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Newfoundland and Labrador's deficit grows amid lower offshore oil royalties

An iceberg is seen just outside of the Narrows of St. John's Harbour on Friday, June 13, 2014. Newfoundland and Labrador is forecasting a deficit of $852 million this fiscal year, up from $778 million predicted in last April's budget. THE CANADIAN PRESS/Paul Daly

An iceberg is seen just outside of the Narrows of St. John's Harbour on Friday, June 13, 2014. Newfoundland and Labrador is forecasting a deficit of $852 million this fiscal year, up from $778 million predicted in last April's budget. THE CANADIAN PRESS/Paul Daly

ST. JOHN'S, N.L. — Newfoundland and Labrador will target big spending in health, education and by the Crown corporation overseeing the bloated Muskrat Falls project as its deficit mounts.

The province is now expecting a deficit of $852 million this fiscal year, up from $778 million predicted in last April's budget.

Finance Minister Tom Osborne said Tuesday the increased shortfall is largely due to lower offshore oil royalties. They dropped $147 million from budget projections thanks to deflated prices and higher exchange rates.

A Conference Board of Canada economist recently described overspending in the province as "a ticking time bomb."

Still, Osborne said it's encouraging the governing Liberals are close to revenue projections and on target to cut costs.

"However, we are still facing an unsustainable deficit level," he told a news conference. "Borrowing $2.3 million a day is not sustainable. We need to look at everywhere government is spending money."

Osborne said since taking power almost two years ago the Liberals have cut public sector jobs through attrition and trimmed spending across government departments which account for about 40 per cent of the province's $8.1 billion budget.

Sixty per cent, or $4.3 billion, is spent on boards, agencies and commissions. They include four regional health authorities, Memorial University of Newfoundland and Crown corporation Nalcor Energy. Nalcor is responsible for the $12.7-billion Muskrat Falls hydroelectric project in Labrador which has nearly doubled in cost since it was approved five years ago. 

Osborne strongly hinted Tuesday that while there has been increasing effort to rein in budgets by health and other agencies, Nalcor has not stepped up.

"Nalcor remains this province's most significant risk," he said. "Our largest borrowing in recent years has been to fund Nalcor."

A spokeswoman for Nalcor did not immediately respond to a request for comment.

The province saw an economic bonanza fuelled in part by offshore oil earnings for several of the 12 years Progressive Conservatives were in power before the Liberals won in 2015. Oil prices had begun to tank the year before, gutting a treasury that in 2010 relied on the offshore sector for 30 per cent of government revenues.

Today that percentage has plunged to about 10 per cent. Yet spending has not been brought in line, and the province continues to over-rely on offshore oil earnings.

It counted in last April's budget on an average price for Brent crude of US$56 a barrel. The actual price has hovered closer to US$52 despite a recent rally. Revenue from personal income taxes is also down as the population slowly shrinks and tax filers sought ways to limit the impact of sweeping rate hikes in the 2016 budget.

The unemployment rate rose slightly to just over 15 per cent.

Osborne said government departments have cut expenses by $22 million — but agencies, boards and commissions increased spending by $18 million. That hike is partly due to higher pension obligations.

But Osborne said he plans to introduce legislation "soon" to force more efficiencies.

"The reality is government is spending too much money," he said. "We did not get into this fiscal situation overnight and there are no easy solutions."

Net debt is now almost $14.7 billion, a historic high for the province, down from $15.2 billion projected last spring. That reduction is partly due to delayed spending on certain construction projects.

Last year's deficit of $1.1 billion was higher as a percentage of gross domestic product than any other province.

The governing Liberals have criticized what they call "mismanagement" by the former Tory government and say the projected deficit was closer to $2.7 billion when they took power in 2015.

In the legislature Tuesday, former premier and Official Opposition Leader Paul Davis blasted the government for 300 tax and fee increases that he said have spurned investment and rocked consumer confidence.

NDP member Gerry Rogers said seniors and low-income residents have been most affected and have lost home care, dental coverage and other services.

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