7 things to watch for in the N.L. budget

What a difference a year makes.

The run-up to last year’s Newfoundland and Labrador budget saw oscillating warnings about the need for austerity.

Premier Kathy Dunderdale warned of spending cuts of up to three per cent, or roughly $200 million. She later modified the three-per-cent figure to exclude "ring-fenced" areas like health care from the review.

The premier had also indicated that as many as 800 contract positions could be on the chopping block.

When budget day came last April, the warnings proved hollow. Forecast program spending actually increased, although below the rate of inflation. Just 45 temporary jobs faced the axe, with only $38.8 million in spending cuts identified.

Fast forward to 2013. Few expect a similarly light touch.

The province is now projecting $1.6 billion deficits in each of the next two years, if no action is taken.

Here are some of the key things to look out for in the 2013 provincial budget:

1. The forecast price of oil, and how much the province expects to reap in offshore revenues. After years of lowballing projections, whether by accident or design, the government chose an aggressive price point of US$124 a barrel in making its 2012 revenue forecasts. The actual price turned out to be much lower, punching a big hole in the balance sheet. Newfoundland and Labrador is beholden to volatile petro-bucks for roughly one-third of its revenues. As oil goes, so goes the treasury.
2. The number of job cuts for public employees. As the good times rolled in recent years, the public service swelled. That period of expansion appears to be over. Last year’s warnings of heavy cuts didn’t materialize, but that seems unlikely in 2013. News about hundreds of layoffs eked out in dribs and drabs before the government put a stop to that process a few weeks back, noting that the final tally would be made clear on budget day.
3. Recent budgets have trumpeted billion-dollar investments in spending on infrastructure, everything from roads to hospitals to schools. With red ink now overflowing, those money taps will likely seize up this year. The question is: How much?
4. Between 2007 and 2011, the government rolled back income tax rates several times, cut hundreds of fees, introduced or increased tax credits for everything from child care to dividend income, and chopped taxes on insurance premiums. The Department of Finance has valued the total smorgasbord of benefits over that time span at $1.2 billion. Will the government hold the line this year, or could some of those tax cuts and credits be rolled back? Will sin taxes or other fees rise?
5. Liabilities for public-sector pensions and retirement benefits now comprise the biggest portion of the provincial debt, outstripping actual borrowings. The Dunderdale administration has made noise about addressing the issue. Most civil servants have been out of a contract for the past year. Could the 2013 budget mark the opening salvo in a new war between the government and its employees over perks?
6. The Progressive Conservatives came to power and immediately commissioned a fiscal review that warned of a series of apocalyptic billion-dollar deficits if no action was taken. A decade later, how big a deficit is the same party now prepared to run, this year and next? In ten months, the government’s projections slalomed from a balanced budget for 2014 to a $1.6 billion shortfall. Can the province get its forecasting back on track — an area in which it has not exactly covered itself in glory over recent years?
7. How will the Tory government, now in power a decade, sell a tough budget to an increasingly-skeptical public? The Tories, until recently unassailable in the polls, have fallen into a statistical tie with the surging New Democrats. As government revenues doubled over the past decade, the Tories took credit, and ramped up spending on popular initiatives. How will the PCs handle the fallout of a budget in which they have to make their first real tough decisions since 2004 or 2005?

Finance Minister Jerome Kennedy will answer many of these questions at 2 p.m., when he stands in the house of assembly and begins to deliver the budget speech.