N.L.'s financial situation deteriorated further in just-ended fiscal year
Without booking of multi-decade Atlantic Accord payment, 2019-20 deficit topped $1.1B
The Newfoundland and Labrador government saw revenues drop further in the last few months of the 2019-20 fiscal year, as the coronavirus pandemic began to sweep the globe and a price war ravaged the oil industry.
"The path forward is going to be difficult," Finance Minister Tom Osborne said during a media briefing Thursday morning.
"We can't cut and tax our way out of this, as this would have a devastating effect on the people of the province and on our prospects for economic recovery."
Expenses for the year remained basically flat. But revenues plunged $690 million from initial projections, when the budget was tabled more than a year ago.
The shortfall largely related to lower oil royalties and provincial tax revenues.
Technically, the province is still booking a big surplus — $1.269-billion — for the 2019-20 fiscal year, which ended March 31.
But that includes about $2.4 billion in revenue related to a new Atlantic Accord agreement. While much of that cash won't materialize for years or even decades, it's hitting the books this year. Officials indicated that accounting treatment has been approved by the auditor general.
Without that massive one-time windfall, the 2019-20 deficit would have hit $1.124 billion.
That's nearly $200 million worse than the last update in December, and double the equivalent number from budget day.
All this for the fiscal year that ended more than two months ago, while the pandemic-fuelled economic crisis was just starting.
Osborne committed to tabling a budget for 2020-21 "as soon as possible."
In response to a question from reporters, he indicated it's the government's intention to do so by the end of summer.
Osborne said revenues are expected to drop even further — high unemployment will contribute to a drop in personal income taxes, sales taxes and business taxes.
Oil royalties were initially projected to generate around $1 billion for the provincial coffers last year. Osborne said Newfoundland and Labrador would be "lucky" to see half of that this year.
All that will likely add up to a big deficit for 2020-21 — but it's not yet clear how big.
"This year will certainly be an anomaly, based on the fact that we're still very much dealing with the global pandemic, and we're still very much dealing with the fact oil prices are nowhere near what we would have considered normal at this particular time," Osborne told reporters.
"So while this is an anomaly, whether or not we weather the storm in terms of deficit this year and things look a little more back to normal next year — it's too early to tell. There's no vaccine for COVID at this particular stage. Whether or not we have a second wave or how that affects us, it's really too early to tell. These are some of the unknowns, the things we can't control, but we're certainly working our way through it."
Osborne reiterated that the province is looking to Ottawa for assistance.
"We are not asking for a handout," he said. "We are asking for fairness."
Plunging oil prices
The COVID-19 crisis hit resource-dependent Newfoundland and Labrador especially hard.
The financial crisis got so precarious that, in March, Premier Dwight Ball wrote a letter to Prime Minister Justin Trudeau asking for help.
Ball warned that Newfoundland and Labrador was having trouble borrowing money to fund operations, and had "run out of time."
The Bank of Canada stepped in with a program to help all provinces meet their short-term borrowing needs. A second initiative followed, allowing the central bank to buy longer-term provincial bonds on secondary markets.
Newfoundland and Labrador borrowed $1.2 billion in the first six weeks of the new fiscal year, from early April to mid-May.
Osborne said the province did so without the assistance of the Bank of Canada.