Newfoundland and Labrador kicks debt can down the road
The Furey government released Newfoundland and Labrador’s budget on Thursday. While the theme of the budget was “change is in the air,” the fiscal approach repeats many of the policy choices that have made Newfoundland and Labrador Canada’s most indebted province.
Total government revenues will top $9 billion this year, the result of increases in the amount of corporate, personal and sales taxes collected and strong revenues from the oil and gas sector. This is largely the result of improved economic prospects, not tax increases. Yet, despite running deficits in 10 of the last 11 years, this increased revenue is being funnelled into increased spending rather than fixing the province’s fiscal problems.
Spending is projected to increase by 4 per cent from $9.1 billion in 2021/22 to $9.4 billion in 2022/23. On a per-person basis, this works out to $18,027 this fiscal year, among the highest of any province in the country. This is not what the Furey government promised in its first budget a year ago. In fact, Budget 2021 projected $8.5 billion in spending in 2022/23, meaning the province has increased planned spending by nearly $1 billion in just one year.
Faced with a choice of what to do with rising revenues, the government simply chose to spend more. The result? A big missed opportunity.
Clearly, reducing spending and balancing the budget is the key to solving Newfoundland and Labrador’s fiscal issues. In this budget and throughout recent history, rising revenues (often driven by volatile oil and gas royalties) have been used to expand government, which has led to ongoing budget deficits and rising debt.
This budget takes no steps toward solving this fundamental issue. The province now projects deficits this year and the next three years, totalling $1 billion. And proposes to balance the budget in 2026/27, which is beyond the end of its term and amounts to almost no plan at all. Had the government simply frozen spending at last year’s levels, it would have balanced the budget this year. Instead, like many recent budgets in the province, this year’s document talks about fiscal challenges while delaying any real spending restraint into the future.
In fact, in the budget speech, Finance Minister Siobhan Coady stated “responsible financial and debt management is essential to our future.” Despite this statement, the budget projects debt to rise from $16.5 billion last year to $17.1 billion this year, with no end in sight due to ongoing deficits.
With the largest per-person debt burden in Canada, Newfoundland and Labrador projects it will spend $956 million this year simply on government debt interest costs. This works out to $1,828 per person, or put differently, 10 cents on every dollar of revenue the government collects. This is money that could be spent other priorities such as improving programs or reducing taxes.
Until Newfoundland and Labrador’s government stems its appetite for ever-higher spending, it will continue to face fiscal challenges. Budget 2022 represents a disappointing missed opportunity to begin a fiscal turnaround. While claiming that “change is in the air,” the same old fiscal approach promises more spending, ongoing deficits and rising debt. Newfoundlanders and Labradorians deserve better.