Nfld. & Labrador

'Deficits of this magnitude' not sustainable, Auditor General Terry Paddon warns

The province's auditor general is warning the high deficit level is not sustainable and it must be reduced.
Auditor General Terry Paddon says measures must be taken to address the large provincial deficit. (CBC)

Newfoundland and Labrador's auditor general is warning a $2-billion deficit level is not sustainable and must be reduced.

"This is not just about spending better, it's about spending less," said Terry Paddon, who said his report on the audit of government's financial statements raises serious concerns about the fiscal situation.

"One year in and of itself could be sustainable, but when you combine that with the financial update that the province provided in December [... ] I don't think those deficits are going to be sustainable, certainly in the medium to long-term," he told CBC Radio's On The Go in an interview to be broadcast Friday. 

"Ultimately what you end up with is net debt twice as high as it is today and I don't think people of the province can afford that level of debt."

N.L. deficit higher than anywhere else

Paddon said Newfoundland and Labrador's deficit-to-GDP ration is jumping to 6.5 per cent — roughly 10-13 per cent higher than every other province in Canada.

"We're way off the charts when it comes to comparing ourselves to other jurisdictions," said Paddon.

We're way off the charts when it comes to comparing ourselves to other jurisdictions.- Terry Paddon

He said that in a $30B economy, a deficit of one per cent might be sustainable.

Paddon said that reducing the $2B deficit will mean government will have to either increase taxes, dramatically cut spending, or both.

Government must 'look at full breadth' of spending

Paddon noted that 70 per cent of government expenses are towards health, education and skills development and that more than 50 per cent of government's program costs are spent on salaries and benefits.

"Two billion means that there's nine zeroes after the two," he said.

"In order to take $2 billion out of a spending base that's roughly $8 billion, that requires you to look at the full breadth of the spending base that you have." 

Paddon also said any measures taken to reduce the heavy financial burden must be done "within a reasonable timeframe."

Can't wait for oil prices to go up, Paddon says

The auditor general said it won't be enough to wait for oil prices to rebound. He noted that even last year, with oil prices around $70 per barrel, the province still had a $1-billion deficit.

"We've seen with oil prices is they're volatile, they'll go up, they'll  go down. So you really have to have an expenditure level that accommodates that volatility and the uncertainty around future oil prices," he said.

Paddon notes the province recorded the highest deficit in its history in 2014-15. 

"Deficits of this magnitude are not sustainable," he said.


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