BUDGET PLAN Dickscol.jpg (18046 bytes)

1997 Economic Performance

Mr. Speaker, economic performance in 1997 was better than expected. Real GDP declined by 1.3%, rather than the 2.7% forecast at budget. Improved performance can be attributed to:

  • a 5.7% increase in retail sales. Much of this can be attributed to the introduction of the HST - which represents the single largest tax cut in this province since we joined Confederation,
  • a 9.3% increase in capital spending, which included the construction of the Whiffen Head transshipment terminal and the completion of the Hibernia Platform,
  • a 12.6% increase in the volume of fish landings, and a 15.7% increase in their value,
  • a 9.4 % increase in the value of mineral shipments, led by strong growth in iron ore production and the start-up of several new mines,
  • a 3.8% increase in newsprint shipments,
  • a 5.2% increase in total exports,
  • a 22% increase in the number of tourists, and a 220% increase in convention activity in the St. John’s area, boosted by the success of the Cabot 500 celebrations, and
  • earlier than expected oil production at Hibernia.

At the end of 1997, year-over-year employment had increased 4.8%, from 182,000 people to 190,800. Our unemployment rate dropped 2.8 percentage points year-over-year. While the unemployment numbers are still far too high, this is significant progress. All these statistics indicate that our economic prospects are improving.  

Economic Outlook

Mr. Speaker, we can look to the future with optimism. Resource development spending will continue. Manufacturing and exports of oil and fish products will increase.

We forecast that the economy will grow by between 4 and 4.5% in real terms this year. This is in line with third-party forecasts.

Strong economic growth will continue in 1999 due to major investments in the Voisey’s Bay and Terra Nova projects, as well as increased oil production at Hibernia.

.

NEWFOUNDLAND AND LABRADOR
Main Economic Indicators
(percentage change)

.

1997

1998

Gross Domestic Product

Nominal

-1.9

4.1

Real


-1.3

4.5

Personal Income

Nominal

-1.8

1.9

Real


-3.7

0.7

Retail Sales

Nominal

5.7

0.6

Real


3.9

-0.1

Capital Investment

Nominal

9.3

11.6

Real



8.4

8.8

Consumer Price Index

2.0

1.2

Employment

1.1

2.0

Unemployment Rate (percent)

18.8

17.8

.

We welcome this turn of events. These will be the first years of significant growth after several years of economic decline. The 1990s have been difficult years for Newfoundland and Labrador. The effects of the groundfish moratorium and the recession of 1991-1992 are still being felt in our economy. However, while provincial GDP will increase substantially, Government revenues will not grow at the same rate.

realgdp.gif (7987 bytes)

We must, therefore, keep on track with continued fiscal restraint and prudent management of public finances if we are to attain our goals of providing efficient services, reducing taxes, and stimulating economic growth.  

Fiscal Outlook

During the election campaign of 1996, we said in our Platform:

1996 and 1997 will be difficult years for our province’s economy. They will be difficult years for the provincial government’s finances.

The outlook for the years that follow is a much improved economic and fiscal situation. Strong economic growth is expected in 1998, 1999, 2000 and thereafter.

However, the provincial government’s overall revenues will grow more slowly than the economy, in part because equalization payments go down as receipts from taxes and royalties go up.

 

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SUMMARY OF 1997-98 FINANCIAL POSITION
($Millions)

.

Budget
1997-98

Revised
1997-98


Variance

Current Account

Gross Expenditure

3,136.7

3,143.2

(6.5)

Related Revenue

215.8

172.7

(43.1)

Net Expenditure

2,920.9

2,970.5

(49.6)

Provincial & Federal Revenues

3,031.4

3,079.7

48.3

Current Account Surplus

110.5

109.2

(1.3)

Capital Account

Gross Expenditure

214.5

251.2

(36.7)

Related Revenue

113.7

121.9

8.2

Net Expenditure

100.8

129.3

(28.5)

Contingency Reserve

30.0

-

30.0

Total Budgetary Requirement

20.3

20.1

0.2

.

 

Mr. Speaker, as a result, people’s expectations of Government are also increasing.

Let me repeat: while GDP growth will be strong over the next few years, provincial government revenues will not grow at the same pace. Mineral and oil tax regimes provide for a payback period which allows project owners to recover their capital costs from production revenue. While developers are recovering their capital costs, Government’s tax and royalty collections are low. Once the payback period is over, provincial resource royalties will rise as a share of project revenues.

However, as revenues increase, equalization transfers from the federal government decrease. On average, as much as 84 cents of every revenue dollar received by the provincial government will be deducted from equalization transfers. This will diminish the money available to finance provincial programs or to reduce taxes.]

