Ottawa Citizen

Nfld. finance minister braces province for economic slowdown

MICHAEL MACDONALD

ST. JOHN'S, Nfld. (CP) - When Newfoundland's finance minister stood Thursday to deliver the province's latest budget, she wasted little time before issuing a blunt warning about Canada's weakening economy. Joan Marie Aylward tried to soften the blow by noting the province's tax revenue and federal transfers had exceeded forecasts for the past three years, which helped Newfoundland's economy surge ahead of all others.

"However, with the national economy slowing, federal transfers will not grow as strongly in the new fiscal year," she said. "A slowing economy will also affect our own tax revenue."

In Canada's poorest province, which gets 41 per cent of its revenue from the federal government, the prospects for another year of rapid growth are looking dim.

"We're trying to give a heads-up to everybody," Premier Roger Grimes said outside the legislature.

"We're cautioning people that the usual upside adjustment (for federal payments) at year-end may not be there in the next fiscal year if the economy slows down."

With the world's stock markets in a tailspin amid widespread talk of a global recession, the Newfoundland government knows it is not immune to catching a cold if the rest of Canada sneezes.

That's one reason why Aylward introduced a rather dull budget with only a few noteworthy initiatives in the education sector.

The other reason is that the province wanted to send a message of restraint to 18,000 members of its public sector unions, who are threatening to strike for higher wages April 1.

The budget documents show the Liberal government plans to spend $3.7 billion in 2001-2002 while carrying a $30.5 million deficit, which includes a $10-million contingency reserve.

But critics note the size of the deficit is misleading because the province continues to carry forward a large pool of one-time funds - a practice it started three years ago. Without that money, the province's deficit in 2001-2002 would be about $227 million.

The province's auditor general has said the government should be using the larger, less-attractive figure, and the Opposition Conservatives agree.

"To say otherwise is politically mischievous," said Conservative Leader Ed Byrne.

Grimes, who was sworn in as premier last month, said the province is saving that pool of cash for a rainy day.

In the meantime, Aylward insisted the province's economy remains strong - for now. The numbers in the budget suggest the good times are almost over.

Though Newfoundland's gross domestic product grew by at least five per cent in each of the past three years, mainly because of the offshore oil industry, the growth rate is expected to drop to two per cent in the next fiscal year.

Part of the problem is that the Terra Nova offshore oil project - the province's second major oil project - is one year behind schedule.

It isn't expected to start production until December, which means the province won't be getting much in royalties until output ramps up later in 2002.

The budget also points to slumping retail sales, stagnant incomes and little change for the unemployment rate, which is expected to hover around 16 per cent - still the highest rate in the country.

"We may have led the country in GDP for the past three years, but we're taking in less revenue today than we did in previous two years," said Tory finance critic Loyola Sullivan. "What we have is a jobless recovery driven strictly by offshore resources."

Aylward said her go-slow approach is aimed at avoiding the kind of budget slashing and public sector layoffs the province endured through much of the 1990s.

When asked to describe the centrepiece of the budget, Aylward said she was most proud of the initiatives for education and youth - typically the second biggest expenditure for provincial governments.

Budgets for school board will be maintained at last year's levels even though enrolment continues to decline. And $23 million will be spent on building and renovating schools.

Tuition at Memorial University in St. John's will be reduced by 10 per cent for most students. The government will offer an additional $3.3 million to the university to offset shrinking revenue.

On the taxation side, the province will stay the course. There will be no new taxes and the government intends to push ahead with further cuts to income taxes and payroll taxes.

"That's the big one for us," said Lorne Janes, past president of the Newfoundland division of the Canadian Manufacturers Association.

As in other provinces, health care will consume the biggest chunk of the budget. Spending will reach $1.4 billion - more than one third of the budget, and a 38 per cent increase when compared with six years ago.

Home care workers will get raises and $32 million will be spent on new diagnostic and therapeutic equipment.

Another $50 million will be handed over the province's many health boards, just to cover their annual deficits.

Provincial budgets are expected from the three other Atlantic provinces within the next two weeks.

Figures from the Newfoundland budget delivered Thursday:

Spending: $3.7 billion in 2001-2002.

Deficit: $30.5 million, down from $32.5 million in 2000-2001.

Taxes: No new taxes; further cuts to income tax and payroll tax.

Growth forecast: Provincial GDP to increase two per cent in next fiscal year, down from 5.3 per cent in 2000-2001.

Education: School board budgets to be maintained at current levels despite declining enrolment; 10 per cent reduction in tuition fees for most students at Memorial University; additional $23 million for school construction; $3.5 million to cover increased utility costs.

Health: Overall spending up $114 million to $1.4 billion; $82 million for new facilities; $50 million to cover health board deficits; $32 million for new diagnostic and therapeutic equipment; $11 million to recruit and retain doctors; $4.8 million to provide raises for home care workers.

© The Canadian Press, 2001

-- Rachel gibson (rgibson@hotmail.com), March 22, 2001