As the price of oil continues an astounding slump, Memorial University economist Wade Locke says "there's no easy fix" for Newfoundland and Labrador and that tough choices will have to be made.

Locke said the province's fiscal crisis is "more dramatic than the [cod] moratorium" in 1992, when the federal government closed the northern cod fishery and triggered the largest single industrial layoff in Canadian history. 

"We ought not to base our long-term policy on what might occur for the price of oil for the next month or the next two months ... what we don't want to do is destabilize the economy more than it its right now."

To cut or not to cut?

Finance Minister Cathy Bennett is not ruling out layoffs as the government asks departments, agencies, boards and Crown corporations to identify budget cuts totaling 30 per cent.

Speaking with media Wednesday, Bennett said all options are on the table to find the savings needed, including layoffs.

"When you do the math, we're short 28 per cent of the money we need to pay the bills," said Bennett.

Cathy Bennett

Finance Minister Cathy Bennett said Tuesday it would be irresponsible to rule out any cost-savings options, including layoffs. (CBC)

Locke said the writing is on the wall for poor times ahead, and agreed that all options should be on the table.

"We have a fiscal situation that's unprecedented ... and it doesn't matter whether you're in government or outside government it has dramatic and negative implications," he said.

"If we're cutting 30 per cent ... then it does mean layoffs, there's no way around that."

Locke said the cut will have a serious impact on services, the housing market and general confidence in the economy, adding that the faster the cut, the harder it will hit.

"It's a balancing act ... and there is a case that if you do it slower you will face credit downgrades and higher costs of borrowing — there's not a right answer here."

HST hike?

Locke isn't sure about the politics of whether the government can bring in a 2% HST increase — after cancelling the hike planned for January — but he said people might be willing to pay for it. 

"Up until now, we've had the luxury of being able to provide almost everything that we thought was appropriate to provide because we had the revenue source to do it," Locke told CBC.

Now, the oil industry is also shedding jobs and reducing production. Oil prices rose above $31 US a barrel on Friday but the prolonged drop has already taken millions in revenues from the province.

"We're in a situation where prices have fallen more dramatic than anybody could have thought," said Locke.

Hibernia platform

The Conference Board of Canada says the economic slump will continue through 2016. (CBC)

The drop also stung the oil-rich province of Alberta, eliminating jobs held by thousands of people who commuted there, bringing large pay cheques to rural communities in Newfoundland and Labrador.

Long-term looks better

As bad as it is, Locke believes the situation will rebound. He said it's just a matter of when, and decisions need to be made about what to give up.

"We're used to a certain kinds of services ... and we expect certain standards of living that we're not prepared to relinquish," said Locke.

But if the province doesn't take some action, he said, it will reach the point where it can't borrow the money needed to finance the deficit.

Water Street downtown St. John's

Locke says people have to decide what they are willing to give up, but warned deep cuts could destabilize the economy. (CBC)

As for getting help from the federal government,  Progressive Conservative Senator David Wells is asking that Newfoundland and Labrador be included in any infrastructure programs designed to alleviate pressure on oil producing provinces, but Locke doesn't think we should bank on that either.

"For the most part, you should assume that the revenue sources we have, are the revenue sources that we have," Locke said. 

"The problem you have right now is you have an increase in supply that's matched by a decrease in demand — but that will take care of itself as the rest of the world starts to grow."

He said major oil projects, such as Hebron, are still set to go ahead and other future projects will likely not be affected by current prices.