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Following a chaotic provincial election, the Liberal government of Newfoundland and Labrador has delivered its 2021 budget. This budget—titled “CHANGE starts here”—highlights a modestly improved fiscal situation and lays the groundwork for implementing recommendations from the Premier’s Economic Recovery Team report released earlier this month.
Changing Fiscal Landscape
The big news in the budget was a rosier outlook on the province’s traditionally bleak financial situation. This is partly thanks to federal transfer payments, but is largely due to increased oil and gas royalties—a little over $1 billion. The 2021-22 budget forecasts an oil price of $64/barrel (USD), and a reasonably favourable CAD-to-USD exchange rate of 0.796.
Oil and gas royalty revenues remain volatile, however, given the high degree of sensitivity in both the price of oil and the exchange rate. A +/- change of $1 in the price of oil, for instance, means a change of +/- $19 million in revenue for the province. Likewise, a change in the exchange rate of +/- 1 US cent means a change of +/- $15 million.
The revised deficit for 2020-21 is down slightly from initial projections last fall, clocking in at a little more than $1.6 billion instead of $1.8 billion. This year’s projected deficit is $826 million—down by $818 million. (Government is touting a decrease of $1 billion, by comparing it to the estimate in budget 2020-2021, which makes it a bit excessively congratulatory. Keep eyes peeled for these kinds of things.)
While expenses did increase by roughly $600 million, the projected deficit decrease we see is due to a substantial increase in revenue—$1.4 billion over last year. Net borrowing for 2021-22 is also down to $1.4 billion from $2.1 billion last year, and Department of Finance officials expressed there is significantly less anxiety about the province’s ability to continue borrowing. At this juncture in time, at least, the wolves are no longer immediately outside the door.
Government expects that spending will be reduced in 2022-23 by nearly $900 million, though where most of these savings will be found are not specified. It predicts a return to surplus by 2026-27.
The budget also inaugurated some modest new revenue streams. Beginning on January 1, 2022, personal income taxes will be increased for those above $135,973/year, with new tax brackets created for those earning above $250,000 annually. The changes are expected to bring in $15.3 million in revenue. There will be no other changes to provincial income tax brackets.
Beginning in April 2022, the province will also institute a 20 cent per litre “sugar sweetened beverage tax,” which will be the first of its kind in Canada. (Officials estimate this will bring in about $8.7 million annually, but have not yet determined which beverages will be included under this new tax.) Tobacco taxes will also increase by 3 cents per cigarette and 6 cents per gram on fine cut tobacco.
Carbon taxes are also set to increase by 2 cents per litre of gasoline on July 1. This is estimated to generate a further $40 to $50 million in general revenue.
Laying the Groundwork for PERT Recommendations
Public consultations over recommendations from the Greene Report are ongoing through to the end of June. But there were a number of indications in the budget that the provincial government is preparing to implement some suggestions from “The Big Reset.”
Most notable was a commitment to bringing in balanced budget legislation, although officials acknowledged this would have more symbolic significance than material impact. In her speech to the House of Assembly, Finance Minister Siobhan Coady also committed to establishing “a Future Fund that will pay down debt and invest in a green, technology-driven economy.”
The province is phasing out the Memorial University tuition freeze over the next five years. It is also “amending the Memorial University Act to provide the university with greater autonomy,” allowing the university to raise tuition, but also prohibiting it from constructing new buildings.
It also intends to integrate the English School District into the Department of Education.
The province will be streamlining payroll, finance, accounting, human resources, IT, and procurement services for all regional health authorities. It has also tasked Health Accord NL with “consider[ing] the full review of the new delivery of the health system including the boards themselves.”
While there are no indications it will be directly following the PERT recommendations to abolish Nalcor or the provincial oil and gas corporation, both Crown corporations will be reviewed to “streamline, remove duplication, and save money.” Government will also be establishing a House of Assembly oversight committee to review “financial statements, budgets, and the annual reports of Crown Corporations and organizations.” It will review a number of its assets highlighted by the PERT for divestment including real estate, Marble Mountain, offshore oil and gas holdings, and the Newfoundland and Labrador Liquor Corporation.
It is also reviewing service provisions like property management, provincial registries, and ferry services with an eye to establishing “joint solutions” with business, social enterprise, and other organizations. Officials acknowledged this could mean privatization but insisted that workers will “be taken care of.”
Drilling and Mining for a Green Economy
In her budget speech, Finance Minister Coady stated that “It is our responsibility to help fuel [economic] growth.” Despite commitments to “invest in a green, technology-driven economy,” the government’s primacy focus remains on extracting fossil fuels.
There are 63.6 billion barrels of oil and 224.1 trillion cubic feet of gas in just 10 percent of the province’s offshore, according to an “independent resource assessment.” To pursue these nonrenewable resources and the royalties that come with them, the province has allocated $280 million (in federal funding, as part of the Oil and Gas Industry Recovery Task Force) to support offshore oil and gas projects. Another $32 million has been set aside to support the local oil and gas service and supply community, and $20 million to advance seismic research.
This is juxtaposed by federal legislation announced in April this year (in response to U.S. President Biden’s ambitious plan to reduce carbon emissions) that accelerates Canadian targets to a 40 percent reduction in carbon outputs over the next nine years. (Previously it had been 30 percent.)
Minister Coady also emphasized how mining exploration development will be a key component of economic expansion and investment going forward. “[…] with our wealth of rare earth elements, copper, tungsten, and zinc we are well-positioned to capitalize on this potential,” she told the House of Assembly. This year, an additional $2.5 million and $1.7 million will be invested in focused geoscience data collection and interpretation, and mineral exploration respectively.
Aspirations that the “CHANGE starts here” budget—with its extensive but ambiguous program reviews and extraction-driven “green transition”—will transform the Newfoundland and Labrador economy are high. But clarity on how these aspirations connect to direct or measurable outcomes remains elusive. The devil may live among the details, but we have no indication when—or where—we’re going to find him.
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