2. OUR BUDGET PLAN
Economic Performance in 1996
Mr. Speaker, the winding down of Hibernia construction and the continued closure of the groundfishery caused declines in real gross domestic product, employment and personal income in 1996. However, these declines were less than anticipated. For example, real GDP declined by 2.1 percent, compared to a forecast decline of 4.3 percent.
There are reasons for this improved economic performance. New
home construction increased 18.8 percent. The volume of newsprint
shipments remained high. Fish landings grew by about 30 percent.
The value of seafood exports rose by about five percent. Mineral
shipments increased 6.1 percent and mineral exploration reached a
record $91 million. Two new gold mines and a gypsum mine began
production. The manufacturing sector grew for the fourth
consecutive year to $1.6 billion.
Table 1
PROVINCE OF NEWFOUNDLAND
Main Economic Indicators
(percentage change)
1996 1997 Gross Domestic Product Nominal -2.5 -4.4 Real -2.1 -2.7 Personal Income Nominal -1.7 -2.3 Real -3.2 -2.9 Retail Sales Nominal -1.2 -2.3 Real -2.5 -2.9 Capital Investment Nominal -18.2 6.0 Real -16.4 7.0 Consumer Price Index 1.6 0.6 Employment -3.9 -1.9 Unemployment Rate (percent) 19.4 20.5 |
Economic Outlook: the Next Three Years
The Province's economy is expected to decline in 1997, and then begin to grow. Petroleum and mining will lead the way. Hibernia will start production this year. The Terra Nova and White Rose oil projects, the Voisey's Bay mine, mill, smelter and refinery, and the oil transshipment terminal at Whiffen Head are all proceeding.
Mineral output will increase, particularly in iron ore and gold. We are starting to recover from the fishery crisis. Aquaculture will grow. Diversification in the fishery will continue. Landings are expected to increase, particularly shrimp, capelin, and crab. The groundfishery will recover slowly. Newsprint exports are forecast to rise. Advanced technologies - such as marine communications - will spur further growth in new industries. The Cabot 500 Celebrations will increase the number of non-resident tourists by at least 20 percent. There are 40,000 visitors booked for conventions in St. John's alone, compared with 15,000 on average in past years. This is an increase of more than 250 percent.
Our Province's prospects are good for 1998 and beyond. Yet, the financial situation remains difficult. We are forecasting declines in economic indicators in 1997, including a decline in real GDP of about 2.7 percent. Real personal income will fall by 2.9 percent, partly because of the reductions in TAGS payments.
In light of this, and reduced federal transfers, Government must make choices. Our public debt is high. Our ability to borrow responsibly is limited. We must achieve savings while maintaining vital public services. We must live within our means.
Meeting Our Deficit Target - 1996-97
Mr. Speaker, last May, we set a deficit target of $44.8
million. Indeed, Mr. Speaker, the deficit is less than predicted,
and will now come in at $29.2 million. Other than 1995-96, which
benefited from one-time revenues, this is the lowest deficit
since 1965-66. It is the best fiscal performance our Province has
achieved in 30 years.
Table 2
SUMMARY OF 1996-97 FINANCIAL POSITION
($ millions)
Budget Revised
1996-97 1996-97 Variance
Current Account Gross Expenditure 3,207.4 3,205.9 1.5 Related Revenue 208.3 172.4 (35.9) Net Expenditure 2,999.1 3,033.5 (34.4) Provincial and Federal Revenues 3,060.5 3,135.0 74.5 Current Account Surplus 61.4 101.5 40.1 Capital Account Gross Expenditure 200.5 239.2 (38.7) Related Revenue 124.3 108.5 (15.8) Net Expenditure 76.2 130.7 (54.5) Contingency Reserve 30.0 - 30.0 Total Budgetary Requirement 44.8 29.2 15.6 |
Firm expenditure control and some favourable fiscal developments
contributed to this improvement in our fiscal position for
1996-97. Firm expenditure control reduced spending by $40
million. Personal and corporate income taxes increased $47.5
million. Lower interest costs resulted in a $16 million saving.
Federal transfer payments increased by $27.7 million.
Mr. Speaker, we have used these improvements in the fiscal situation this year wisely. We have used this money to pay down debt, and to make needed investments, particularly in health care and education. These will be detailed in the course of the Speech. None of this, however, alleviates the necessity to achieve significant savings in the next three years to maintain fiscal viability.
