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Finance Minister Ross Wiseman unveiled a budget Thursday that would delay major projects and raise numerous fees, and forecasts a deficit of nearly $1.1 billion — a staggering turn of fortune for a province that has raked in billions of dollars over the last decade.
In one of the most austere provincial budgets in recent times, Wiseman also said the province's economy has been shrinking – and will continue to do so for another four years.
Yet Wiseman refused to equate that decline to a term that scares many politicians.
A reversal of fortunes
"I wouldn't describe it as being in a recession, no," he told reporters during a briefing at Confederation Building.
Government is trimming spending across the board, and has added two new tax brackets that target the highest income earners in the province.
Despite all these measures, the government is still projecting a $1.1-billion deficit for 2015-16, with a plan to return to surplus within five years.
It's a significant reversal for a province that has been at or near the top in economic growth in Canada over the past decade.
The province's net debt will also grow to roughly $11.5 billion by the end of this year.
That's a significant increase from just three years ago, when the debt had been reduced to just under $8 billion.
As Wiseman revealed earlier this week in a series of pre-budget announcements that softened the blow of Thursday's plan, the public workforce will shrink by about 1,400 positions over the next five years, largely through attrition.
"We need to adjust our course to meet this new reality head-on," Wiseman said.
Newfoundland and Labrador's spectacular growth was fuelled largely by surging revenues from the oil and gas sector, which has accounted for about one third of revenues.
Far less oil money expected
But few foresaw the protracted and steep decline in the global market prices for oil, along with a drop in commodities such as iron ore, that began halfway through 2014.
As a result, the province is now expecting that oil will account for 17 per cent of total revenues this year, or $1.2 billion.
The budget is based on the assumption that Brent crude will average around US $62 per barrel, well below last year's initial forecast of $105 US.
The province has also revised its deficit for the 2014-15 fiscal year to $924 million, an increase of $8 million over its mid-year update.
The government is predicting the economy and job numbers will continue to be weak for the next several years.
However, when asked if the province is in recession, Wiseman repeatedly refused to say that is the case. He said his mission as finance minister was to avoid "hitting the panic button" and pushing through even heavier spending cuts in this budget.
"We have to be careful we don't push ourselves there," he said.
Easing the burden
One of the most notable changes is an increase in the harmonized sale tax, with the HST jumping by two points to 15 per cent.
The increase will come into effect on Jan 1.
In order to offset the increased burden on low-income earners and families, the HST credit will be enhanced this fall.
However, Liberal Leader Dwight Ball said that his party would reverse the HST hike.
"So, if I had to make a choice over borrowing that extra money or increasing the HST, I would borrow more," Dwight said.
Those earning more than $125,000 will also be hit with an increase in their taxes as the province adds two new tax brackets.
The higher tax rates and fees will generate more than $122 million in revenue this year, and annualize to some $254 million in future years.
Despite the increases, Wiseman said the province's overall tax regime will remain competitive, with the lowest personal income tax rates in Atlantic Canada.
Fees going up
The fees paid for everything from motor registration, hunting licences, camping, swimming lessons and permits will also increase, bringing in an estimated $18 million annually to the treasury.
Such moves will have a direct impact on pocketbooks, but Wiseman said fees are still much lower than they were in 2005.
If the fee reductions and tax cuts implemented over the last decade were reversed, Wiseman said it would mean an additional $650 million in revenues.
A balanced approach
Wiseman described the budget as a balanced approach in order to avoid harming the provincial economy.
"The time has come to raise the pillars of an economy durable enough to weather any storm," Wiseman said during his budget speech.
"Already, we are weathering a storm that would be crushing us had we not made the choices that transformed the province over the past 10 years."
Newfoundland and Labrador became a so-called "have" province during the Danny Williams era, ending the historic dependence on equalization transfers from the federal government.
Wiseman said he does not expect that designation to end over the next five years.
Health a big-ticket item
The budget includes $8.1 billion in expenditures, and includes $3 billion for health and $1.4 billion for education.
Some $660 million has also been earmarked for infrastructure, though some notable projects, including a new penitentiary and courthouses, and the Waterford Hospital redevelopment, have been "paused."
Some $760 million will be allocated to Nalcor, the Crown-owned energy corporation, for "strategic investments."
As a result of the deteriorating revenue situation, and a call from residents to maintain strong public services, the province will have to borrow $2 billion this year, Wiseman explained.
That's in addition to $800 million in 2014-15, the first time the government had to borrow a cent since 2007-08.
Future is bright
Despite the harsh measures, Wiseman believes the situation is temporary, with economic conditions rebounding by 2019.
"We're optimistic that oil will recovery, commodity prices will recover," he said.
He referenced the "tremendous potential" of offshore oil resources as one of the pillars of the economy long into the future.
"We've got to be careful we don't overreact to what is a difficult situation," he said.
The budget was preceded by several policy announcements this week relating to the size of the civil service, partnering with the private sector to increase the number of long-term care beds, and a new funding arrangement with municipalities.
"What we're seeing now is the reality of the nature of our environment and the kind of economy we have," Wiseman said.