Newfoundland and Labrador’s net debt will push close to the $10-billion mark over the next year, with Finance Minister Charlene Johnson admitting that the government is facing tough choices over a surging pension liability.
“We do need to get our net debt under control,” Johnson told reporters Thursday, shortly before she unveiled details in the house of assembly on a $7.8-billion budget.
The provincial deficit for the 2014-2015 budget year is expected to be $537.9 million, the third year in a row that the government is running a deficit.
It’s also the first year in some time that the government is going to the markets to borrow, as it has been able to use cash reserves to cover its commitments. The government is expecting modest surpluses for the two years after that.
But the debt is clearly an issue that has Johnson’s attention, as the numbers are so dramatic.
The net debt is expected to increase by almost $807 million next year, to almost $9.8 billion.
The Tories inherited a debt of about $12 billion when they took power in 2003, and were able to slash it to $8 billion over successive years, due to windfalls in oil revenues and a $2-billion pot from the Atlantic Accord.
But the debt has been increasing, largely due to the shortfall in pension demands.
Problem to grow to 85% of net debt
Indeed, unfunded liabilities for pensions and similar expenses will account for about 85 per cent of net debt in the next two years. Capital payments to Nalcor, which topped $552 million this year, do not apply to the net debt, as the government picks up an asset to balance it out.
Johnson said the government’s choices are limited between two main options: raising premiums or cutting pension expenditures.
"It's one of two things, or the combination of the two," she said.
She said the government started talks a year ago with union officials, and indicated that reaching a solution will not necessarily come quickly.
"In fairness to the unions, they recognize as well that we have an issue. They have been very supportive and I get the sense they are very committed," she said.
"We were 30 years or more getting to this problem, so we're not going [to be able] to fix it overnight."
The government is scheduled to meet with union leaders again in April.