Record surplus only a small chip off mountain of debt: N.L. audit

An audit shows the Newfoundland and Labrador government posted a record surplus in the last fiscal year, but the good news has comewith sobering warnings about the province's fiscal health.

Auditor General John Noseworthy reported Wednesday that the province finished the 2005-2006 fiscal year with a surplus of about $199 million— well above the $77-million surplus that had been expected.

However, Noseworthy said the government will have to beat that surplus every year for at least two generations to conquer a mountain of debt that has accumulated through decades of deficit financing.

The government's net debt, which includes unfunded pension liabilities, is now $11.7 billion. On a per capita basis, that means each man, woman and child in the province is on the hook for about $23,000— the highest in Canada.

As well, Noseworthy noted the government spent $947 million last year on debt expenses.

In a statement, he said debt servicing means the province "had fewer resources to allocate to programs and services as a result of the 'interest bite.' "

Noseworthy's report said that while the surplus— the first one reported in eight years— is good news, the provincial government would still need to produce an annual surplus of $300 million for 40 years to eliminate its debt.

Finance Minister Loyola Sullivan said the report contains reasons to smile and frown.

"We've turned a fiscal corner in our province but we have to exercise prudent management," Sullivan said.

"We have to continue to achieve surpluses to [deal with] the debt for future generations and to be able to have more money free to be able to put into programs," he said.

"We're a long ways from being in a great position but we're certainly a lot better than we ever were in our history."

Among other things, Noseworthy's report emphasized that the province's comparatively good fiscal fortunes are the result of volatile oil prices. Noseworthy warned the government cannot depend on oil prices to remain high.

Noseworthy, who called for a debt reduction strategy, said the government should make tackling its $2.2-billion debt in unfunded pension liabilities its greatest priority.

The audit also recommended careful management of the liability relating to group health and life insurance benefits, which will total more than $1.5 billion by 2010.