We're a have province, but we're running out of steam
In the second sentence of his budget speech, Finance Minister Ross Wiseman sounded a theme that by now is quite familiar to Newfoundland and Labrador.
"Through wealth generated primarily by our offshore oil sector along with successful negotiations relating to the Atlantic Accords," Wiseman told the House of Assembly, "Newfoundland and Labrador became a 'have' province for the first time since Confederation."
Given that Newfoundland and Labrador became a so-called have province – a designation that means, strictly, that the province no longer qualifies for equalization payments from the federal government – in 2008, it's telling that Wiseman chose to emphasize it right out of the gate.
That's because most everything in this year's package of budget documents is so decidedly grim and contrary to the buoyant mood of that famous Danny Williams announcement.
"There's a bit of a contradiction in some respects," Wiseman acknowledged while speaking with reporters a few hours earlier.
Main indicators on downward trajectory
After all, Wiseman is charged with delivering a bad-news budget just months before the PCs fight for re-election at the ballot box.
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Just look at the main economic indicators.
The province expects the economy to shrink each and every year from now until 2019.
That may sound like a textbook case of recession, but Wiseman refused to use that word to define what Newfoundland and Labrador is already going through, and has yet to endure.
Ditto for jobs. Employment, which dropped last year, will slide this year by 1.5 per cent. That trend will continue for another three years as well.
The unemployment rate? Government expects it to worsen for the coming years, and peak at 13.3 per cent in 2018.
Situation is temporary, says Wiseman
Capital investment is going to take a pounding. Driven largely by the natural resource sector, this line item – which accounted for a near-record $12.2 billion in fiscal 2014, will slide until it bottoms at less than $8.5 billion in fiscal 2018.
Why? Two reasons are the expected winding-down of work on the Hebron and Muskrat Falls megaprojects.
Yet, Wiseman is holding out hope over the long term.
"We know the situation we find ourselves is a temporary one," Wiseman told the House of Assembly.
"Oil prices are low now, but all the advice from experts tells us they will rebound."
Assuming that those expectations are realistic – and bear in mind that the government just one year ago set Brent crude to trade at US $105 a barrel – the crunch time will be in the medium term.
During that period, the government expects to keep racking up deficits, with the red ink peaking next year and then receding. The province wants to be back in surplus territory by 2020.
Retail sales to shrink this year
The deficits will be a problem that future taxpayers will need to resolve. But the downturn in the economy will hurt people now, and for several years to come.
The growth in household income will effectively evaporate, after multiple years of dizzying growth. The rate of 4.9 per cent last year will drop to 0.2 per cent this year and hit a flat zero the year after that. We're told not to expect a robust rate for another four or five years.
The number of housing starts is expected to slough off, hitting a low in 2018 – but followed by a boom that will bring new construction almost back to where it is now.
Retail sales, which have driven a big part of the service economy, are also expected to take a big hit. Registers rang up an extra 3.4 cent of business last year; they're projected to actually shrink slightly this year … and the one after that, too. Don't be surprised, then, to see some more shop closures.
A not-so-harmonized tax increase
It's worth noting, of course, that one of the most controversial moves in the budget – a decision to hike the harmonized sales tax from 13 to 15 per cent – will have an impact on retail. After all, every purchase starting next January (the earliest that the move can come into effect) will mean a consumer will have less money to spend on specific goods and services.
It's going to be a rough ride – and yet Wiseman took pains on Thursday afternoon to remind citizens (not to mention the voters who will head to the ballot boxes in a few months) to look at the longer view.
"We are even more enthusiastic looking forward because the future of our province is brighter now than it ever has been, thanks to the choices we have made in the decade we have been in government," he told the house.
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