P.E.I. Finance Minister Wes Sheridan is relying on improved economic conditions to take nearly $30 million off the provincial budget deficit in the coming year.

Sheridan presented his budget to the legislature Friday morning.

It shows a forecast deficit of $84.2 million for 2009-10, but estimates in 2010-11 that will fall to $54.9 million. Sheridan told a media briefing shortly before presenting his budget that the deficit would be eliminated in four years.

"We are sitting very, very pretty coming out of this downturn," said Sheridan. "We did a lot of things right."

Sheridan noted P.E.I. was the only province that had economic growth last year.

The budget contains no major tax initiatives, and increases spending over the 2009-10 forecast by $12.3 million. Program expenditures are up $4.6 million and interest payments on the debt are up $8.5 million.

Despite the lack of tax initiatives, Sheridan predicted tax revenue will rise significantly — up $35.4 million or 5.2 per cent. The forecast increase is due to an improving economy.

Sheridan said the province's economy is forecast to grow two per cent in 2010.

Revenues from the federal government are expected to decrease slightly.

4-year plan

The government has laid out a four-year plan to eliminate the deficit in 2013-14. The elimination will be achieved by increasing expenditures slowly and seeing revenues increase more quickly through economic growth.

Sheridan said the 2010-11 budget, with its 1.9 per cent increase in expenditures and 4.2 per increase in revenues, sets the path back to surpluses.

"That's the kind of line item we need to get to our balance," he said.

The four-year plan does not include tax increases or major cuts to programs.

Health and education spending increases

While overall program expenditures are up just $4.6 million, the government is increasing spending in two key areas — health and education — by much more:

• Education and early childhood education: +$11 million
• Health PEI: +$18 million
• Innovation and advanced learning: +$6 million

The province is balancing off this spending with big savings in employee benefits that are coming as a result of improvements in capital markets. In 2009-10 the province spent $46.4 million making up a shortfall in pension benefits paid out of its $1.3-billion master trust.

For 2010-11, that spending is forecast to be just $33.7 million. The $12.7-million saving in pension contribution reflects earnings on the master trust.

When the markets were bad, the province had to spend more to make up the shortfall in pension payments. As markets improve they are spending less.

The government is also seeing a one-time benefit worth about $6.5 million from a shift in how it accounts for Workers Compensation Board costs. The government is moving to a pay-as-you-go system and absorbing an accrued surplus into this year's budget.

Those costs are expected to return to normal in 2011-12, tacking that $6.5 million back on to program expenditures.

The province is also planning on reduced spending in transportation and infrastructure renewal, down $6 million.

Unlike the 2009-10 budget, which focused on infrastructure stimulus spending, the 2010-11 budget sees a decrease in that line item. The budget does include a $3.4-million, 48-bed addition to the provincial correctional facility.

Sheridan said stimulus projects in P.E.I. employed 1,050 people during the worst of the economic downturn.

Focus on early childhood education

A $2.5-million boost in early childhood education funding is the beginning of a new focus, and there will be more money for teaching and care of pre-kindergarten children in subsequent budgets.

Sheridan said the years from birth to age four are the most important in childhood development.

"We have to understand and embrace that," he said. "We will probably be leaders in Canada when it comes to early childhood education."

Operators of daycares in the province have complained in recent months about the removal of kindergarten from their centres and into the schools, which happens this September. They have said without the funding associated with kindergarten, many of them are in danger of closing.

Sheridan said negotiations regarding how the money in the budget would be spent are ongoing, and announcements will be made in the coming weeks.

Relying on growth

Sheridan's plan to eliminate the deficit is entirely contingent on continued economic growth, and he admitted that the economic recovery is fragile.

At the same time, Sheridan argued many economic indicators show P.E.I. is better placed than most jurisdictions to take advantage of the recovery:

• P.E.I. has regained its pre-recession peak jobs number of 71,200.
• Total labour income grew 4.4 per cent in 2009, fastest in the country.
• It's the only province to record an increase in housing starts in 2009.
• Population grew 1.1 per cent in 2009, fastest in the region.

Sheridan said that while the deficit remains large, it is per capita among the lowest in the country, and only Nova Scotia's is significantly lower.

He noted Nova Scotia had to raise taxes to achieve that lower-per-capita deficit.