Was it only four years ago that Newfoundland and Labrador was touted as a “have” province, transformed from a perennial economic basement-dweller into a Canadian success story?

The province’s multimillionaire former premier, Danny Williams, exemplified the cockiness of Newfoundland and Labrador during those years. Thanks to the dual blessings of high crude oil prices and burgeoning offshore oil production, Williams could afford to tell people exactly what he thought about them.

The optimism and bravado of Williams, combined with the province’s new wealth and economic growth, created a virtually unprecedented level of confidence.

Then came Budget 2013, replete with civil-service layoffs that have left 1,200 without jobs, program rollbacks, and new fees and taxes – while still forecasting a $563-million deficit. Suddenly, Newfoundland and Labrador appears to have reverted to “have-not” status, although Premier Kathy Dunderdale still insists to anyone who is still listening that the economy doing fine.

Public reaction has been less than sympathetic to Dunderdale’s government, which already was suffering from erosion of its credibility. The cabinet members who had publicly congratulated themselves for their fiscal prudence now are admitting that they had grossly overestimated revenue, particularly from oil royalties. The Opposition, the New Democratic Party, which now is topping opinion polls, notes that it had warned government a year ago that its benchmark figure for world oil prices – which is used to calculate revenue on royalties – was overly optimistic.

Then came the revelation that the government had added a $90-million budget line for “business opportunities” and to “promote industrial development,” up from just $500,000 last year. That revised figure is almost equivalent to the combined amounts allocated to operate the departments of Environment and Conservation, Fisheries and Aquaculture, and Service Newfoundland and Labrador.

When questioned about this fund, Dunderdale has refused to answer; furthermore, she admits that a vote on the provincial budget could occur without politicians knowing where this money will be spent: “At any time, as a government, we’re involved with negotiations with different groups around potential developments, investments, here in the province. We don’t know at this point in time if those negotiations are going to be successful. But we have to put a block of funding in our budget that would speak to the success of those negotiations.”

Particularly confusing to many observers is that the government is pledging to return to a balanced budget just in time for the 2015 general election, yet found it necessary produce a 10-Year Sustainability Plan. This 24-page document explains why the budgetary crunch occurred and how Dunderdale and her government expect to deal with it during the next decade.

The government now is being asked why a 10-year plan of this nature is needed if it expects to be out of the red in two years. Most troubling for Dunderdale is the effect of the spending cuts on the overall credibility of her administration. The Progressive Conservatives have been in office for 11 years, and they have sold themselves as prudent managers of the public purse.

Now, after apparently committing major errors, this same government is asking the public to trust them. That is proving to be a difficult sell, indeed.

© 2013 Investment Executive. All rights reserved.