Provincial Budgets

March 21, 2024 | 14:16

Nfld. and Labr. (FY24/25) — Mind the Gap

Economist

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on the Canadian and regional economies. She also provi... (Read more)

Shelly Kaushik

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on the Canadian and regional economies. She also provi... (Read more)

The Province of Newfoundland & Labrador is projecting a small $152 million deficit in FY24/25 (0.4% of GDP), an improvement from the worse-than-expected $433 million shortfall now estimated for FY23/24. The return to deficit is expected to last for just two years, with the Province anticipating a surplus in FY25/26 and through the rest of the medium-term outlook. Revenues and expenditures are expected to remain relatively stable over the forecast horizon, though the Province builds in an oil risk adjustment that starts at $20 million in FY25/26 and gradually rises to $70 million by FY28/29.

There were few major policy measures in this budget, with the focus instead on existing priority areas, especially health care. While there are no new taxes, the government did announce the extension of a number of existing tax reductions, including on the provincial gas tax (by 8 cents/litre) and vehicle registration fees (by 50%).

Total revenues are forecast to rise 7.8% to $10.3 billion in FY24/25 thanks to higher federal transfers and a broad economic recovery from last year's contraction. Volatile royalty revenues look to jump 67%, or $624 million, this coming year alongside an increase in production. Brent crude prices are expected to average $82 in FY24/25, while the Canadian dollar is pegged at 74.7 US cents. That oil price assumption is reasonable, down slightly from the previous fiscal year and roughly $3 below budget day levels. The Province estimates that a $1 increase in oil prices lifts royalties by roughly $24 million; and, a 1 cent increase in the Canadian dollar trims royalties by $26 million. So, the risks to the budget seem to be fairly balanced at the start of the year.

The budget estimates are also based on the assumption that the Newfoundland & Labrador economy will grow 5.1% this year, following a 2.1% contraction in 2023. The improvement is driven by an expected increase in production (primarily of oil, iron ore, and nickel) supporting exports.

Total spending is projected to rise 4.6% in FY24/25, driven by higher spending on salaries and benefits and grants and subsidies.

Newfoundland & Labrador expects to borrow $2.8 billion in FY24/25, slightly higher than the previous year and including $1.2 billion in maturities. Net debt rises to $17.8 billion by the end of FY24/25, roughly $600 million higher than the previous estimate. That leavesthe net debt-to-GDP ratio around 44%, the highest in the country once again.

The Bottom Line: The Province of Newfoundland & Labrador is projecting a modest deficit this coming fiscal year. However, the Province's fiscal finances are expected to improve over the medium term as oil production, and the economy, continue to recover.