Soaring oil production helped Newfoundland and Labrador on Tuesday post a whopping $485-million surplus for the last fiscal year, with government expecting another surplus despite a broad pre-election spending program.
"Our economy is sizzling right now," said Finance Minister Tom Marshall, whose new $7.3-billion budget includes large increases on both the revenue and spending sides. The government expects to finish the year with a surplus of $59 million.
"We're going to have lots of revenues … People are paid well, and we cut their taxes," Marshall told reporters, defending a budget that includes increased spending in practically every part of the public service.
Marshall claimed Newfoundland and Labrador is the only province that will not have to borrow this year to balance its books.
The largest increases are in health and education, which between then now account for 58 per cent of overall spending.
At the same time, Marshall said the budget protects what he called "the most vulnerable people" in the province. Government is using some of its oil-related windfall to curb the sting of heating bills, with a new rebate that will apply not only to oil and propane but all residential electrical bills.
That rebate will kick in on Oct. 1, just 10 days before voters head to the polls.
However, the rebate comes on the heels of the announcement of an expected seven per cent rate increase that is now before the Public Utilities Board. That increase, which Newfoundland and Labrador Hydro says is necessary to cover increased costs of burning oil at its Holyrood generating station, is expected to take effect in July.
Surplus of $59 million projected for 2011-12
Surplus of $485 million posted for 2010-11
Net debt at $8.2 billion for 2010-11
Net debt, though, to rise to $8.67 billion, as unfunded liabilities increase
Number of tourists for 2010 hit 518,500, or more than the province’s population
While the budget sets up the governing Progressive Conservatives for the fall election campaign, Marshall would not characterize increased program spending of 4.9 per cent as any attempt to woo voters.
"I don't see this budget as any different … from any other budget," he said. "We continue to run surpluses. That's our goal since we got here."
Boost for municipal grants
The budget covers a gamut of interests, from launching the planning for a new Waterford psychiatric hospital in St. John's to one-time hikes in municipal operating grants to replacement of snow-making equipment at the Marble Mountain ski resort outside Corner Brook.
Marshall, who has admitted that he has been under pressure to increase spending in an election year, said government can afford the moves because of burgeoning oil revenues. Despite the surge in prices since January, Marshall said average prices over the year were only slightly higher than expected.
Instead, Marshall said a dramatic and surprising increase in production at the three offshore oil fields largely propelled the $485-million surplus.
For the year ahead, government is expecting Brent crude oil to trade at an average price of $108 per barrel — significantly higher than last year's estimate of $83 per barrel.
"It's high," Marshall said, referring to the estimate, "but look at prices today." Brent crude has been trading around $124 per barrel over the last week.
Government based its estimate after consulting with international sources about expectations for the oil market in the coming year.
Oil royalties alone now account for exactly one third of all the revenues that government expects to collect. The offshore oil industry also adds significantly more money through businesses taxes and spinoffs, like personal income tax.
But Marshall pointed out that most sectors of the Newfoundland and Labrador economy are robust. The provincial economy grew last year in real terms by 5.6 per cent, higher than any other province, and is expected to grow by 3.0 per cent this year.
The budget includes a variety of social spending initiatives. A keynote is a new child-care tax credit, which officials say will benefit parents at every income level and should have the value of about one month of their child-care bills.
As well, government is launching a pilot project aimed at opening more spaces in home-based care for infants and other children. This program is expected to succeed particularly in rural areas and small towns.
Marshall said the budget's emphasis on child-care reflects the change of leadership in government, and noted that Premier Kathy Dunderdale — who succeeded Danny Williams last December — has identified the concerns of families, particularly women in the workforce, as priorities.
"I live it," said Charlene Johnson, the minister responsible for Child, Youth and Family Services, and the mother of a young child. "We're not going to get there overnight, but we're very committed to it."
The new budget does not follow preceding budgets with income tax cuts for individuals, although it does include a significant break for small businesses.
For employers, the government is raising the threshold on the payroll tax exemption from $1 million to $1.2 million, retroactive to Jan. 1.
Marshall, who told reporters he would like to eventually phase out the payroll tax altogether, said about 800 employers are expected to benefit from the change.
The budget also includes about $46 million to handle the ongoing cleanup of Hurricane Igor, which swept across eastern Newfoundland last September.
On top of $65 million spent since last fall, government is planning to spend $46 million in the coming fiscal year on fixing roads, bridges and municipal infrastructure. Government is also expecting Igor bills to keep coming, with $10 million planned for the 2012 fiscal year.