Black oil leads to black ink in Newfoundland budget

Black oil, black ink for Newfoundland and Labrador budget as province forecasts $76.5 million surplus for 2005-06

Only a year after warning of a near $500-million deficit, Newfoundland and Labrador Finance Minister Loyola Sullivan not only balanced the province's books but said deficit financing will become illegal.

Soaring oil prices and new revenues from the Atlantic Accord combined to give the province a considerably different –and undeniably more envious – financial position than two years earlier.

Sullivan said the Progressive Conservative government is expecting to finish the current year with a surplus of $76.5 million. Sullivan is also forecasting a surplus of $6.2 million for the year ahead.

"The momentum is greater now than it has ever been," said Sullivan as he laid out his third budget since Premier Danny Williams' government took office in 2003.

The 2006 budget is markedly different from the first two budgets of Williams's administration.

In 2004, an austerity budget saw massive cuts and program cancellations.

Sullivan anticipated a deficit last year because, in part, the provincial government based its budget assumptions on a far lower set of oil prices than proved to be the case.

For the year ahead, Newfoundland and Labrador is expecting to earn $927 million directly from the booming offshore oil industry. The money will come from both direct royalties and from corporate income tax.

In 2005, Williams negotiated a new Atlantic Accord with the then Liberal government in Ottawa. The deal allows the province and Nova Scotia to retain more of their offshore royalties without losing them in clawbacks.

Sullivan said the turnaround will allow the provincial government more flexibility to pay for a wide range of things, from new school buses to expanded drug coverage to better library services.

Expressing concern that the province's overall debt remains high, at just under $12 billion, Sullivan announced the government is preparing legislation to ensure that all future budgets will be balanced.

Sullivan said that legislation will be brought to the house before the end of its current mandate.

"We will not burden our grandchildren with the consequences of our own," said Sullivan, noting that the debt amounts to $23,000 per person.

No tax cuts, only one tax hike

The 2006 budget emphasizes a range of priorities, from curbing poverty through higher social assistance rates to improving roadways around the province.

Many of the details of the budget have been released through the last month, as Williams and his ministers unveiled new or increased spending on Labrador issues, a new science and technology strategy, an ambitious cultural package and cancellation of planned cuts to the teaching workforce.

The government decided not to pursue tax cuts this year, although some decisions will yield financial returns.

School fees – the mandatory charges that parents must pay to cover expenses for basic supplies – are being eliminated.

Only one tax is being increased. The price of cigarettes will increase by one cent per cigarette overnight, and the cost of fine-cut tobacco will be raised by five cents per gram.

Sullivan said the tobacco tax hikes are meant to deter people from smoking, particularly "young people, whose spending decisions tend to be more price-sensitive."

Liberal critic Anna Thistle said Sullivan's budget owed more to the oil industry than the government's own diligence.

"Thank God we're surrounded by oil," said Thistle, who said the budget contained some good measures, but had plenty of faults.

Thistle criticized the budget for not providing relief for ordinary families, particularly on issues such as the cost of heating their homes. "This is what ordinary people relate to," she said.

Bradley George, executive director of the provincial branch Canadian Federation of Independent Business, welcomed new spending on research and development, but said many of the new business programs won't help small businesses.

"For our members, tax cuts [were] a priority, and tax cuts were not there," he said.

George said a survey showed a lack of optimism among small businesses for the year ahead. "It seems we're not going to get that level of optimism addressed," he said.

Economic highlights:

  • Surplus of $6.2 million project for 2006-07 fiscal year.
  • Real gross domestic product to grow by 6.2 per cent, driven largely by oil and mineral production.
  • Unemployment rate expected to hover at 15 per cent.
  • Inflation expected to climb by 2.2 per cent. Real personal spending expecting to increase by 2.3 per cent.
  • Housing starts to decline by 8.5 per cent.