ST. JOHN'S, N.L. - Newfoundland and Labrador's rapid economic ascent is expected to grind to a halt, as the provincial government announced Thursday it's forecasting a $750-million deficit for 2009-10, its first budget dripping in red ink in four years.
The deficit is a marked plunge from the $2.4-billion surplus the province recorded last year and reflects how susceptible Newfoundland's once-booming economy is to factors beyond its control.
Still, Finance Minister Jerome Kennedy said the province was in a better position than others to shake loose the grip of a global recession.
"The economy has turned upside down in the world," Kennedy told a news conference before tabling the budget.
"There's no question what's happening in the world economy is affecting everyone, but because of the steps we've taken we feel that we are in as good a position as anyone in this country to deal with this situation."
Just as surging oil prices fuelled Newfoundland's $4.2 billion in surpluses over the last four years, the diminished value of crude played a major role in the province's return to deficit territory on the eve of its 60th anniversary in Confederation.
Production from the province's three offshore oil platforms is also on the wane, though development of the Hebron oilfield could reverse that in 2017, when it's expected to come online.
Kennedy dismissed concerns that the Tory government isn't doing enough to diversify the province's economy beyond oil, citing the government's popularity as proof that the public supports its fiscal vision.
"With all due respect to our critics, I don't think we have to convince the public that what we're doing is right," he said.
Opposition Liberal Leader Yvonne Jones questioned the government's efforts, citing recent job losses in the province's forestry sector as a bad sign for the future.
"They have not done enough to develop new industry or to diversify business," Jones said. "The innovation thinking is not there."
Kennedy also cast blame on Ottawa for Newfoundland's fiscal woes.
In its budget, the provincial government said Prime Minister Stephen Harper's change to the formula that influences revenues from the province's offshore oil sector will sap $414 million from its coffers for the coming fiscal year.
"We're not describing it as a unilateral action. There was a unilateral action," Kennedy said.
But the government is also hiking total spending this year by more than $800 million, to a record $6.7 billion -- a decision Kennedy defended.
"We've made a conscious choice as a government that this year we will encounter a deficit in order not to cut our programs, in order to show our public service that we value them," he said.
Part of the spending boost will go to a $228 million equity investment in Nalcor Energy, the province's energy corporation, out of Premier Danny Williams's desire to have a greater stake in Newfoundland's offshore oil industry.
This year's budget is a radical departure from last year's, with revised estimates for 2008-09 showing a $2.4-billion surplus when funds from the 1985 Atlantic Accord offshore oil agreement are included.
The government has also managed to trim its net debt to $7.9 billion, a big drop from the $12 billion four years ago. But at $15,500 for every man, woman and child in the province, that's still the highest per capita in Canada.
The debt is projected to go back up to $9 billion for the coming year.
The government is basing its projections on a US$50 barrel of oil, down from US$86 last year.
It will also pour a record $2.6 billion into health care, including $21 million allocated for improvements to laboratory services, cancer care and health information management.
That funding is a response to a public inquiry that earlier this month concluded a litany of problems led to nearly 400 breast cancer patients receiving flawed results on treatment tests, particularly at the St. John's laboratory that misread them.
Health Minister Ross Wiseman, who has estimated that the cost of implementing the recommendations from the inquiry will be about $100 million, said the funds are intended to be a first step in improving the province's health-care system.
"We're only able to do so much this year as a part of that implementation process," Wiseman said.
Peter Dawe, a spokesman for the Canadian Cancer Society, said some of the $21 million was already earmarked for projects aimed at improving health care.
"I think only a fraction of that $21 million really was new money that was committed to the recommendations coming out of the (Justice Margaret) Cameron report," Dawe said.
"That said, they have taken the first step in the right direction. But it's only one step and if they're going to get this right, if they're going to put all the recommendations in place that need to be put in place in a timely fashion, we're going to have to see a lot more movement out of this government."
Real GDP is projected to plummet 7.7 per cent as a result of a decline in exports of minerals, newsprint and oil.
"Most analysts aren't that pessimistic, but the province's numbers tend to move in volatile fashion when there are major swings in the commodity sectors and the output decline may indeed be that deep this year," said Michael Gregory, a senior economist with BMO Capital Markets.
Unemployment is also expected to rise by one percentage point to 14.2 per cent.
