Mr. Speaker, despite the international economic slowdown, our economy grew in 2001 by 1.3 percent in real terms. This is a solid performance in comparison to other provinces and follows three years when real GDP growth exceeded 5 percent each year. Almost every other economic indicator for the province out-performed its 2001 budget forecast.

Consumer and business confidence remained high, and this is reflected in strong gains in retail trade and capital investment. Employment grew to a record high and the unemployment rate declined to its lowest level since 1989. First in 1999, and now again in 2001, we led all provinces in employment growth. Notable is that 63 percent of the new jobs created since 1996 have been outside the greater St. John�s area.

Capital investment remained above $3 billion for the third straight year. Housing starts were up 22.5 percent. Non-resident tourist visits were up again in 2001, an excellent performance considering this comes on top of the high growth generated by major celebrations beginning in 1997.

The value of exports did drop marginally. Newsprint production still reached the second highest level ever recorded, only exceeded in 2000. A shutdown in the inshore shrimp fishery constrained fish landings, but the landed value of all fisheries was still the third highest on record. This province is now the largest producer of cold water cooked and peeled shrimp in the world. Iron ore production declined in part because of the slowdown in the steel industry. Manufacturing shipments, however, remained stable.

Oil production at Hibernia was up 3 percent and the Terra Nova production vessel took up position offshore, boding well for further production growth in 2002. As well, government approval was granted in December for White Rose, which could add a third major offshore project to contribute to future economic growth.

For 2002, employment is expected to reach a new record high and the unemployment rate could decline further, possibly to its lowest level since 1989. This will contribute to higher personal income and real disposable income. For the first time retail sales are expected to surpass $5 billion. Our cumulative growth in retail sales since 1996 is second only to Alberta and this reflects confidence all over the province in our economy and in our future.

Most forecasters are calling for a global economic recovery in the second half of the year. We should lead all provinces in 2002 with expected real GDP growth of 3.7 percent. This would mark the third time in five years that we top all provinces. It would be the fourth time that we exceed the national average.

Fish landings are expected to be up in 2002. Newsprint and lumber production should exceed 2001 levels. Capital investment could be spurred on by the White Rose project. The special tourism celebrations planned for Labrador and the film exposure the province has received from The Shipping News, Random Passage and Rare Birds should allow us to proudly build on the tourism gains achieved in recent years.

With Terra Nova on stream, the offshore could see a 60 percent increase in oil production. Onshore production on the Port-au-Port Peninsula is expected to begin in 2002. A successful conclusion to Voisey�s Bay negotiations, as well as Lower Churchill power discussions, would only add to business and consumer confidence and our future economic prospects.

Mr. Speaker, our solid economic performance over the past year contributed to a sound fiscal performance. For five consecutive years prior to 2001-02, we not only met, but improved upon, our deficit targets. We could have achieved this again for the sixth year. Instead, we are following the same successful strategy we have utilized for several years of shifting some flexible revenues from one year to the next in order to stabilize the fiscal situation. This stability allows us to protect public services and foster economic growth. The alternative is dramatic year to year swings from large surpluses to big deficits that serve no purpose except to bring uncertainty to social programs important to the public, like health and education.

Our original deficit target for 2001-02 was $30.5 million. This increased to $80 million at midyear because of public sector wage settlements, indications federal transfer payments would be lower and fluctuations in exchange rates. We instituted a hiring freeze and restricted travel to help in controlling the deficit. A month ago new federal transfer estimates reversed the $13 million shortfall we expected at midyear. Our solid economic performance through to year end results in revenues being $30.8 million higher than budgeted. On the year, expenditures were $49.9 million lower than anticipated, in large part because some collective agreements will not be concluded prior to year end. These factors brought us to a surplus of $13.7 million before year end decisions. We made investments of $25.5 million in health and education, and deferred $51.7 million in revenues budgeted for this year to next year. The net effect is that we are recording a deficit for 2001-02 of $63.5 million.

By moving some revenues forward, we are able to avoid a current account deficit in either year. This means that for 2001-02, as well as for 2002-03, we will not borrow to pay for the day to day operating expenses of providing public services. Our only borrowing for either year will be to cover some capital account expenditures, which are the long term investments we make in things like hospitals, schools and roads.

