• Newfoundland and Labrador projects a $152 million budget shortfall in 2024-25, scrapping surplus plans for the upcoming fiscal year.
  • Revenues are set to jump 7.8% in 2024-25 alongside a rebound in natural resource production.
  • The 4.6% boost to spending will keep expenditures floating above revenues until 2025-26.
  • The province’s heavy debt burden is back on the rise and still the biggest in the country.

Province delays budget surplus to 2025-26

The release of Newfoundland and Labrador’s Budget 2024 was delayed, along with its return to a surplus. The economy took a sizable hit over the last two years with real gross domestic product contracting. But the economy is expected to kick into high gear with 5.1% growth in 2024, putting revenue growth at a projected 7.8% in fiscal 2024-25.

This, however, won’t be enough to remove red ink from the province’s income statement. Big spending plans are slated to boost expenditure by 4.3% after nearly double the increase (8.3%) in fiscal 2023-24. This should keep the bottom line in a deficit for another year with small surpluses pushed out to 2025-26 and beyond.

Higher growth projections won’t be enough to improve the province’s near-term debt burden either. The net debt-to-GDP ratio remains on an upward trajectory—and is still the heaviest debt burden in the country.

Healthcare, transportation and infrastructure remain top priorities

Budget 2024 projects a spending increase of more than 8% in the current fiscal year (2023-24)—a large divergence from the 1.1% in last year’s budget. Upward revisions to provincial expenditure don’t end there. The province added another $461 million (4.3%) to the 2024-25 spending allotment despite previously announced plans to pull spending back.

The majority of the increase is set to go to healthcare (+21%), taking up 42% of total expenditure in 2024-25. New spending for transportation and infrastructure (5%) will add another $60 million to the plan, keeping this expense item as the second largest on the income statement. Education—the province’s third largest expense item— meanwhile, will see funding decrease (-7%) for a second consecutive year.

Economic rebound to supercharge revenue

No new taxes or tax increases were announced despite an unplanned spending spree in 2023-24 and more plans for robust expenditure growth in the fiscal year ahead. Newfoundland and Labrador did include tax cuts for small businesses. The small business tax rate will fall from 3% to 2.5% starting this year.

The province sees its fiscal and economic backdrop changing dramatically in 2024 with a rebound in oil production and mineral exports. Revenue are now projected to jump to $10 billion (7.8%) in the upcoming fiscal year after a sharp contraction in 2022-23 (-6.3%).

We would caution the government for relying too heavily on an outsized revenue increase in the 2024-25 fiscal year. For one, provincial revenue is very reliant on volatile offshore royalties, and this year’s rough start to oil production doesn’t bode well. Projections for GDP growth and oil prices are also noticeably higher than our own, adding more potential downside risk to revenue.

Net debt-to-GDP back on the rise

Newfoundland and Labrador was able to reduce its debt burden over two years from 49.7% in 2020-21 to 39.3% in 2022-23. But this trend is reversing. The net debt burden is expected to rebound back to 44% in the upcoming fiscal year as new debt and mounting debt charges outpace nominal GDP growth.

Under the fiscal plan laid out in Budget 2024, Newfoundland and Labrador will continue to hold the heaviest debt burden in Canada. It’s disappointing to see the improving trend reverse, as it will reduce fiscal flexibility for the province.

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