Newfoundland and Labrador's finance minister says he's willing to talk with St. John's Mayor Dennis O'Keefe about the city's demand for a new fiscal arrangement, although Tom Marshall cautions that the province has a budget crunch of its own to resolve.

"I give consideration to everything the mayor's asked for," Marshall told CBC News, responding to O'Keefe's presentation at a pre-budget consultation hearing in St. John's.

"He's talked about a new fiscal arrangement, but essentially we have serious challenges as well. We're looking at a major deficit this year, potentially of half a billion dollars."

St. John's has argued that the provincial government — unlike the Government of Canada — is not paying enough for its use of municipal services at government offices, hospitals and other buildings.

Marshall said he does not agree with O'Keefe's argument that the City of St. John's is effectively subsidizing provincial government services. He noted that the province spends about $14 million in operating and capital fund in St. John's.

"We've given them an awful lot of money. More than they've ever received," Marshall said.

Moreover, Marshall said, the government has financial commitments of its own.

"We need to build health care facilities throughout the province so we have to deal with our responsibilities, and the municipal governments have to deal with their responsibilities," he said.

Marshall's note about a looming budget for the forthcoming year is in stark contrast to a report he delivered in November that projected a surplus of $755.8 million for the current fiscal year. Marshall said the surplus will be paid against the provincial debt.

Marshall launched a series of consultations this week that will lead up to a budget expected as early as March.