Declining production highlights need to rein in spending: APEC report

Daniel
Daniel MacEachern
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Elizabeth Beale

On the day the provincial government announced a hiring freeze, a new report says the province’s declining oil revenues highlight the need to reduce spending.

The Atlantic Provinces Economic Council’s pre-budget fiscal update, released Monday, noted the province posted healthy economic numbers in 2012, including growth in employment and average weekly wages, although decreased oil production dragged overall GDP growth to an estimated 0.1 per cent.

“Newfoundland and Labrador is still the growth leader in Atlantic Canada, even though with oil production down this year it’s taken a hit on the GDP side,” said council president Elizabeth Beale. “But outside of that, it’s still relatively strong in terms of a number of other indicators.”

The province’s employment growth — 2.1 per cent, nearly twice the national 1.2 per cent average — put it behind just Alberta and Saskatchewan last year, accelerating in the second half of the year, and there has been growth on the investment side, said Beale.

“We’ve seen the numbers for a number of projects being revised upwards, the Hebron project being the largest one,” said Beale, who noted that average weekly wages grew 5.6 per cent, tops in Canada, and retail sales grew five per cent.

But declining oil production in 2012 was a problem, especially considering the growth in public spending, said Beale. “The province has ramped up its spending considerably on provincial goods and services, and it’s now going to have to bring that down somewhat, and that’s going to be tough,” she said.

“It’s so hard because the GDP’s now so linked in to what happens with respect to offshore oil production, it’s such an enormous factor,” she said. “You see these big, volatile jumps, 15 per cent down, contracting, and then the next year back up again, so it’s hard to say what normal is anymore, when everything is so volatile.”

Legislating balanced budgets — as some have called for during the provincial government’s ongoing pre-budget consultations — will be tough for an economy so tied to commodity prices, said Beale.

“There have been other calls for the province to set aside a portion of its royalties on an ongoing basis to cover these kinds of variations on a year-to-year basis, or to set up a larger innovation fund,” she said. “The government would argue they’re already doing that. In other words, they’re spending at the current time to diversify the economy and to strengthen the economy over the long run.

“It does have choices on that side, and there’s no doubt that there’s reasons why per-capita spending should be higher in a province such as Newfoundland and Labrador, with a large, dispersed population, and it’s very costly to provide services to people,” she added. “But nevertheless, that spending has risen so sharply that there’s got to be some retrenchment from those growth rates, and that’s going to mean cuts.”

dmaceachern@thetelegram.com

Twitter: @TelegramDaniel

Organizations: APEC

Geographic location: Newfoundland and Labrador, Atlantic Canada, Alberta Saskatchewan Hebron

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Recent comments

  • Angry
    February 20, 2013 - 05:47

    The Gov't of NL has done nothing in my opinion to "diversify" our economy - quite the opposite actually. They are so focussed on oil and are working so hard to cater to oil and anything directly connected to oil - they are working diligently to kill what little economic diversification we have left. We live on an island that is capable of being completely self-sufficient and yet we are so dependant on the mainland for survival that it's sickening!! Thanks gov't!! Any idea what you're gonna do when the oil stops flowing, or the bottom falls out of 'er?? Guess you should be treating the little guy better, cause when the big oil guys are gone, the little guy will still be there.....time to change your focus????

  • Marrion Hubbert
    February 20, 2013 - 02:37

    Never ending growth is the dominant myth of industrial civilization. But it is a fairy tale. Science and Nature tell us that perpetual growth is impossible. The growth of the past 150 years was fuelled by a unique combination of technology, population growth and abundant and cheap natural resources. That era of growth is ending. The future will be an era of limits, contraction and resource depletion. Did people really think the growth party would go on forever ?

    • david
      February 20, 2013 - 10:50

      Marrion, everyone thinks that they are witnessing the "end of the world". The Mayans were wrong....and you're wrong. People create technologies that find a way. Always have, always will.

  • Mr.V
    February 19, 2013 - 18:31

    Cuts...ha ha suckers for all those that spent along with gov!!!

  • William Grouchy
    February 19, 2013 - 16:21

    Why not keep cabinet ministers from the public trough? That would save a lot of millions. $2500 for a half hour flight to St. Johns? Make 'em drive or stay home

  • david
    February 19, 2013 - 12:16

    It's over folks...already. Danny clearly knew what he was doing, and that leaving while the music was still palying is better than waiting for the lights to go up. Fridge magnets, fire trucks, a bloated public payroll, and a most pointless "dam to nowhere" in the works. This will go down as the ultimate Newfie joke, and will give Albertans something they can point to and feel better about their own circumstances for decades to come. They won't long for another Peter Loughheed as much.......just breathe a sigh of relief that whoever they have is much better than this. Your welcome, Alberta.

  • None
    February 19, 2013 - 09:13

    Here's the issue. 124 dollars a barrel of oil used in the budget. At a time when oil production was down for maintanence. The government acted like halfwitts. What's more insulting, is that production is coming back online now and oil revenues will be back up. So the public will take a crunch now, and then the goverment will spend big once again this summer on projects the province doesn't need.

  • Steve
    February 19, 2013 - 08:10

    Even after announcing the hiring freeze, the provincial govt. is still shovelling money out the door every day with spending announcements! Total hypocrites! They knew this crunch was coming, yet they made no effort to slow spending over the past two years. Why? This is financial mismanagement.

  • Happily Retired
    February 19, 2013 - 07:50

    How much did it cost to produce this "Stating the Obvious" Report. Leave it up to the crack team of economists at APEC to tell us something we already knew.