FISCAL FRAMEWORK

Review of 2004-05

Mr. Speaker, before considering our detailed fiscal plans and expectations for 2005-06 and beyond, let us reflect on the year we are about to conclude.

Facing the unsustainable prospect of annual billion-dollar deficits on a go-forward basis, I announced in last year’s budget speech a multi-year plan to eliminate the province’s cash shortfall by 2007-08 and reduce the deficit progressively over time in order to position our province for long-term fiscal sustainability.

Several factors that were unforeseeable a year ago have significantly improved our province’s fiscal circumstances. Premier Williams was successful in negotiating a new arrangement on the sharing of offshore petroleum revenue that enables Newfoundland and Labrador to retain 100% of its provincial  hare of the revenue. The impact of this arrangement alone has contributed $134 million in additional revenue in 2004-05. The Premier was also instrumental in achieving significant improvements to the country’s Equalization Program which contributed to an increase in revenue from this source of $88 million. An increase in royalties related to offshore petroleum production, primarily as a result of higher prices, contributed $113 million toward the improved provincial bottom line.

These impacts, in combination with new Health Accord revenue, careful monitoring of expenditures and other factors, have helped us reduce the 2004-05 deficit from $840 million to $473 million, and cut the cash shortfall from $362 million to just $14 million. These results for 2004-05 reflect our government’s decision to repay the outstanding debt of the Heritage Corporation (The Rooms) and the Education Investment Corporation which totaled $117 million.

Forecast for 2005-06 and Beyond

Mr. Speaker, our achievements in the past year will continue to benefit us for years to come. Revenues in 2005-06 are projected to be significantly higher than we had earlier anticipated, primarily because of the new Atlantic Accord 2005, higher offshore royalties, additional Equalization, and an expanded Canada Health Transfer.

Expenditures will also be up as we make strategic investments that will reap significant dividends in years to come. We have revised our multi-year fiscal plan to reflect the new circumstances. We now project that the deficit in 2005-06 will be $492 million, not the $759 million we projected last year; and the cash shortfall will be just $62 million, not the $320 million we projected last year. This is indeed remarkable progress for such a short period of time.

As a result of our commitment to good fiscal stewardship, our government is now well ahead of the multi-year goal we set last year of achieving a balanced cash requirement and a significantly lower deficit by 2007-08. We now project that we will achieve deficits of $307 million in 2006-07 and $384 million in 2007-08. Furthermore, instead of a cash shortfall in 2006-07 of $250 million, we now project a cash surplus of $143 million for that year. And in the following year, 2007-08, instead of a balanced cash position, we project a cash surplus of $73 million. The cash component of the deficit will be gone.

However, Newfoundland and Labrador will not achieve true fiscal freedom until we have also dealt with the liabilities resulting from our accumulated deficits. With the first milestone achieved, the elimination of the cash shortfall, we will protect and strengthen this financial position by tackling the real deficit which is the accrual deficit. By progressively lowering the deficit in this way, we will curb the rate of growth of the public debt; and eventually, our province will be in a position to completely halt the growth of our debt and begin lightening the burden that our children and grandchildren will have to bear.