[LINK] "The Rock’s in a hard place: Why things look bleak for Newfoundland"

[rfmcdonald]

Chris Sorensen of MacLean's notes how the collapse in oïl prices has hit Newfoundland very hard indeed.

There was a fierce debate during the 2015 federal election campaign over whether Prime Minister Stephen Harper had actually delivered a “surprise” $1.9-billion surplus last year, or had in fact rang up a similar-sized deficit. But, as is so often the case, it was all smoke, no fire. Wrapping up the fiscal year a few billion on either side of the ledger is a rounding error in a $2-trillion economy.

By contrast, Newfoundland and Labrador is suffering from the opposite problem. The province’s finances are in shambles—the deficit has ballooned to $1.96 billion thanks to plunging oil and gas revenues, according to a recent fiscal update—and yet politicians managed to stump their way through a provincial election in November without addressing the issue head-on. And make no mistake: at seven per cent of GDP, the province’s red ink isn’t something that can be fudged away. It’s on par with Greece’s average deficit-to-GDP ratio over the past two decades. And, as some have joked on Twitter, we all know how that turned out.

The turn of events is shocking considering it was only a few years ago that Newfoundland’s oil-fueled economy was hailed as one of the country’s fastest-growing. But it is hardly a surprise. Last spring, the previous Progressive Conservative government forecasted a $1.1-billion budget shortfall based on an average oil price of US$62 a barrel. With oil now at US$36, it wasn’t difficult to do the math. And yet Liberal Premier Dwight Ball won in a landslide after his party promised more deficit spending, in part because of a plan to scrap the previous government’s two per cent sales tax increase.