Source: The Canadian Press

A surge of offshore oil production has pushed Newfoundland and Labrador from red ink back into the black.

The province is now projecting a surplus for this fiscal year of about $12.3 million instead of the $194 million deficit it originally forecast.

Finance Minister Tom Marshall credited higher than expected revenues from corporate and personal taxes, along with increased offshore oil production.

“Oil royalties are now projected to be approximately $65 million higher than we forecast in the budget,” he told a news conference Tuesday. “Approximately 12.1 million additional barrels of oil are now expected to be produced this year.”

He also cited growing business and consumer confidence that drove investment and spending as it increased tax revenues.

Newfoundland and Labrador had expected to dip into deficit for a second straight year with a debt-laden budget last March that offered big social spending and some tax breaks.

Overall provincial debt was expected to jump about $700 million to $9.2 billion. Marshall now says the debt increase will be held to about $489 million.

“Our government remains committed to continuing to reduce debt over time,” he said. “But the recession made it necessary to alter that expectation somewhat.

“Our plan during the downturn and the recovery was not to slam on the breaks on measures to stimulate economic activity or raise taxes. We want to ensure that our momentum continues — which means that we continue to invest to foster growth, not stifle it.”

Then again, Marshall stressed the importance of prudently managing precious oil profits to protect the province from the sort of economic meltdowns that have felled Ireland and Greece.

“We’ve got to do it, because some day the oil’s going to be gone.”

Fred Bergman, a senior policy analyst with the Atlantic Provinces Economic Council, said Tuesday’s announcement is good but predictable because oil production numbers had been underestimated.

He said Newfoundland and Labrador is the fiscal envy of other provinces and has made strides in whittling a once massive debt. But he said the Progressive Conservative government needs to further diversify the economy. It must also cut a debt load that will grow if the proposed $6.2-billion deal to develop Lower Churchill hydroelectric power with Nova Scotia proceeds, he added.

“They’re making some sound investments with the (offshore oil) money,” Bergman said. “But their fiscal picture is not as good as it could be for a province that is oil-rich and rich in minerals and resources.”

The provincial budget in March estimated the deficit for 2009-10 at $295 million, but Marshall says that number could now be closer to $50 million. Provincial accountants and auditors are still assessing those figures, he said.

It was the first year the province had posted a deficit after four years of surpluses fuelled by surging oil prices. Waning oil production and falling commodity prices amid a worldwide recession battered government revenues.

Newfoundland and Labrador relies on offshore oil for about one-third of its revenues. Oil prices, production levels and the fluctuating Canadian dollar can all have a dramatic impact on fiscal outlooks.

Budget numbers were based on an independent average oil price projection of US$83 a barrel. Prices for the first half of this fiscal year were closer to $78 a barrel, and are projected to reach about $85 for the second half.

The March fiscal blueprint projected deficits totalling $349 million in the next two fiscal years ending in 2013. Marshall declined to talk about those estimates Tuesday, saying he’d rather wait until those dates are closer.

He was clear, however, that the province’s renewed fortunes won’t mean a spike in its contract offer to doctors who say they’re underpaid and overworked. Fourteen medical specialists have threatened to quit en masse Feb. 4.

About 1,100 physicians have been without a contract for more than a year. Often fractious talks have dragged on for more than two years.

The government’s $410-million offer includes $81 million in pay hikes and a 31% raise for salaried specialists.

Doctors say the deal fails to match average Atlantic Canada medical salaries, and leaves them far behind rates paid to oncologists and pathologists in the province.

“We’ve made a generous offer,” Marshall countered Tuesday. He stressed that the province has a duty to taxpayers to stay within limits that are “responsible and sustainable.”

Doctors are now voting on the deal. Results are expected in December.