Therefore, we must resist demands for new spending we cannot afford, unless we are prepared to increase taxes, lay off employees, or borrow more money.

Our approach will be to continue to manage our finances prudently, so that the benefits of Hibernia, Voisey’s Bay, the Churchill River, and other developments can be used to reduce taxes, pay down debt, and improve our health, education and other essential services.

.

ESTIMATED BUDGETARY POSITION
($Millions)

.

Estimates
1998-99

Revised
1997-98

Current Account

Gross Expenditure

3,166.3

3,143.2

Related Revenue

226.6

172.7

Net Expenditure

2,939.7

2,970.5

Provincial & Federal Revenues

3,063.1

3,079.7

Current Account Surplus

123.4

109.2

Capital Account

Gross Expenditure

242.2

251.2

Related Revenue

138.8

121.9

Net Expenditure

103.4

129.3

Contingency Reserve

30.0

-

Total Budgetary Requirement

10.0

20.1

.


Public Service

Government recently negotiated a 7 % pay increase over 39 months with several of our public sector unions. This is the maximum that the public’s finances can afford at this time.

To those members of the public service who believe that Government can afford more than it is offering, let me be clear:

It is the people’s finances we are managing. It is the people’s bank account. A 7% increase is fair. A 7% increase is all we can afford. There is no more money. We will not increase taxes. We will not cut services. We will not borrow money to give a larger increase than Government can afford at this time.  

Public Sector Pensions

Mr. Speaker, let us also consider our pension plans. The unfunded liability of our public sector pensions represents a substantial portion of the accumulated total debt of the Province.

The magnitude of the unfunded liability threatens the long-term viability of our pension plans, as well as the benefits pensioners expect to receive. We have taken steps to address unfunded liabilities in some plans, with the cooperation and support of most public sector employees. Without the full cooperation of all employees, we cannot finish the task.

Government is accepting its share of the unfunded liability. Employees must also accept their full and fair share. Our three year fiscal plan makes provision for substantial payments to reduce the unfunded liability. We will continue making these payments until our obligation is fulfilled.  

Teachers’ Pension Plan

Teachers have a separate pension plan that has an unfunded liability of $1.6 billion.

Unless something is done, the teachers’ plan will require deficiency payments of $121 million in 2004, increasing each year thereafter. This money cannot, and should not, be found from cuts to services or increased taxes to fund benefits that teachers themselves have not paid for.

It is in the best interest of teachers to work with Government on a fair and equitable solution to this problem. It is a joint responsibility, not solely that of Government and taxpayers. We stand ready to make the investment in the Teachers’ Pension Plan. This is a problem that will not go away.  

MHA Pensions

Members on both sides of the House recognize that pension arrangements for Members of the House of Assembly need to be reformed. Government will be introducing appropriate changes to that plan during this Session. Effective immediately, the following measures will be implemented for all Members of the House of Assembly:

  • pension contributions will be increased from the present 7% to 8% effective April 1st, 1998, and to 9% effective April 1st, 1999,
  • the benefit accrual rate will be adjusted to provide maximum benefit after 20 years of service, for new members, instead of the current 17 years, and
  • the stacking of Canada Pension Plan benefits, on top of MHA’s pensions, will end immediately. Mr. Speaker, after today, the only public employee group to retain stacking privileges in this Province will be teachers.

As is the case with all other plans, MHAs are being asked to share in the solution.  

Tax Reform

Mr. Speaker, we recognize that Newfoundland and Labrador is one of the highest taxed jurisdictions in North America. This must change. Last year, we introduced the HST, which reduced the combined federal-provincial sales tax from 19.84% to 15%. This was the single largest tax cut in our Province’s history.

The recent federal budget provided Canadians with personal income tax relief in several areas. Since provincial income tax is calculated as a percentage of the federal tax, these new reductions will lower personal income taxes by more than $30 million, of which $12.5 million comes from provincial revenues. We are pleased with and support these tax reductions.

We are also concerned that the payroll tax is a disincentive to employment. In principle, we support its elimination over time, but fiscal circumstances make it impossible to surrender the $46 million of net revenue that it generates.

However, we are committed to making first steps. Currently, the first $100,000 of annual payroll costs are exempt from the Province’s payroll tax. Mr. Speaker, I am pleased today to announce that, effective for the 1998 taxation year, the exemption will be raised to $120,000. This measure will benefit all businesses in the Province, particularly small business operators. In excess of 225 small businesses will be removed from the tax rolls and approximately $1 million will be put back into the hands of the business community.
 


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