03/26/2013 12:52 EDT | Updated 05/26/2013 05:12 EDT

Newfoundland And Labrador Budget Cuts Jobs, Costs As Deficits Mount

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ST. JOHN'S, N.L. - The good times aren't over for oil-rich Newfoundland and Labrador but a spending hangover has forced the government to sober up with a job-cutting budget as its debt mounts.

The $7.6-billion budget tabled Tuesday cuts 1,200 public sector jobs and trims a cabinet minister as the province faces a deficit of $563.8 million in 2013-14. That's on top of a $431-million shortfall for this fiscal year as net debt grows almost $1 billion to $9.5 billion next year.

It could have been worse. The numbers are better than recent warnings of cumulative deficits totalling almost $4 billion as a world economic slowdown sapped demand for the province's oil and minerals.

Instead, the budget forecasts a deficit of $650.5 million in 2014-15, for a total of just over $1.2 billion in the next two fiscal years.

Finance Minister Jerome Kennedy said increased oil production, cost-cutting and a higher-than-expected sales tax refund from Ottawa helped reduce the shortfall.

The province will cut about 1,200 government jobs through layoffs and nixing vacant positions, and has approved almost 200 early retirements.

The budget does not raise personal or corporate income taxes and predicts a surplus of just over $230 million by 2015-16.

"It's a tough situation," Kennedy said of the layoffs. "It's not one that I particularly like, it's not one that any of us like. But it's something that we have to do in order to ensure that we can reduce the deficits and return to surplus in three years."

Liberal Opposition Leader Dwight Ball has accused the majority Progressive Conservative government of poor planning and reckless spending. He gave the budget a D grade for "deceit" and said Kennedy's sky-high deficit projections were fear mongering as the province negotiates new public service labour contracts.

Kennedy said he's working with offshore regulators to get more accurate production forecasts and challenged his critics to accurately predict volatile oil prices. He also defended record government spending and a swelling public service since the Tories took power in 2003.

"We've made great investments in the past," Kennedy told a news conference. "We've rebuilt the province, for lack of a better term, and the economy is strong. But, unfortunately, we've reached a point where our revenues don't equal our expenditures."

Kennedy outlined a 10-year sustainability plan to control spending and raise revenues. The first two years focus on eliminating the deficit through public sector cuts, reviews of Memorial University of Newfoundland and College of the North Atlantic, and an effort to cap soaring costs of unfunded public pension liabilities.

The third year of the plan projects a surplus in 2015, when the next provincial election is set. The fourth to 10th years focus on debt reduction and economic diversification.

The government has sunk more than $3 billion into government pension plans but unfunded benefits still account for about 70 per cent of net debt, Kennedy said. Premier Kathy Dunderdale has warned the plans could go bankrupt unless public sector unions and the province compromise. Workers are retiring earlier and living longer.

The budget is anchored on what Kennedy called a "conservative" Brent crude oil price of US$105 a barrel. That price was reached after consulting several experts and is far lower than the US$124 on which last year's budget was based, he said.

Prices averaged closer to US$112, taking about $25 million from government coffers for each $1 it fell below the budgeted amount. The province relies on offshore oil for roughly one-third of its revenues.

Dunderdale will take on intergovernmental duties and lose one cabinet minister by merging Labrador and aboriginal affairs.

Kennedy stressed that the government scoured all 16 departments for $410 million in savings while protecting key health and education services. The budget includes $2.9 billion in health spending and $1.3 billion for education.

Local school board administrations will merge into one English and one French board.

Various fee hikes, including higher admission rates at historic sites and a tobacco tax increase of 1.5 cents per cigarette, will raise $19.3 million in 2013-14.

Six of the last eight provincial budgets have racked up oil-fuelled surpluses as the government paid down net debt from a high of almost $12 billion in 2004.

Still, the St. John's Board of Trade is among groups that repeatedly urged less spending and more debt reduction.

"It's unfortunate, from that perspective, but there's no sense looking in the rear-view mirror," chairman Denis Mahoney said of the job cuts.

His top concern is net debt and the need to deal with unfunded public pension liabilities, he said.

The $7.7-billion Muskrat Falls hydro project in Labrador will add more debt, but Mahoney reiterated the board's support for what he called a "strategic investment."

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