04/29/2015 10:12 EDT | Updated 08/05/2015 07:59 EDT

Newfoundland and Labrador premier offers municipal cash ahead of deficit budget

ST. JOHN'S, N.L. - There was rare all-party praise for Newfoundland and Labrador's premier as he announced new cash for municipalities before wading knee-deep in red ink for Thursday's budget.

"We have a significant fiscal challenge that we're facing and we will lay out all the details of this tomorrow," Paul Davis told a news conference Wednesday.

He had just promised $46 million over three years to help improve municipal services in a province where boil-water orders are the norm in dozens of communities. Any new money will come from provincial harmonized sales tax rebates and an increasing share of gas tax revenues.

The Progressive Conservative government, in majority power since 2003 with an election looming this fall, has been making daily pre-budget announcements since Monday.

One of those would see the province slash 1,420 public service jobs through a five-year attrition plan.

Another involves partnering with the private sector to create 360 long-term care bed spaces. Public service union leaders and the opposition NDP have raised concerns the move could put profit ahead of high standards.

Finance Minister Ross Wiseman has forecast a deficit of $916 million for 2014-15 after oil prices plummeted since June. He has indicated five more years of red ink before a return to balanced books in 2020-21. This, in a province that over the last decade has seen historic wealth, job creation and wage hikes.

Newfoundland and Labrador relies on the offshore oil sector for about one-third of its revenues.

Ron Kneebone, an economist at University of Calgary, said hinging education, health and social spending to such volatile earnings created major risk.

"I would describe the province's fiscal situation as dire," he said in an interview. "It should be very concerned that with the fall in oil revenues it has been left high and dry with high spending and not enough tax revenue to fill that gap."

Kneebone this week released his new study, "Mind the Gap: Dealing with Resource Revenue in Three Provinces." It assesses how Newfoundland and Labrador, Alberta and Saskatchewan have dealt with oil and gas royalties.

Alberta in particular has had to make drastic budget cuts in the past when oil prices suddenly fell and were slow to rally, Kneebone said.

"They allowed debt to accumulate while they wait for oil prices to come back, and eventually they've had to take really hard measures."

Newfoundland and Labrador last spring anchored its budget on an average price of oil, predicted with help from international consultants, of US$105 a barrel. It revised that number downward for its fiscal update in mid-December to US$63 a barrel for the rest of the fiscal year ending March 31.

Brent crude was trading Wednesday for about US$66 a barrel, down from a high in mid-June of US$115.

Kneebone used the province's own resource revenue forecasts to calculate a deficit in 2015-16 of about $1.8 billion. It would be the largest deficit per capita since at least 1970-71, he said.

Davis declined to comment on that number Wednesday but suggested it, along with other recent projections, are off.

"People are making some assumptions," he said.

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