N.L.'s projected deficit soars to $2.1B, as finance minister delivers grim update
Budget 2020 to come in September, says Tom Osborne
Newfoundland and Labrador's deficit is expected to hit $2.1 billion for the current fiscal year, an increase of $1.35 billion from previous forecasts, as new numbers paint a grim fiscal portrait of the province.
Finance Minister Tom Osborne presented the fiscal update on the shape of the province's coffers for 2020-21 Friday morning.
"It is unusual to provide a fiscal update in advance of a fiscal budget, but unusual seems to be the new normal these days," he said.
The ballooning deficit is the result of skyrocketing expenses combined with plunging revenues since the start of this fiscal year in April, two weeks after the COVID-19 pandemic shutdown gripped the province.
The province is reporting an expected increase in expenses of $720 million for the year, with health-care costs and the province's pandemic response contributing heavily to that figure.
Health-care costs alone are projected to increase by $261 million, $90 million of which is directly related to the pandemic, with the costs of personal protective equipment cited as the bulk of that cash. The rest, said Osborne, involves overall pressures on the health-care system, like the rising cost of goods.
This is one of the big factors, they're expecting oil prices to be HALF of what they expected a year ago <a href="https://twitter.com/hashtag/nlpoli?src=hash&ref_src=twsrc%5Etfw">#nlpoli</a> <a href="https://t.co/QoFsIYHqzJ">pic.twitter.com/QoFsIYHqzJ</a>—@PeterCBC
The province's $200-million contingency fund, approved by the House of Assembly in March, also contributes to the rising expenses, of which $118 million has been spent so far, pending reimbursements from the federal government.
That money has gone toward items like paying for daycare spaces and daycare workers, a home construction rebate package, the tourism sector, and compensating people who had to self-isolate due to travel restrictions.
In a dubious silver lining, this year's projected $2.1-billion deficit is shy of the worst deficit ever, the $2.2-billion of 2015-16.
The pandemic's economic effects are compounded by several factors involving the province's biggest moneymaker, its oil sector.
The province's projected revenue is expected to decrease by $631 million, the lion's share of that — $560 million — from declining offshore royalties.
The province had previously budgeted in 2019 for oil revenues based upon $68 US a barrel. Currently, oil is commanding half that, at $34 US a barrel, which is itself an improvement from past months as a global price war waged, with oil markets crashing a result.
This is in no way unexpected.- Tom Osborne
At the same time, the offshore sector has been dogged by shutdowns.
Osborne said the province had braced for an impact from the Terra Nova FPSO shutdown, which began in December and was expected to last six months. It has still not resumed operations and Osborne said the shutdown is expected to last at least a year, if not longer.
Another unexpected revenue loss came from the Atlantic Lottery Corporation. Although the province did not provide a dollar figure, the closure of its retail outlets and VLTs due to public health restrictions has meant less money coming in.
More debts and deficits
Friday's numbers mean the province now projects a net debt of $16.7 billion. That figure previously stood at $14.6 billion.
"This is obviously a major concern," said Osborne.
Even last year's budget, already come and gone, is impacted by Friday's update, as Obsorne said "new information" from Nalcor in recent weeks reveals $225 million less in revenue for the 2019-20 year, tied to its stake in the Hibernia extension and West White Rose oil projects.
The province will need to borrow $3 billion to see it through, although Osborne didn't anticipate having trouble securing that cash, citing positive market response so far. Early on in the pandemic as Newfoundland and Labrador looked for money, lenders had questioned Newfoundland and Labrador's ability to pay, and the Bank of Canada stepped in to assist.
While the numbers are staggering, Osborne said they're not surprising, and Newfoundland and Labrador's economic hit mirrors that of other jurisdictions in the country amid the pandemic.
"This is in no way unexpected," he said.
"We have been clear for months, as recently as our June update, that we anticipated decreased revenue and increased expenses, and that is what we are demonstrating in the update today."
Any recovery in the future, said Osborne, is hard to predict, and depends on a COVID-19 vaccine, and prior to that, treading the fine line of reopening the economy and obeying public health measures.
"Our economic path will largely be determined by how we fight the virus," he said.
Budget to come after new Liberal leader chosen
While in the past, Osborne said his projected numbers have held 99 per cent true by the end of the fiscal year, Friday's portrait is "the least certain that I am of the numbers," he said.
The province has not yet released a budget for the year, as it normally does in April, due to pandemic disruptions. On Friday, Osborne promised that budget would come in September, although it would be "premature" to set an exact date now, and the numbers he presented are "subject to change" pending the 2020 budget.
"We'll wait for a new leader before we make final budget decisions," he said.
The new Liberal leader will be elected Aug. 3, with Andrew Furey and John Abbott vying for the position.
"No question the new leader will have to hit the ground running," Osborne said, adding the timelines for presenting a budget to the public present some challenges.
Friday's numbers do not include the $146 million promised from Ottawa as part of its aid package to the provinces and territories, the Safe Restart Agreement. Osborne said that money would be factored in come budget time.
The province also expects 3,700 people to leave Newfoundland and Labrador, with outmigration numbers that ticked upward in 2019, a continuing trend for 2020-21.
"There is absolutely no question it's challenging on a number of fronts," Osborne said. He pointed to federal money being tied to population numbers, a smaller tax base to draw from and a drain on the younger demographics as some of the problems there.
While "any time this province has faced challenges, you see some outmigration looking for greener pastures," Osborne noted no area of Canada or the globe has been untouched by the pandemic, with each province, territory and the federal government all facing uncertain times.
Housing starts are expected to continue to slow, with 177 projected for the year.
Employment numbers are also projected to slump by 11,400 people, increasing the unemployment rate by half a percentage point to 14 per cent, mostly due to losses in construction and retail.