Fiscal Framework

Review of 2006-07

Mr. Speaker, last year, for the first time in our history, our province achieved a surplus on a fully consolidated basis while budgeting another. The projected surplus of $6.2 million for 2006-07 was, at midyear, expected to become a deficit, but at year end I am pleased to report an estimated surplus for 2006-07 of $76.0 million.

Ours is the only administration since Confederation to table back-to-back surpluses on a fully consolidated basis. Achieving this surplus took careful fiscal management. Revenues for the year were down overall, primarily because of a longer than expected shutdown in production at Terra Nova, and were only partially offset by a rise in oil prices and other revenue gains. In response to the Terra Nova shutdown, our government took a conscious decision to keep expenditures in check. As a result, we improved our fiscal position by $69.8 million.

The most significant fiscal challenge facing Newfoundland and Labrador is the burden of debt we inherited, the highest per capita net debt in Canada, more than double the national average. High debt loads mean high interest payments, whether for a family or for a government. Reducing debt frees up money to spend on programs and other priorities. In 2006-07, our government was able to reduce the provincial net debt by $70 million. Through sound fiscal management, we reduced our net debt as a percentage of GDP from 54.4% in 2005-06 to just 50.0% in 2006-07. Most significantly, we were able to reduce our debt expenses as a percentage of revenue from 17.1% in 2005-06 to just 14.2% in 2006-07, which in turn frees up additional money for debt reduction or new programs. We have moved responsibly to address unfunded public pension plan liabilities to further strengthen our province’s fiscal position.

Forecast for 2007-08 and Beyond

Mr. Speaker, I am pleased to report that, for only the second time in our province’s history, we are budgeting a surplus on a fully consolidated basis. We will be the first administration since Confederation to record three consecutive fully consolidated surpluses. We project that our surplus at the end of this year will be $261.2 million, driven in part by resource sector gains. Any surplus will go towards financing infrastructure investments and reducing debt.

Equalization and Atlantic Accord amounts for the 2006-07 fiscal year are fixed. Total income from the 1985 and 2005 Accords will rise by approximately 50% to $494.3 million. Without the 2005 Accord negotiated by our Premier, we would be receiving $305.7 million less than we are getting this year. Our Equalization payments this year will drop by nearly a third to $477.4 million.

The recent federal budget has given the province a choice: stay with the current, inadequate, equalization program, which does not provide access to new equalization benefits that other provinces enjoy, or choose a new program which contains a cap on entitlements and a cap on the determination of whether we are eligible for the 2005 Accord. The choice the province eventually makes will depend on a financial assessment of those choices at the appropriate time. Neither of these choices fulfills the commitment made to the people of Newfoundland and Labrador to remove nonrenewable resource revenues from the equalization formula.

As our revenue position strengthens, we remain committed to responsible fiscal management to ensure we strengthen rather than erode the gains we are making and become increasingly more self-reliant. In keeping with this vision, we will increase program expenses this year over what we budgeted last year by a responsible 5.6%.

We will also continue to reduce the province’s net debt by $66 million. Our debt servicing costs will be reduced by $51 million, freeing up money that would otherwise be siphoned off in interest payments. Our net debt as a percentage of GDP will fall from 50.0% last year to 44.9% this year, and our debt expenses as a percentage of revenue will fall from 14.2% last year to just 11.8% this year.

Our plan is to continue this responsible approach in the years that follow to ensure we are increasingly strong, less reliant on the whims of others and more reliant on ourselves.