Mr. Speaker, we will build on this year's success. We are committed both to achieving a balanced budget that can be sustained year after year, and to maintaining health, education and other social priorities.
Program Review
In order to achieve these goals, Government conducted a
critical evaluation of all public sector activities. This was
done through Program Review, announced in last year's Budget.
Program Review applied three tests to all Government activities:
These tests were applied not only to Government programs, but also to more than 200 external bodies and agencies in which Government is involved. In last year's Budget, we announced the elimination of over 20 of these agencies. This year, following Program Review, an additional 20 such agencies will be eliminated, merged, or called on to realise major efficiencies.
Mr. Speaker, Program Review was the means to involve public servants in all departments and agencies in a critical re-examination of what Government does and how it spends public money. It was the means to renew the structure and operations of Government to reflect our priorities. It was a searching internal consultation on the role and function of Government.
The Three-Year Fiscal Plan
Mr. Speaker, Government also sought input from people throughout our Province. The Pre-Budget Consultation paper laid out the deficit forecast for the next three years. It pointed toward areas where savings could be achieved. The facts were clear: if we did not act decisively now, in this Budget, hundreds of millions would be added to the Province's debt over the next three years.
In the Pre-Budget Consultation, the public told us: don't raise taxes. They told us: health care, education and helping the most needy are our top priorities. But, Mr. Speaker, one thing was made clear to me everywhere that I went: it's time to end the cycle of deficits and debt. It's time to end the uncertainty. In the 1997-98 Budget, we are doing all of these.
Today, Government is putting forward a three-year plan to
achieve a balanced Budget. The deficit will be reduced to $20
million in 1997-98, $10 million in 1998-99, and we will achieve a
sustainable balanced Budget in 1999-2000. This represents new
borrowings over three years - if indeed these borrowings are
necessary - of up to $30 million. These low levels of borrowing
have not been seen since the early 1950s. By contrast,
governments borrowed on average $137 million a year in the 1970s
and $208 million a year in the 1980s to finance deficits. Mr.
Speaker, our plan calls for deficits to be reduced, and then to
be eliminated.
Table 3
ESTIMATED BUDGETARY POSITION
($ millions)
Estimates Revised
1997-98 1996-97
Current Account
Gross Expenditure 3,136.7 3,205.9 Related Revenue 215.8 172.4 Net Expenditure 2,920.9 3,033.5 Provincial and Federal Revenues 3,031.4 3,135.0 Current Account Surplus 110.5 101.5 Capital Account Gross Expenditure 214.5 239.2 Related Revenue 113.7 108.5 Net Expenditure 100.8 130.7 Contingency Reserve 30.0 - Total Budgetary Requirement 20.3 29.2 |
Savings from Program Review are central to this. These savings
will be $65 million in 1997-98, $120 million in 1998-99 and $170
million in 1999-2000, totalling $355 million over the next three
years. This includes increases to various fees and licenses and
other measures to recover the costs of providing certain
services. These will generate an average of about $17 million a
year over the next three years.
Mr. Speaker, let us be clear. While we are making important new investments, such as for children and youth, the savings to be achieved are even greater. The size of these savings mean profound changes for Government. The Departments of Industry, Trade and Technology; Mines and Energy; Finance; Executive Council; Treasury Board; Forest Resources and Agrifoods; and Fisheries and Aquaculture are some of the departments that have been asked to focus on key goals and greatly streamline their operations. In other areas, like Social Services, there will be modest savings. And in Health, there will be small increases. Overall, Government is making deep cuts in certain areas so we can maintain vital services, achieve needed savings, and make re-investments in social programs.
None of this is painless. All of it creates a smaller Government and a more focussed Government. But the choices set out in this Budget are the right choices to meet the needs of the people of this Province. They bring Government to a size and shape that we can afford. They allow us to maintain vital public services in priority areas, especially social programs.
The materials that accompany this Budget set forth three-year Budget figures for each Department. They set targets within which Ministers and public service managers will plan and deliver Government services. Some adjustments may occur from year to year in light of changing circumstances. However, the overall integrity of our Budget plan will be maintained.
Public Debt
Mr. Speaker, we must stop adding to the public debt. We must also deal with the problems caused by the debt accumulated since Confederation. The Province's total debt - including direct obligations, guaranteed Crown corporation and municipal debt, as well as the unfunded liabilities in public sector pension plans - amounts to $9 billion. That works out to be $15,800 for every man, woman and child in this Province. Interest payments on our direct debt alone amount to $500 million annually. That is $900 each for every man, woman and child in the Province. Debt interest is the third largest expenditure in our Budget, after health care and education.
