The province spent $7.8 billion last year — up 66 per cent from 2003 — as it forecasts a deficit of $726 million this year. Surplus budgets in six of the last seven years from offshore oil wealth led to a bonanza of new construction, investments and government hiring but the global economic slowdown has recently cut oil and mineral earnings.
Auditor general Terry Paddon says the Progressive Conservative government will have to consider increasing revenues, cutting spending, borrowing or all three measures.
"Per capita expenses are the highest in the country," he said in an interview Wednesday after releasing his review of departments and Crown agencies and an audit of provincial statements for the last fiscal year.
"There might be some legitimate reasons that drive them perhaps higher than the average.
"But you know, at the end of the day, it would be difficult to understand why our per capita expenses are 50 per cent higher than the average of all other provinces. That's a fairly big gap."
Paddon said the disparity suggests "there might be some room for looking at reductions or efficiencies."
His departmental review includes some eye-popping examples of what his report describes as excessive salaries, lax accounting and breached funding guidelines.
At the Newfoundland and Labrador Centre for Health Information, a Crown agency tasked with developing a confidential and secure health data network, senior staff got pay raises not seen elsewhere in government.
For example, the vice-president of human resources and strategic planning was paid $125,835 last year — an increase of 119 per cent from a salary of $57,406 in 2008.
The auditor's review notes that the centre's government-appointed board wrote to the provincial health minister on March 4, 2008, about plans to adjust salary scales. It never got a response.
Pay hikes were expected as the centre took on more responsibilities and staff, says the report.
"However, the amount salaries have increased and the percentage increase in salaries appears excessive."
The report also cites senior staff positions that were filled without competition.
In its written response, the centre says Paddon examined its activities according to provincial public service policies instead of its own. Moreover, it says the provincial Centre for Health Information Act allows it to hire and set salary rates as it sees fit in accordance with "industry best practices."
Liberal opposition member Yvonne Jones found that explanation hard to swallow.
"It's all taxpayers' money," she said in an interview. "And this is the same government that's trying to send a message to the public service."
The government has signalled there's no chance for big pay raises as it girds for potentially tense contract talks with several groups of public sector workers, from health professionals to highway maintenance workers.
Kevin Lacey, Atlantic Canada director for the Canadian Taxpayers Federation, said the auditor general's reports show plenty of areas where spending can and should be tightened.
"At the Western Regional Health Authority we saw double-dipping where employees were getting paid both for salary and also for pension ... and double-billing for things like conferences and food while they're away."
Paddon said provincial losses from the volatile commodities sector are in addition to an aging population that will increase demands on public services.
He also flags soaring liabilities for unfunded public pension, health and life insurance benefits for government retirees.
"The liability related to employee future benefits totalled $5.2 billion at March 31, 2012 — 67 per cent of the province's net debt."
Paddon reports that net debt was $7.8 billion at the end of the last fiscal year, down $4.1 billion from its peak in 2004-05. But he notes that the level of cash owing has remained relatively constant in the last four years "despite significant surpluses" in the last two fiscal years.
"The beneficial impact of surpluses on net debt has been primarily offset by acquisitions of tangible capital assets during these periods," says his report. In other words, the province has chosen to invest in projects — including the $7.7-billion Muskrat Falls hydroelectric development in Labrador — while it had the cash.
Premier Kathy Dunderdale has acknowledged that all departments must trim fat and scale back as the province faces at least two years of expected deficits.
Former finance minister Tom Marshall, who recently took over the natural resources portfolio, says Paddon is right that the government must "cut the cloth to fit the child" for its next budget expected this spring.
"The major thing facing us right now is that we have to restrain our spending in line with our revenues," he said in an interview.
"That includes all our spending, and we have to be able to manage our pension funds and our post-retirement liabilities also."