AG’s report sounds the alarm

Things are really, really bad in Newfoundland and Labrador.

James McLeod
Published on January 29, 2016

Auditor General Terry Paddon — File photo by Keith Gosse/The Telegram

© File photo by Keith Gosse/The Telegram

Albeit in restrained language, auditor general Terry Paddon is sounding the alarm about the government’s fiscal position in a report released Friday morning.

Paddon points out that the government’s economic forecasts are overly optimistic, and that deficit spending is out of control.

“Newfoundland and Labrador’s deficit as a percentage of GDP for 2014-15 is 2.9 per cent — over 2 times greater than the next highest province,” he wrote. “The forecast deficit as a percentage of GDP for 2015-16 is expected to increase substantially to 6.5% - approximately 3½ times greater than the next highest province.”

Paddon observed that the forecast increases to provincial debt in the next five years will be more than double the net debt.

The government’s forecasts surrounding future revenue and economic activity are also too optimistic, Paddon said.

Employment boosts from new oil developments might not happen, and new revenue from offshore production is iffy too.

“The Province is forecasting revenue to grow by $1.1 billion over the five-year period to 2020-21,” the auditor general’s report said. “This growth in revenue is dependent on the Province achieving the economic growth that it has forecast and the levels of oil production and oil price outlined in the December 2015 Economic and Fiscal Update. Considerable risk surrounds the Province being able to achieve these targets.”

Paddon said, in order to turn things around, the Liberals will likely have to consider breaking two of its signature election promises.

He pointed out that 50 per cent of all program spending goes to salaries, and despite the fact that the Liberals flatly promised during the election that there would be no layoffs, Paddon said there’s no other way to significantly reduce spending.

“The Attrition Plan, currently targeting to reduce the workforce by approximately 3.0%, or 1,420 persons, will not be enough to achieve the expense reductions necessary to significantly reduce the deficit,” the report says.

Similarly, the auditor general’s analysis directly questions the Liberal promise to reverse a planned increase to the provincial sales tax.

“Increases to personal income tax and the HST, along with other consumption taxes, such as gasoline tax, and corporate income taxes, will have to be considered as part of a balanced package to achieve Government’s deficit reduction objective,” he said.

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