Pensions
Mr. Speaker, Government must take steps now to address unfunded liabilities in our public service pension plans. These liabilities total $2.7 billion. If corrective action is not taken, Government will not be able to pay the future pensions of public employees, or those already retired. We cannot postpone dealing with this problem.
Government pension funding was first established in 1980. Government accepts its share of the responsibility for unfunded pension liabilities. Government will repay every cent it owes to the pension fund, plus interest. Our three year plan makes provision for payment of $196 million in 1997-98, $113 million in 1998-99, and $123 million in 1999-2000. Similar payments will continue until Government's obligation is fulfilled.
But, these payments alone will not solve the problem. Public employees must accept their fair share of the responsibility for unfunded pension liabilities. We will work with public employees towards a consensus on a fair solution.
Teachers have a separate pension plan. That fund will be exhausted by 2004. That is only seven years from now. Recently, we reached an agreement with the Newfoundland and Labrador Teachers' Association on measures to deal with the unfunded liability of $1.2 billion in the Teachers' Pension Fund. This agreement cannot work unless both the Government and teachers make significant commitments. The agreement, negotiated in good faith, represents a fair and equitable solution to a difficult problem for both Government and teachers.
I repeat again, Mr. Speaker: if the Teachers' Pension Plan is not addressed now, over $200 million will be required annually within the next decade simply to make payments to retirees. Mr. Speaker, it is difficult to believe that, in the absence of a solution, that kind of money will be found. Neither Government nor teachers can afford to wait much longer for an answer.
Human Resource Impacts
Last year's Budget did not include reductions in the wages and benefits of public employees. Mr. Speaker, neither will this year's Budget. We will deal with wage and benefit issues in the normal process of collective bargaining with our employees.
As well, Mr. Speaker, we will also honour our commitment to pay equity in the public service by continuing to increase wage rates for female-dominated jobs. The total cost of meeting this commitment in 1997-98 will be $27 million.
If we do not reduce the size of the public servants' wage package, then we must reduce the size of the public service. The additional measures announced in this Budget will eliminate up to 1,100 full time equivalent positions over the next three years. This represents a four percent reduction in public sector positions. This is in addition to other reductions already underway, such as those from health care restructuring, education reform and declining student enrolments.
However, approximately 1,000 public service employees and another 1,000 teachers will be eligible to retire over the next three years. This will reduce the number of lay-offs of both public servants and teachers. To assist employees leaving the public service, $2 million per year will be provided through a Labour Force Adjustment Fund. As well, $10 million has been provided for a Voluntary Departure Program this year. This program will reduce the number of lay-offs, especially of younger employees.
Mr. Speaker, let us emphasize something: in the past, deficit efforts led to large-scale lay-offs each spring and often each fall. This is coming to an end. When the fiscal plan set out in this Budget is implemented, the Province will have achieved a balanced Budget. When that is done, large-scale lay-offs to battle the deficit will no longer be needed. At that time, public servants who perform their jobs well can have renewed confidence those jobs will continue to be there for them.
Sales Tax Harmonization
Mr. Speaker, the harmonization of the provincial and federal sales tax systems will reduce taxes by more than $100 million a year. This will lead to increased economic growth and employment, as well as lower consumer prices. One of the best contributions Government can make to the economy is to leave more money in the pockets of taxpayers. With the new HST, sales tax will fall from nearly 20 percent to 15 percent on most purchases. 1997 will mark the biggest tax cut for Newfoundlanders and Labradorians in our history.
Families at all income levels will pay less tax as a result of harmonization. However, larger portions of poorer families' incomes go for fundamentals such as heat and light. Government is prepared to do more to ensure that those most in need are helped.
Mr. Speaker, we are announcing today a new $7.6 million provincial sales tax credit of $40 per adult and $60 per child, which will be paid in addition to the existing federal GST credit. For a family of two adults and two children, the combined credit will rise by $200 to $808 annually. This is money that will directly benefit those who need it most, especially the working poor and those receiving social assistance.
Government is also sensitive to the implications of tax harmonization for the people of Labrador. We will continue to provide sales tax relief on building supplies purchased for residential construction in Labrador.
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