emigration numbers increasing in 2019, a trend continuing for 2020-21.
“There’s no doubt it’s tough on many fronts,” Osborne said. He pointed to federal money tied to population, a smaller tax base to draw on and a drain on younger demographics as some of the problems there.
While “every time this province has faced challenges, you see emigration in search of greener pastures,” Osborne noted that no part of Canada or the world has been spared by the pandemic, every province, territory and the federal government all facing uncertain times.
Housing starts are expected to continue to slow, with 177 expected for the year.
Employment figures are also expected to fall by 11,400, raising the unemployment rate by half a percentage point to 14%, mainly due to losses in construction and retail.