Finance Minister Jerome Kennedy said Newfoundland and Labrador could run significant deficits if the price of oil remains low. (Suzanne Woolridge/ CBC)

Despite a slump in world oil prices, the Newfoundland and Labrador government said Tuesday it expects to finish the fiscal year with more than $1 billion in its pocket.

Finance Minister Jerome Kennedy, however, laid out a set of dire warnings to accompany a fiscal update that projects a $1.27-billion surplus for the current operating year.

That's more than double the $544 million that the government expected as a surplus in a budget brought down in April.

Kennedy said the government is earning significantly more revenue than expected this year because oil prices for most of the year were far higher than expected.

However, Kennedy warned that the Newfoundland and Labrador budget will take a beating if oil prices continue to be flattened by a global economic crisis.

"If oil prices continue at below $60 US per barrel, we could be facing a deficit of several hundred million dollars next year and could potentially be facing deficits in the years to come," Kennedy told reporters at Confederation Building in St. John's.

For instance, if oil trades at $60 US per barrel — a figure the government is expecting to hold over next year — it would incur a deficit of about $200 million in the upcoming year. But if oil stays around the $40 level, that deficit would swell to about $600 million.

'They can call me a Grinch'

Kennedy also issued a warning for the province's public-sector unions, most of which have not yet resolved bargaining with the government.

Kennedy said the offer that it sees as a template for the unions — worth more than 20 per cent over four years, with an eight per cent raise in the first year — will be off the table if unions don't finish new collective agreements by Dec. 31. Instead, only the first-year offer will remain, while raises for subsequent years may be cut.

The Newfoundland and Labrador Nurses' Union is organizing a strike vote in January.

When a reporter asked if he is worried that unionized workers may accuse him of being a Grinch, Kennedy replied, "They can call me a Grinch."

Kennedy, meanwhile, said the government intends to use this year's surplus to retire debt.

He said the province expects to finish the current fiscal year with an overall debt of $9.2 billion.

Surplus a pleasant surprise: Williams

In the house of assembly, Premier Danny Williams said he was "pleasantly surprised and absolutely delighted" by the increased surplus for the current fiscal year.

Williams noted that production in the province's three offshore oil fields is also a variable, and that halts in production have had a dramatic effect on the province's treasury.

Opposition Leader Yvonne Jones told the legislature government is not showing enough leadership in stimulating the provincial economy, as the growing world economic crisis deepens.

Jones also criticized the government for "arbitrarily choosing a date" as a deadline for collective agreements with its unions.

Kennedy said the deadline of New Year's Eve was not arbitrary and was intended to lay out "an economic reality" to achieve "an economic certainty and labour peace" with its unionized workers.

"It's time," Kennedy told the legislature, adding that other public-sector unions in Canada have settled for considerably less.

Kennedy also said government will not be launching an infrastructure program to spur the economy. He told the legislature he met with business leaders on Tuesday who said there is already a shortage of skilled labour within the province, and that the labour pool is effectively at capacity.

A boom in oil revenues has helped turned around Newfoundland and Labrador's fiscal fortunes in the last few years.

Last month, the federal government informed Williams that Newfoundland and Labrador has become a so-called "have" province, as it no longer qualifies for equalization payments.

Last April, the provincial government revealed that it finished the 2007-08 fiscal year with a surplus of $1.4 billion, or about $1.1 billion more than it had projected in the 2007 budget.