Fiscal situation grim as Newfoundland and Labrador deficit hits $1.96 billion

A worsening market for crudehas made an already dire fiscal situation in oil-dependent Newfoundland and Labrador even worse, with the new premier revealing Tuesday that the province is now expected to rack up a $1.96-billion deficit this fiscal year.

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That is up dramatically from the $1.1-billion deficit that the former Progressive Conservative government projected in a budget last spring.

Premier Dwight Ball and Finance Minister Cathy Bennett delivered a fiscal update on Tuesday at Confederation Building, and said their plan for now, at least does not involve layoffs.

The government, though, has ordered departments and agencies to halt discretionary spending, avoid non-essential travel and cancel outside contracts, among other measures.

"Our province is at a critical juncture,"Ball told reporters, less than three weeks after he led the Liberals to a landslide victory in a provincial election.

'Corrective action needs to be taken'

The deficit has ballooned because projected revenues are down by $870 million, the vast majority of the lost cash due to plunging oil prices and reduced production.

"This is unprecedented and corrective action needs to be taken," said Bennett.

While the short-term picture is gloomy, the medium-term forecast is even worse.

The government expects the deficit for next year to be $2.4 billion. The government is also projecting multi-billion-dollar deficits for the rest of the decade, unless revenues increase or costs are trimmed.

Unless revenues rebound, or government spending drops sharply, the province's net debt will reach $22.9 billion dollar by 2020/21.

The debt has been as low as $7.8 billion in 2011/12.

'Status quo not an option'

The government delivered the bad news just three days before Christmas, with Ball sayingthe announcement ispart of his commitment to be open and transparent with citizens.

It's a dramatic reversal for the province of just a half-million residents, which experienced an oil-driven economic boom overmuch of the past decade.

But with Brent crude now trading at less than US $37 per barrel, well below the $62 projected on budget day, few were surprised by the staggering change of fortunes in the province.

The question now is how the government will address the problem while trying to stand by an election promise to avoid public sector layoffs, and maintain a good credit rating with the bond lending agencies.

Ball said he does not plan to break that promise, and said therewill be plenty of discussions with various groups, including labour leaders, in the lead-up to the new budget next spring.

"The status quo is not an option," Ball said.

"The choices will not be easy," Bennettadded.

Government spending too high: business groups

One of those choices will include reducing the size of the public sector, and that's exactly what groups like the Newfoundland and Labrador Employers' Council want to see.

Executive director Richard Alexander's reaction to the update was blunt.He said Newfoundland and Labrador has a spending problem, and that's driven largely by employee costs.

"When you have thelargest public administration as a percentage of your workforce of any jurisdiction in North America, there are absolutelythings that can be done there," Alexander said.

That view is shared by the St. John's Board of Trade.

"We really got to dig into program expenses," said board chair Kim Keating.

"It's time to get serious aboutthis. We really need to look at what we're doing and the outcomes by which we're being measured against,because they're not positive."

As expected, the leader ofthe largest public sector unionin the province has a different viewpoint.

NAPE president Jerry Earlesaid reducing the public sector will result in an eroding of public services, and he's encouraged by the government's commitment to no layoffs.

Collective agreements for public sector unions will expire early in 2016, and Earle said NAPEhas no plans to change its approach to negotiations.

In fact, he's encouraged by the government's openness.

"I've had more conversations in the past couple of weeks than I've had in the full six months I've been in office," Earle said.