CALGARY, April 28, 2015 /CNW/ - Newfoundland and Labrador has enjoyed a "rags to riches" story. It entered Confederation as a poor cousin relative to the rest of the country and four decades later, in the early 1990s, the Province began to enjoy the strong economic growth resulting from the development of off-shore oil. The abundance of this natural resource has unfortunately allowed the province to become heavily dependent on resource revenues.
A report released today by The School of Public Policy and author, Prof. Ron Kneebone – presents new data spanning a period of 44 years revealing that dependence on energy royalty revenue, has put Newfoundland in an untenable position.
The province started the 2014-15 fiscal year highly exposed to any fall in oil prices. In its Fall Update, the government indicated that resource revenue would be lower by $792 million or 35 per cent lower relative to the previous year. Based on calculations in the report, the expectation for 2015-16 is that resource revenues will be lower still and the province should expect a deficit of about $3,300 per person or about $1.8 billion in total - making this the largest deficit in real per capita terms since at least 1970-71.
According to Prof. Kneebone "With that history as background, I reviewed the response of the Government of Newfoundland and Labrador to the flood of revenue it has received over the past decade as a result of the development of off-shore oil fields. The evidence is clear that Newfoundland and Labrador has adopted the same high-risk budgeting strategy as Alberta and Saskatchewan; a strategy that has seen the province choose to fund health care, education and social assistance using revenues that are unreliable and unpredictable."
As the province prepares for the release of its budget for 2015-16 slated for the end of April, it must begin to deal with the effect on its revenues of a dramatic fall in oil prices, a historically large budget deficit and a threat to the financial viability of its health, education and social assistance programs.
The paper can be downloaded at http://www.policyschool.ucalgary.ca/?q=research
SOURCE The School of Public Policy - University of Calgary
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