Finance Minister Tom Marshall is now projecting a deficit of $450.6 million, down from $563.8 million forecast in the provincial budget last March.
He said overall government expenses will be lower while the expected average price this fiscal year for Brent Crude oil is $US107 per barrel, higher than the $US105 used to anchor the budget.
Newfoundland and Labrador relies on offshore oil earnings for about one-third of its revenues.
Marshall said the province's net debt is also projected to fall to $9.1 billion from $9.5 billion.
He said the province is leading the country in gross domestic product and capital investment growth, but blamed its reliance on the unpredictable offshore oil industry for its fiscal shortfall.
"What has given us our wealth is particularly the oil," he told a news conference. "Oil prices are volatile, and production is volatile."
He said oil production went down 27 million barrels between 2011-12 and 2012-13, due in part to longer than planned maintenance shutdowns.
The Terra Nova floating platform and production vessel was out of commission for 75 days instead of the 24 days calculated when the budget was delivered, he explained.
"That wasn't expected, but it can happen."
The provincial government also released an update on its unaudited deficit for 2012-13, saying it was $198.8 million — lower than the $430.9 million it had anticipated in the last budget.
Marshall said the Progressive Conservative government is still working towards balancing the books in 2015-16.
The province's fiscal woes are despite some of the most stellar economic forecasts ever seen in its history.
Marshall has gone so far as to call it a "golden age."
An unemployment rate of 11.5 per cent this year is down from 16.4 per cent in 2003. Planned capital investment of more than $11 billion this year leads the country for construction projects such as the Hebron offshore oil site and the Muskrat Falls hydro development, Marshall said.
And the credit assessment agency Standard & Poor's affirmed the province's credit rating at A-plus on Friday. It noted that surpluses in six of the last eight provincial budgets allowed tax cuts, capital investments and a buildup of cash reserves. Net debt — of which about 70 per cent is unfunded public sector pension plan liabilities — has gone from a high of almost $12 billion in 2004 to $9.1 billion this year.
Marshall said Monday that he hopes meetings set for January will help craft a solution with union leaders to make pension plans sustainable.
Political foes and other critics accuse the government of overspending and mismanagement.
"They have not been able to do any budgeting that they've been actually hitting the numbers on," said Opposition Liberal Leader Dwight Ball. "It really comes down to that they have not had any success at all in diversifying our economy. We're strictly dependent on oil right now."
Ball also said it's hard to find evidence of a "golden age" in rural parts of the province where fishing and forestry jobs have vanished in recent years.
Kevin Lacey, Atlantic director of the Canadian Taxpayers Federation, said the province is squandering a rare opportunity.
"Newfoundland is going through a good time economically, particularly in the city of St. John's, and now is the time to capitalize. Instead, the government is running these huge deficits which is really practising economic policies of 30 years ago."
Marshall said the government has a 10-year sustainability plan to control spending and raise revenues.
"We have to get to surplus," he said. "But we're not going to do it all at once.
"Slowly and surely we'll get there."