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Financial Crisis Facing Newfoundland & Labrador
The Problem of Provincial Deficits and Debt

Government Deficit Spending

Deficit spending has been a consistent factor in the Province’s budgets over the years, as Newfoundland & Labrador has been forced to borrow, in order to pay for the services it provides to residents. In 2005, the Government incurred a deficit of $138 million, the third highest of all Canadian provinces for that fiscal year.

It is important to note that the Province’s provincial deficits have not been incurred as a result of low provincial taxation rates. In fact, Newfoundland & Labrador has one of the highest levels of taxation in Canada. The problem, in fact, stems from an insufficient tax base from which to pay for all of the services provided for by the Government.

1. Sources for Federal Government Data: (Statistics Canada) Federal Government Revenue and Expenditures & (Statistics Canada) Federal Government Finances

2. Sources for Provincial Governments Data: (Statistics Canada) Provincial and Territorial General Government Revenue and Expenditures & (Statistics Canada) Provincial and Territorial Finance (2004)

Growing Provincial Debt Burden

An unfortunate by-product of the deficit spending that has characterized the provincial economy has been a ballooning provincial debt. In 2004, Newfoundland & Labrador’s net debt totaled $9.5 billion, or $18,400 per person. This is by far the highest level of debt of any Canadian province, with Quebec and Nova Scotia following (with debt levels of only $13,000 per person).

The severity of Newfoundland & Labrador’s debt level cannot be stressed enough. In the fiscal year 2004-05, the Province paid over $500 million in debt charges and other financial expenses, which accounted for over 10 percent of total government expenditures for that year. The Government spent almost the same amount on debt servicing as it did to provide social welfare programs (excluding health care and education), and over twice the amount that it did to protect residents and property (through services offered by police and fire departments).

In addition to placing extraordinary fiscal constraints on the provincial economy and the services the Government can provide to residents, this debt burden invariably has a downward ‘pull’ on the economy, as investors look to more fiscally stable regions to in which to invest.

For more information of Newfoundland & Labrador government expenditures:

• Government of Newfoundland & Labrador: Budget 2005

1. Sources for Federal Government Data: (Statistics Canada) Federal Government Revenue and Expenditures & (Statistics Canada) Federal Government Finances

2. Sources for Provincial Governments Data: (Statistics Canada) Provincial and Territorial General Government Revenue and Expenditures & (Statistics Canada) Provincial and Territorial Finance (2004)

4. Debt as % of GDP figures based on Net Debt as a ration of Real Gross Domestic Product (expenditure based).

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