Finance Minister Tom Marshall said Newfoundland and Labrador must take on deficits to get through the economic downturn. ((CBC))

Newfoundland and Labrador will run a deficit in the coming fiscal year, even though it will also cut taxes for many wage earners, the finance minister said Monday.

Tom Marshall unveiled a budget that increases spending in many government programs, including an ambitious infrastructure program designed to shore up the province's economy against the ravages of the international recession.

The broad-ranging budget includes record spending on health care and a new focus on child welfare. On the business side, it boasts tax cuts that the government says are necessary to lure new professionals and stay competitive with the other Atlantic provinces.

Budget highlights

  • Deficit for 2010-2011 pegged at $194.3 million.
  • Province finished 2009-2010 fiscal year with $294.9-million deficit.
  • Budget based on Brent crude oil trading at $83 per barrel through year.
  • Overall debt climbs to $9.2 billion
  • Record spending in health.
  • Child-focused spending increases.  

The deficit projection of $194.3 million is in stark contrast to the trend of only a few years ago, when the oil-powered treasury was annually wiping billions of dollars from the provincial debt. 

All the same, the government refused to cut programs. On the contrary, it has increased spending, particularly on infrastructure, ranging from hospitals to water bombers.

"This is not a time to slam on the brakes," Marshall said, describing the budget as a strategy to steer the province through to more financially secure times.

"It's about momentum; it's about keeping the momentum going," he told reporters before unveiling the budget in the house of assembly.

This is the second straight year that Newfoundland and Labrador has rolled out a red-ink budget.

However, last year's expected budget deficit of about $750 million was dramatically cut by higher-than-expected revenues, with the government reporting Monday that it is finishing the current fiscal year with a loss of about $294.9 million.

But the government also revealed that its consolidated debt has climbed to $9.2 billion, well above last year's tally of $7.9 billion. Apart from the projected deficit, the difference is largely due to an ambitious capital-works program the government drummed up for its economic stimulus package.

'Economic tsunamis'

Marshall defended the hefty spending, and the fact that the government is refusing to slash programs or raise taxes to balance its books.

"That's what happens when you have … economic tsunamis," Marshall told reporters, explaining the increase in debt.

He pointed out that the Progressive Conservative government had paid down $4 billion against the overall debt during four consecutive years of surplus.

Marshall told a news conference he would not predict when the government expects to be in surplus again.

"Our goal will be getting back to balance," he said.

Oil at $83

The government is expecting oil to trade for the next year in the same range where it has been for several months. It has accepted the advice of an external reviewer, who anticipates Brent crude oil will, on average, sell for about $83 a barrel.

The forecast also calls for oil production at the three fields southeast of St. John's to drop in the coming year, to about 90 million barrels of oil, down by almost 10 million barrels.

"The economy is starting to come back, but it's skewed to the oil and gas sector," Marshall told reporters.

The province expects that decline to continue until development kicks in on the recently announced Hibernia South development and years later with the Hebron megaproject.

Complicating the government's revenue has been the soaring Canadian dollar, which lately has been nearly par with U.S. currency. Newfoundland and Labrador expects the loonie to trade at about 95.5 cents US through the year.

Asked what the government will do if oil revenues plummet in the coming year, Marshall answered, "The deficit will be higher."

Tax cuts

Despite the deficit, Marshall said the government had room to launch new rounds of income tax cuts.

The budget includes personal income tax cuts aimed at middle-class earners and people who fall into higher tax brackets. People who earn between $31,278 and $62,556 per year will see a rate cut of 0.3 per cent. Those with incomes above that bracket will see their tax rate cut by 2.2 percentage points.

Marshall said the cuts follow through on promises the PCs made in the 2007 election to have the lowest such rates in Atlantic Canada. 

As well, the government is hiking a tax break for seniors called the age amount — from $3,681 to $5,000 — and is increasing the benefit payment for low-income seniors from $803 per eligible person to $900. Around 42,500 people are eligible for that benefit.

Effective April 1, the government is cutting the small business tax rate from five per cent to four per cent. The government described that rate as the lowest east of Manitoba, except for in Prince Edward Island.

The government, meanwhile, is hiking taxes on cigarettes and tobacco. Effective at midnight Monday, it will collect one extra cent for each cigarette, and two cents for every gram of tobacco.

Focus on social programs

A recurring theme throughout Marshall's 37-page budget speech was children's services, reflecting several programming areas — from foster care to education.

"We are investing in our children to give them the future they so richly deserve," Marshall said.

The budget allocates $167 million to the recently created Department of Child, Youth and Family Services, with almost $22 million directed at care for at-risk children and youth.

The government has come under fire for inadequate arrangements for children requiring foster care and supervision.

Joan Burke, the minister responsible for the department, said the budget will help resolve long-standing problems, including the shortage of adults willing to work in the foster-care network.

Turmoil reflected in budget

Marshall told reporters that the province's economy is certainly not in full recovery, with some sectors — particularly the fishery and forestry — still dependent on the battered U.S. market.

"The recession is the worst since the Depression," Marshall said. "We're concerned about the fragility of the global economic recovery."

The government's own statistics reveal conflict and turmoil over the last year within the provincial economy, which has come to rely on royalties and revenues from the offshore oil industry. For instance, the government reported that its real gross domestic product — the adjusted value of goods and services produced in the last year — dropped 8.9 per cent, largely due to a decline in oil prices.

As well, the unemployment rate climbed to 15.5 per cent, and overall employment was cut by 2.5 per cent.

However, there were more positive trends, particularly in consumer confidence and spending. Housing starts were calculated at 3,057, the second-highest number in 20 years, while a retail sales growth rate of 2.6 per cent outpaced the rest of Canada.

As well, the government expects the provincial economy to grow in the coming fiscal year, by about four per cent.