• Government projects a $160-million deficit in 2023-24 on the expectation the 2022-23 revenue windfall will partially reverse.
  • Stronger economy to put budget back into surplus in 2024-25.
  • 2022-23 initial deficit forecast revised to a large $784 million surplus.
  • The province’s indebtedness position has drastically improved over the pandemic.
  • But the debt load is still the heaviest among the provinces.

The highly abnormal conditions that benefited government finances in the last couple of years are coming to an end. In Newfoundland and Labrador, it will result in a moderate budget deficit of $160 million (-0.4% of GDP) in 2023-24. The government expects revenues to plummet $836 million (-7.9%)—dragged down by lower tax revenues (-$1.2 billion) and offshore royalties (-$97 million) but partially offset by a $503 million increase in federal transfer—while it sees expenditures rising $108 million (+1.1%).

Massive revision to 2022-23 deficit to a big surplus

If the revenue drop looks dramatic, it’s only because it follows a $1.8-billion (+21%) windfall in 2022-23. The projected level next year ($9.7 billion) in fact will still be well above where it was in 2021-22 ($8.7 billion). Stronger than expected revenues have turned the initial $351 million deficit projection for 2022-23 in Budget 2022 on its head. The government now forecasts a hefty $784 million surplus (+1.9% of GDP)—representing a huge $1.1 billion positive swing in the budget balance.

Revenue dip to tip budget into deficit next year…

The dimmer outlook for the year ahead stems from a weaker expected economy (nominal GDP is forecasted to fall 3.4% in 2023), and lower oil production and price assumptions. Several modest tax relief measures—including an extension of the 7-cents fuel tax rebate until March 31, 2024—and targeted support (e.g. for seniors) to cope with the rise in the cost of living will further contribute to the 2023-24 budget shortfall.

…though not for long

A reacceleration of economic growth in 2024, however, will give revenues a boost and stem the red ink. The province expects to return to a surplus position in 2024-25, which it will maintain through the rest of the five-year fiscal plan.

Debt situation now looks much less scary

The positive swing in the fiscal balance in 2022-23 and back-to-back surges in nominal GDP (rising 18% and 11% in 2021 and 2022, respectively) did wonders to the provincial indebtedness picture. Newfoundland and Labrador’s net debt-to-GDP ratio has plummeted from 50% in 2020-21 to an expected 37.3% in 2022-23. The budget shortfall will push it higher to close to 40% next year.

Still-fragile position calls for continued discipline

While the drastic improvement over the pandemic hints it may be out of the danger zone, Newfoundland and Labrador is still in a fragile financial position. It continues to be the province with the heaviest debt load, with any further progress likely to be much more difficult to achieve in the years ahead. Future budgets will need to maintain a disciplined approach in order to fully restore fiscal flexibility over the longer term. We’re pleased to see Budget 2023 aims to do just that.

Newfoundland and Labrador budget summary
($ billions)RevisedProjectionProjectionProjectionProjectionProjection
 Total revenues10,5259,6899,97410,0559,9059,802
 Oil risk adjustment  20405060
 Base expenses 9,3789,2969,3589,4139,346
 100% funded 471361371371371
 Total expenditures9,7419,8499,6579,7299,7849,717
 Net debt15,69916,226    

Source: Newfoundland and Labrador Department of Finance

Robert Hogue is responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. Robert holds a Master’s degree in economics from Queen’s University and a Bachelor’s degree from Université de Montréal. He joined RBC in 2008.

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