11/16/2011 12:56 EST | Updated 01/16/2012 05:12 EST

Newfoundland budget surplus forecast jumps from $59 million to $756 million

ST. JOHN'S, N.L. - Newfoundland and Labrador's fiscal update is an eye-popping revision that projects a surplus of almost $756 million — up from $59.1 million forecast in April's provincial budget.

But Finance Minister Tom Marshall deflected any suggestion of low-balling, citing rising oil prices and higher than expected offshore production.

An extra 19 million barrels of oil are worth almost $5 a barrel more than predicted, he said Wednesday in St. John's.

Independent experts consulted for last April's budget had pegged the average price at US$108 a barrel, he said. That price has now risen to almost US$113.

"We're trying to guess what the average price of oil's going to be, per barrel, for 12 months. Well, I'm no good at it. And you're no good at it," he told reporters.

"We rely on a company out in New York to give us advice and we take their numbers. They're the numbers we use. And sometimes they're accurate, sometimes they're not."

Marshall stressed that oil prices are volatile, and made this offer to anyone who thinks he deliberately downplayed the surplus estimate: "Let them do the forecast and we'll see how accurate they are."

Marshall said the windfall will be used for road and capital projects, investments toward a proposed $6.2-billion hydroelectric project in Labrador, and to lower provincial net debt by $330 million to $7.7 billion, the lowest level since 1998-99.

The Progressive Conservative government has whittled net debt from a high of almost $12 billion, but the province's per capita debt is still among the highest in Canada, Marshall conceded.

And there are other challenges ahead. Marshall is predicting a slip into deficits of about $400 million for 2012-13 and $211 million in 2013-14 as yearly payments from the 1985 Atlantic Accord run out.

Cash from the joint offshore program with Ottawa were worth about $536 million a year.

Oil production is also on the wane as offshore oilfields mature, and provincial commodities exports could be hit if the global economy worsens.

"In spite of this current period of prosperity, we can't lose sight of the future," Marshall said. "We have to continue to be fiscally responsible for the next few years as we prepare budgets, and to ensure that our expenses continue to be sustainable over the long term."

Still, his government has delivered six surpluses since 2003 and has received an A-plus credit rating from Standard & Poor's, an international provider of independent credit assessments.

"Most forecasters have our province leading the country in economic growth this year," Marshall said. "And we've revised our GDP (gross domestic product) growth from three per cent to 4.9 per cent because of that increase in oil production."

Marshall said a humming economy has meant record levels of employment, income and consumer confidence in the province.

Critics point out that fully one-third of provincial revenues rely on offshore oil — a finite resource that won't last forever.

Groups like the St. John's Board of Trade have urged the government to pay down debt while oil is still flowing. The board applauded the government Wednesday for committing surplus funds to reduce net debt.

On the other hand, provincial NDP Leader Lorraine Michael is pushing for more of the surplus to be spent on services such as pharmacare for seniors.

Creditors have already given the government top marks for its debt management, she said.

"We can continue paying down the debt at the rate the government has indicated it wants to do, and yet take care of the needs of the people better than we're doing."

Liberal finance critic Dwight Ball said there must be a better way to gauge offshore oil production for fiscal forecasts.

"We need to find a way to get some consistent budgeting in place so that we can actually depend on our budget."