If we look at one of the most common statistics used by other governments and the credit rating agencies to assess ability to carry debt, the public sector debt to GDP ratio, we see that for this province it has been getting progressively better. This means that our debt has become a smaller percentage of our GDP, which is viewed quite favourably by financial markets. Over the past 10 years our ratio has fallen in percentage terms from the mid 60s to the low 50s, about 15 percentage points. It has been our management of the fiscal situation and contribution to the economic climate that has allowed this to happen.

Like other provinces, we need strong economic growth provincially, nationally and internationally to provide the revenues we need to sustain and enhance social programs. In times like these, when the global economy falters, all provinces suffer fiscally, and most are at risk of slipping into deficit. Some provinces are experiencing severe fiscal shocks much greater than we are experiencing. We have worked diligently in preparing this budget to keep the deficit for 2002-03 to an affordable level, while ensuring enough flexibility to undertake some important initiatives. We have conducted pre-budget consultations throughout the province. I have spoken with the credit rating agencies.

We believe this budget strikes the right balance between fiscal prudence and funding needed public services, even if the deficit has to rise in 2002-03 to accomplish this. We began the budget process facing a deficit of $330 million. We have taken a series of measures to bring this figure down substantially. Revenues deferred and investments made at year end account for $77.2 million. Savings within government from the continuation of the hiring freeze and operational efficiencies, as well as eliminating the contingency reserve, lower the deficit by $31.4 million. We are taking some measures to augment revenues by $117.5 million. Other measures totalled $10.6 million. Together, these actions allow us to forecast a deficit for 2002-03 of $93.3 million.

If we compare this to the past thirty years, we do find lower deficits for the last seven years. But for the other 23 years prior, right back to 1972-73, the deficit fell below $100 million only once, in 1980-81. The average deficit in those 23 years was $196.6 million, more than double the deficit we are forecasting for 2002-03. Looked at in this historical context, setting the deficit target well under $100 million for 2002-03 is a prudent response to the fiscal uncertainties facing the entire country today. We are optimistic that an economic recovery this year could bring the deficit down even lower. And our deficit target can be achieved with no cuts in social programs, no major public sector layoffs or wage rollbacks and only minor tax adjustments.

Revenue Measures

One way we could have brought the deficit down is by increasing taxes. But we are not willing now to risk the gains we have made to achieve a better economic climate. Tobacco taxes do not have a direct impact on our economic drivers. They do have a direct impact on tobacco consumption, particularly on teens who are sensitive to price increases. Tobacco taxes have not been increased by the province since 1992. That is changing as of midnight tonight. The tobacco tax is increasing by 3.67 cents per gram on fine cut tobacco and by 2.5 cents per cigarette. This measure will contribute $14.5 million to deficit reduction and hopefully much more towards a healthier population.

Public Sector Collective Bargaining

Another component of managing the fiscal affairs of the province is to come to fair settlements with our unionized employees. Over the past year, we have successfully concluded negotiations for 24 of our 33 collective agreements. These agreements cover about 30,000 bargaining unit employees representing 82 percent of the unionized public sector workforce. We are optimistic a final agreement with the teachers will be concluded shortly.

Succession Planning

Like other employers, we are faced with an aging workforce. We are taking steps to plan for succession to be able to replace retiring employees, especially in hard to fill occupations. This year we will prepare a government-wide human resource plan that will focus on targeted recruitment, retention and employee development strategies to respond to succession concerns.

This province also needs workers who can adapt to the skills requirements of a changing economy. This issue is not just a provincial priority, but a national one. We have commenced discussions with the federal government in response to the recently released Innovations Strategy, conveying our interest in partnering to address areas of common interest. We also will be announcing shortly a labour market development strategy for the province. The strategy will be guided by the Strategic Partnership and Labour Market Development Council. The aging of our workforce presents challenges, but also unprecedented opportunities for our young people now and in the future. We also will increase our focus on sound career planning and the better preparation of our youth for post secondary education and the transition from learning to work.