After using offshore oil and gas revenue to shed Newfoundland’s have-not status, tumbling oil prices have people in the province feeling like the party is suddenly over.
“Everything has happened really quickly here, so it’s a big shift,” said Jason Brake, owner Blue on Water, a popular restaurant in St. John’s.
Newfoundland’s economy has gone from gleaming to gloomy, with the so-called “oil crowd” living it up a lot less.
“You’re getting a lot of expense accounts that are getting limits put on them. I heard a story the other day that people are taking coffee out of their offices,” said Brake.
As oil prices have plummeted, so have Newfoundland’s revenues. When the last provincial budget came out, a barrel of oil was worth about $60 and Newfoundland was already $1 billion in the hole.
Since then, oil’s free fall has been much faster than the government budgeted for and it’s created an even bigger deficit, which is now the largest of any province when measured per capita.
Dwight Ball, the province’s new Liberal premier, is quick with a smile, but makes no effort to sugarcoat the situation.
“So, we’ve got a $2-billion deficit, which is unprecedented in the history of Newfoundland and Labrador,” he said.
“We’ve never been in this situation before.”
Under the crushing weight of the financial mess, the provincial government is inviting Newfoundlanders to a series of public brainstorming sessions.
There’s no shortage of suggestions, from cutting government jobs, to stopping tax cuts to corporations. In a province accustomed to using humour to cope with hard times, there were also some tongue-in-cheek responses.
“If you hire us on for a little while, we could really make waves for you,” said one woman before reciting a list of ideas generated from discussion at her table.
However, laughing it off isn’t easy in downtown St John’s, where eight restaurants have closed recently. Real estate has also gone cold, stalling the once red-hot condominium market.
The province is asking for emergency funding from the federal government, although Ball said the estimated $30 million in assistance won’t be nearly enough.
“Chipping away at the fringes is not an option,” he said. “There will have to be some tough decisions that will have to be made.”
To offset the massive oil and gas losses, the government is considering raising sales tax by two percentage points.
It is a risky move, as Ball decided a few months ago to rescind an increase that had been planned by the previous government.
Even tougher to contemplate is the knowledge that even a big increase in sales tax would barely touch a deficit that’s spiraling out of control.
The offshore industry insists long-term prospects for Newfoundland and Labrador are excellent, with some of the world’s largest untapped reserves. They are also confident that Newfoundlanders will overcome the adversity facing them.
“They’ll find a way through, and we’ll be ready when the next positive wave comes,” said Bob Cadigan, president of the Newfoundland & Labrador Oil & Gas Industries Association.
The provincial budget, scheduled to be released days after the upcoming federal budget, will provide the first glimpse of what steps the province will have to take until its fortunes take a turn for the better.