ST. JOHN'S--While Newfoundland and Labrador must face a number of important issues of financial management in the next few years, provincial finances are not spiraling out of control, and they do not present an overwhelming crisis that justifies significant cuts to public services or the imposition of financial hardship on the government's employees.
That's the conclusion of "Newfoundland and Labrador Fiscal Review," a report jointly commissioned by the Newfoundland and Labrador Association of Public and Private Employees (NAPE) and the National Union of Public and General Employees (NUPGE), authored by economist and CCPA Research Associate Hugh Mackenzie.
The economic assumptions used by PriceWaterhouse Coopers (PWC) in a government-commissioned study are materially more pessimistic than those used by the major Canadian chartered banks. The CCPA report, which is based on more reasonable assumptions about economic growth and federal government transfer payments, demonstrates that Newfoundland and Labrador's cash deficit is not spiraling out of control to more than $700 million by 2007-8 but is relatively stable, at just over $280 million.
"While that is clearly a problem, it is one that can be addressed with relatively minor and affordable changes in the province's tax system," Mackenzie said.
Contrary to the conclusion of PWC, Newfoundland and Labrador's underlying cash deficit did not jump unexpectedly this year--the increase is entirely attributable to the one-time-only cost of buying back the provincial student loan program.
The CCPA report proposes a roll-back of recent tax cuts, the elimination of major loopholes in the province's payroll tax and the harmonization of Newfoundland and Labrador's corporate income tax rates with those of the peer provinces of Nova Scotia and New Brunswick. These measures would address the persistent structural deficit and generate enough additional revenue to address Newfoundland and Labrador's other financial problems. Even with these proposed changes, the report demonstrates that provincial taxes as a share of GDP in Newfoundland and Labrador would still be below the Canadian average excluding Alberta and Ontario.
"Newfoundland and Labrador will face a number of important financial issues in the next few years. But the sky is not falling. And some of the problems--like the revenue shortfalls created by unreasonably low corporate tax rates and ill-advised tax cuts--are self-inflicted. The key to a solution is to see them as problems for everyone in the province to solve, and not to impose the burden of their solution on public employees, who are no more responsible for them than anyone else in the province," concludes the author.