Soaring oil prices, a new Atlantic Accord and a boost in federal spending have helped dramatically improve Newfoundland and Labrador's ledger, although the province's finance minister warns there is still far too much red ink in this year's budget.

Minister Finance
Loyola Sullivan

The province will still be running a heady deficit, but significantly less than had been feared only a year earlier, Loyola Sullivan said Monday as he brought down a $4.39-billion budget that he admits is markedly softer than his debut last year.

While gently loosening purse strings, Sullivan's second budget aims to cut waiting times for diagnostic procedures, improve school-bus safety, tackle addiction treatments and spur economic development.

Fiscal circumstances have improved well enough for the province to leave all but one of its taxes alone. The exception is a targeted tax increase on tobacco that aims to cut smoking rates.

"We think we've struck a very strong balance," Sullivan told reporters Monday.

The deficit for 2004-05 is now pegged at $492 million, well below the $759 million projected in the hard-hitting 2004 budget.

• Province of Newfoundland and Labrador: Budget 2005

Sullivan says the province is now on track to balance its books before its target of 2007.

"We have an obligation to spend as little as we can on debt servicing and as much as we can on [programs]," Sullivan says.

"You can't have both."

Where the Money Comes From

Source: Government of Newfoundland and Labrador - Summary of Current Revenues (By Source) - Where the Money Comes From (39.2 kb PDF)

Where the Money Goes

Source: Government of Newfoundland and Labrador - Summary of Current Accounts Expenditures (By Function) - Where the Money Goes (40 kb PDF)

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Staffing levels

The 2004 budget laid out a frank – if not drastic – reduction in the public service.

The government had been planning to eliminate about 4,000 positions through a mixture of attrition and layoffs.

This year's budget indicates a more relaxed approach, although the budget documents do not indicate how many job cuts will be spared.

As well, Sullivan refused to even speculate on how many positions will now not have to be eliminated as scheduled.

"It's safe to say we'll be taking a more moderate look," Sullivan told reporters Monday morning.

Sullivan said a review of government programs is still underway, which will involve a review of staffing levels.

Among the jobs that will be spared are about 75 teaching positions.

The government has indicated it wants a greater emphasis on music, arts and culture in the schools, echoing one of the themes of the budget.

Most taxes, fees frozen

Sullivan said the province's improved circumstances mean no new taxes will be created, and almost all tax rates will remain frozen.

The exception is a hike in tobacco taxes, which Sullivan says is due to health concerns, not a new for new revenue.

After midnight Monday, cigarettes will cost an extra penny per cigarette. For fine-cut tobacco, prices will jump five cents per gram.

Other targets

As always, the budget covers a wide variety of issues and objectives. Among them:

• A plan to reduce the number of video lottery terminals (VLTs) by 15 per cent, over the next six years. Bars will be limited to only five per establishment, instead of up to 20 as is currently allowed now.
• Bars will get a break as the province phases out a mandatory licensee levy, charged over and above the cost of beer and spirits. The decision will cost the treasury $675,000 per year.
• A third magnetic resonance imaging unit will be opened, in St. John's. Other diagnostic purchases include two upgraded CT scanners.
• The government will spend $4.3 million on plans for long-term care facilities for Corner Brook, Clarenville and Happy Valley-Goose Bay.
• Following on last week's speech from the throne, spending on culture was bumped with increases to the provincial Arts Council and a variety of cultural groups.

An unspoken part of the provincial budget is the government's precise plans on how to spend cash from its new Atlantic Accord deal with Ottawa on offshore royalties.

The package, which has yet to be ratified by the House of Commons, will see the province receive a $2 billion advance on its offshore royalties.

Sullivan would not specify how the government plans to spend annual interest from that advance, although he pointed out that several years of deficits will clear the $2-billion mark.

Interest will be generated from that advance. Sullivan would not specify how the government plans to spend it.