Budget Release 2018

CPA Newfoundland and Labrador highlights of the 2018 provincial budget

Government of Newfoundland and Labrador Budget Release 2018

Finance Minister Tom Osborne delivered the Liberal government’s third budget, one that has stated that the government continues on a path of returning our province to surplus by 2022-23.

In Budget 2017 the government projected a deficit of $778 million and over the course of the past twelve months expenditures have increased and revenues were on target which has led to a revised deficit of $812 million for 2017. In summary, total expenses for 2017 increased by $35 million from the budget with an increase of $37 million related to severance expenses under the new collective agreement.

As a result of today’s budget announcement and the measures set out therein, the Government now projects a deficit of $683 million for fiscal 2018-19. The deficit for 2018-19 includes $52 million for the remaining one-time severance expenses.

“From a revenue and expenditure point of view, this budget was a steady state budget.  One question that remains to be answered in the coming months is what will the province do with respect to carbon tax, this will be a key item to watch with respect to its impact on the provincial economy” said Jason Hillyard, CPA, CGA, Chief Executive Officer of the Association of Chartered Professional Accountants of Newfoundland and Labrador.

Expenses for 2018-2019

The Provincial Government has announced that overall expenditures from 2017-18 to 2018-19 are forecast to increase by $204 million for a total of $8.36 billion.

In the longer term, the government acknowledges that they will continue to look for savings within all areas of the public service, including reducing discretionary spending and working with management and unions to address such issues such as overtime and sick leave.

“Oversight of the provincial economy is a delicate balancing act, one that has led government to hold steady on expenditures in the short term rather than react with any significant expenditure reductions. This may very well be necessary in the short term, but government must remain focused on the long term goal of decreasing its expenditures” said Jason Hillyard.

Revenue Initiatives

Budget 2018 does not include any tax increase, new taxes or fee increases. In 2018-19 revenue is expected to reach $7.67 billion and revenue is projected to trend upwards between now and 2022-23.

The tax on automobile insurance will gradually decrease by a minimum of five percent over the next four years. Beginning on January 1, 2019, the tax will be reduced by two percent. The tax on insurance will be reduced by another one percent on January 1, 2020, January 1, 2021, and January 1, 2020.  

Underlying Assumptions

Budget 2018 incorporates a forecast assumption of a Brent Crude Oil price of $63 USD/barrel for 2018-19 which appears to be a prudent estimate based on current forecasts. The forecast assumes an increase in the Brent Crude Oil price to $74 USD/barrel by 2022-2023. Budget 2018 also forecasts the US-Canada exchange rate to be 0.79 for 2018-2019 to 0.796 in 2019-2020.

Borrowing

For Budget 2018, gross borrowing will be $1.45 billion. Net new borrowing for the duration of government’s 2022-23 fiscal plan is increased by $1.4 billion, of which $1.1 billion is due to changes in cash flows related to Nalcor Energy.

The payout of severance to public service employees will be approximately $600 million spread out over several years. The one-time cash outflow will reduce the government’s liability and is forecasted to save tens of millions of dollars annually and will eliminate millions from being added to the liability each and every year.

Infrastructure

Budget 2018 notes that approximately $28.8 million will be invested over five years to support mental health and addictions.

Budget 2018 also includes:
•    $8 million for the ongoing development of the new west coast regional hospital;
•    $6.2 million for the development of the Green Bay Health Centre in Springdale; and
•    $45 million for repairs and renovations, and to replace or upgrade medical equipment in health care facilities.

Provincial Payroll Tax

Budget 2018 has increased the exemption threshold by $100,000 for provincial payroll tax starting in 2019 to $1.3 million.

Post-Secondary Education

Budget 2018 includes:
•    $366 million for Memorial University’s operating grant, which includes $55 million for the Faculty of Medicine
•    $87.6 million in operational funding for the College of the North Atlantic and its 17 campuses
•    $73.1 million to maintain current tuition levels for Newfoundland and Labrador students.

Nalcor & Muskrat Falls

Budget 2018 outlined changes to Nalcor's oil and gas subsidiary which is to be made its own stand-alone crown corporation under the Department of Natural Resources.

The cost of the Muskrat Falls inquiry was also outlined with a budgeted two-year cost of $33.7 million.

The Minister of Finance indicated during the budget speech that it is not the vision of the provincial government to have electricity rates double when Muskrat Falls comes on line, they remain committed to ensure that will not happen and that electricity rates remain competitive within Atlantic Canada.