At a talk by the province's auditor general Wednesday, John Crosbie called Newfoundland and Labrador's financial situation "horrendous," saying it makes him glad he's no longer in politics.

"[Dwight Ball] is in a very difficult, sensitive position. I certainly don't envy the job because there's a huge amount at stake," said Crosbie, a former federal finance minister.

"And Newfoundland people are not in the mood, as I see it, to get caught having to pay any serious increases in taxes or changes to government."

Crosbie said that if government doesn't take action, Newfoundland and Labrador could regress to the economic situation of the early 1930s when it had such insurmountable debt it faced bankruptcy.

"I don't say that that's going to happen but the importance of this is that it's a possibility," said Crosbie.

Terry Paddon

Auditor General Terry Paddon said government will need to make difficult decisions to deal with its finances that will likely affect everyone in the province. (Laura Howells/CBC)

"We've got to keep our fingers crossed and keep a close eye on this. The two main political parties, they're going to get caught in the middle and they're going to have to make some big decisions."

Auditor General Terry Paddon said he doesn't think Newfoundland and Labrador is anywhere near bankruptcy, but agrees government will have to make tough choices on either increasing revenues or cutting spending.

"Some of the cure might be a tough pill to swallow, but at the end of the day, if you don't deal with it, that might be worse," he said.

Report outlines dire financial situation

Paddon spoke to a packed classroom at Memorial University as he outlined his grim recent report on the province's fiscal situation.

The Newfoundland and Labrador government is expecting a $2-billion deficit for 2015-16, spurred largely by tumbling oil prices.

The financial situation looks worse than any other province.

In 2016-17, its deficit-to-gross domestic product ratio is expected to jump to 6.5 percent—three and a half times greater than the next highest province, Alberta.

auditor general

Newfoundland and Labrador's deficit-to-GDP ratio is significantly higher than any other province in Canada. (Office of the Auditor General)

Throughout the next four years, Paddon says the province is facing deficits that will be up to 13 times higher than the average of all other provinces.

"Government has two choices really. It can increase revenue or it can decrease spending, or a combination of both."

Paddon said he doesn't think new revenues alone will fix the situation, however, and that spending cuts will likely be necessary.

"While it sounds easy, the execution of spending reductions is very, very difficult and it affects most people in the province if not all," he said.

Most spending in health care, salaries

Seventy percent of government's spending is on health care, education and social services and half of its total spending is on salaries and benefits.

Paddon said it'll be hard to tackle a $2-billion deficit without making cuts in those areas.

Auditor general

The Newfoundland and Labrador government puts the majority of its spending towards health care (shown on the far left). (Office of the Auditor General)

While the province is forecasting future revenues from the Hebron project and deep-water offshore oil drilling, he said those certainly aren't guaranteed.

Government forecasts see increased oil production starting in 2019, but Patton said that may be overly optimistic.

"Whether that's achievable—get the dartboard out and start taking shots," he said.

Paddon also said government's current workforce attrition plan will not be anywhere near enough, as it only tackles about five per cent of the current deficit.