Government issued a press release on the state of our finances yesterday. The good news is the 2016-17 deficit has successfully been reduced to almost half of the deficit over the previous year. The bad news is, we’re still screwed and have an unsustainable fiscal situation on our hands.
“The deficit as a percentage of GDP in Newfoundland and Labrador for 2016-17 is the highest in Canada and substantially higher than most other provinces,” says Terry Paddon, Auditor General for NL.
“Even though the Province expects a surplus in 2022-23, it continues to forecast significant deficits up to that time. Furthermore, there is risk that the forecasted results may not be achieved, and the Province has limited options to address this situation.”
In his Report, Paddon expressed his concerns and shared observations about the fiscal challenges facing the Province in the future, including the fact that the latest deficit is the second highest deficit ever recorded in Newfoundland and Labrador, which contributed to a substantial increase in the net debt of the Province: we now owe $13.6 billion – the highest in the history of the Province. Interest on that debt is immense.
Interestingly, Paddon notes that “The Province of Newfoundland and Labrador generates more revenue, on a per capita basis, than every other province, and has one of the highest tax burdens.” He says that this indicates that “revenue is not the primary issue creating deficits.” Our spending is.
Our problem is that per capita spending in this Province is substantially higher than per capita revenues, and the Province spends more per capita than every other province. “This suggests that the level of spending in the Province has the biggest impact on deficits,” said Mr. Paddon.
Cutting government some slack, Paddon noted that Newfoundland and Labrador faces significant challenges in spending money effectively because of our unique challenges in providing public services in an economically efficient manner. This is because of two things: our older-than-average population and our geography reality.
Almost 20% of us are older than 64. This is places a higher demand on costly public services (like healthcare, for instance). As for our geography, being an island on the edge of a country, we suffer cruel import/export costs that add up to a terrible financial burden.
Our population stats + geography combine as a contributing factor to our higher cost of delivering services. We are a relatively sparse population, spread out over a relatively large land mass, when compared to other provinces. It is no secret this has always created a challenge to providing efficient, economical public services.
In closing, Paddon warned that, “If the Province is unable to achieve its budget targets, there are limited options available to generate significant additional revenue, and if the Province has to reduce expenditures, it will have to consider hard choices around the types of public services provided and how they are delivered.”
He is referring to the fact that revenues may not rise to expected levels by 2022-23, because more than 25% of the revenue growth is expected from oil royalties, and oil prices may not rise to expected levels by 2022-23 … and expected levels of oil production may not be reached. As always, we’re betting all our money on oil. And that’s the same mistake that got us into this mess in the first place, really.