September 30, 2020 | 15:47
Deep Pandemic Deficit
The Province of Newfoundland & Labrador is projecting a hefty $1.8 billion deficit in FY20/21 (more than 6% of GDP), as the pandemic wighs on revenue and lifts spending requirements. That compares to a $1.1 billion surplus in FY19/20 (recall that was boosted by a $2.5 billion payment related to the Atlantic Accord). It's also worth noting that this year's deficit was pegged at $2.1 billion in a fiscal update a few months ago, so there has been some incremental improvement there. A longer-term plan to repair the Province's finances will be undertaken next year.
There were no major policy measures announced in this budget. A promise for $25/day childcare will be a 2021 priority, and there were small funding measures scattered across various sectors.
Total revenue is forecast to fall 25% in FY20/21, to $7.1 billion, but the entirety of the decline is the result of Atlantic Accord revenue dropping off. Brent crude prices are expected to average $39, while the Canadian dollar is pegged at just under 74 US cents. The Province is not building in a risk adjustment for the current fiscal year. The budget estimates are also based on the assumption that the Newfoundland & Labrador economy will contract almost 14% in nominal terms in 2020 after 2.9% growth last year. Private and public-sector capital spending have peaked, and the pandemic has clearly brought upon a number of challenges, even if case trends are not as severe as in some other major centres.
Total spending is projected to rise 6.2% in FY20/21. The Province notes than more than 90% of the year-over-year spending increase is the result of COVID-related expenditures.
The Province expects to borrow a chunky $3.0 billion in FY20/21, but $2 billion of that has already been completed. Net debt rises by $2 billion, to $16.4 billion, by the end of FY20/21. That will lift the net debt-to-GDP ratio above 55%, the highest since the mid-2000s and the biggest burden on the provincial landscape.
Bottom Line: The good news is that Newfoundland & Labrador's fiscal hole hasn't got any deeper than we already expected (actually a touch improved). But this remains the toughest fiscal situation on the provincial landscape.