Nfld. & Labrador

Auditor general reports worsening finances for N.L., recommends reining in spending

Newfoundland and Labrador's financial problems continue to worsen, according an annual report delivered to the House of Assembly by auditor general Denise Hanrahan.

Auditor general Denise Hanrahan says spending, among highest per capita in Canada, should be cut

A report presented by auditor general Denise Hanrahan to the House of Assembly on Friday says there are considerable risks associated with the province's fiscal outlook. (CBC)

Newfoundland and Labrador's financial problems continue to worsen, according an annual report delivered to the House of Assembly by auditor general Denise Hanrahan on Friday. 

Hanrahan's report covers the financial statements of the province from March 2019 to March 2020.

The report finds that indicators continue to show worsening financial trends, despite a reported a surplus of $1.12 billion for the year.

Hanrahan calls the surplus an improvement over the deficits reported in recent years, but it came as the result of a one-time cash injection from the Atlantic Accord. Without that revenue, $2.36 billion, Hanrahan says there would have been a deficit of $1.24 billion.

"I'm not sure there's anything new. It's just as much as the numbers keep growing," Hanrahan told CBC Radio's On The Go

"A lot of those indicators continue to tell the story of worsening trends with respect to sustainability, less flexibility for the province to be able to deal with rising commitments and, of course, vulnerability with respect to our ability to be able to control our revenue sources and manage our funds." 

The province's net debt is now $14.4 billion, the report notes, near the highest level in the province's history. She attributes that debt accumulation to net deficits over the last decade.

Newfoundland and Labrador has a forecast deficit of $1.84 billion for 2020-21. At that stage the net debt will surpass $16 billion, Hanrahan said. 

Declining revenues and increased expenses resulting from the COVID-19 pandemic have contributed to the forecast, says the report.

"With respect to the financial condition of the province, there are considerable risks associated with the fiscal outlook. Should these risks materialize and result in significantly less revenues or more expenses than expected, government would be challenged to address such a situation over the short term," Hanrahan warned in a media release on Friday.

Finance Minister Siobhan Coady says the provincial government is 'tackling the important fiscal issues facing our province.' (Paul Daly/The Canadian Press)

Hanrahan said the province generates more revenue, per capita, than any other province in the country. However, per capita spending in N.L. is "substantially higher" than per capita spending in any other province, and is also generally higher than the province's per capita revenues.

She said the province spends over $1 billion a year on debt servicing that could be spent somewhere else if the debt weren't there.

"This suggests that revenue is not the primary issue creating the deficits but rather the level of spending. Continued emphasis on sustainably reducing the province's per capita spending will remain important," she said.

In a media release on Friday, Finance Minister Siobhan Coady said the provincial government is "tackling the important fiscal issues facing our province."

"We will modernize and transform government, address our structural challenges and move forward with strength to build a stable future," she said. 

By March 31, 2020, the province's net debt as a percentage of its GDP was 40.8 per cent, "significantly higher than the average of all other provinces," according to Hanrahan. By March 31 of this year, the province's net debt as a percentage of GDP was predicted to increase to 55.7 per cent.

A second report

On Friday, Hanrahan also presented her update on recommendations from the June 2017 report on governmental departments and Crown corporations, including the Newfoundland and Labrador Liquor Corporation and three of the province's regional health authorities. Excluded is Labrador-Grenfell Health. 

The report is an overview of the status of 37 recommendations made to the provincial government that year, designed to improve the delivery of programs, services and the overall management of public resources.

A June 2017 report offered recommendations for governmental departments and Crown corporations. (Sherry Vivian/CBC)

After three years, eight of the 37 recommendations, or 22 per cent, have been fully implemented or resolved, Hanrahan found, adding that is "well below what we would expect." 

Twenty-six recommendations, or 70 per cent, have been partially implemented, while three recommendations have not begun at all.

"We generally expect that it is reasonable for entities to fully implement most of our recommendations within three years after our audit report has been issued," the report reads.

"Recommendations not fully implemented leave organizations exposed to known risks. We encourage entities to implement all of our recommendations on a timely basis."

In a second media release on Friday, Coady said, "while much work has been done to implement 2017 recommendations, work is ongoing to ensure full compliance."

Read more from CBC Newfoundland and Labrador

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