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N.L. no longer Canada's poor cousin as Ontario flirts with 'have-not' status

ST. JOHN'S, N.L. - Newfoundland and Labrador, considered for generations the poor cousin of Confederation, heralded a new era of economic independence Tuesday with a budget that delivers a substantial surplus and promises for the first time to pull it off the list of "have-not" provinces.


ST. JOHN'S, N.L. - Newfoundland and Labrador, considered for generations the poor cousin of Confederation, heralded a new era of economic independence Tuesday with a budget that delivers a substantial surplus and promises for the first time to pull it off the list of "have-not" provinces.

The new economic strength of the once hard-up province is fuelled by the soaring price of oil and carries meaning that goes beyond numbers for many Newfoundlanders.

There's pride involved.

"We were always the poor cousin of Confederation," Finance Minister Tom Marshall told a news conference before tabling the budget.

"Many of you, I guess like me, when you travelled the country, you would hear comments about people in this province ... being on welfare and other provinces having to provide us with revenues. Those days are over."

The news that Newfoundland is preparing to come off equalization next year for the first time since it joined Canada in 1949 came the same day that the TD Bank Financial Group predicted Ontario could receive help from the wealth-sharing equalization program in two years.

The apparent reversal in fortunes is more a reflection of growing economic clout in energy-rich provinces than it is of a poor performance in Ontario, said TD chief economist Don Drummond.

Still, the timing is tinged with irony because for years Newfoundlanders left their native province, lured by better economic opportunities in Canada's largest province.

No more.

"We're going to be an economic driver of this country," Marshall said.

"I think this will commence a revolution between the ears."

In Ontario, Conservative Opposition Leader Bob Runciman said that province's slide into have-not status will result in a loss of self-esteem.

"We're sliding into the state where we have our hand out instead of providing a hand up," Runciman said.

It's been the dream of past premiers in Newfoundland to wrestle the province off equalization.

When he announced a deal 20 years ago to proceed with Hibernia, the province's first offshore oil project, then-Premier Brian Peckford was famously quoted as saying, "One day the sun will shine and have-not will be no more."

The province is poised to receive only $18 million in federal equalization payments this year, a steep drop from the $477 million it received last year.

The $13.6-billion federal equalization program provides funds to poorer provinces to ensure they can provide basic government services comparable to wealthier provinces.

The surplus for 2008-09 is forecast to be $544 million. Marshall also used Tuesday's budget to revise the surplus for 2007-08 to $1.4 billion, more than five times what it projected last year.

At the time, the provincial government based its projections on a US$59 barrel of oil. It has now revised that to be US$87 a barrel for the coming year.

The province is using its economic transformation to trim taxes, boost education and health-care spending, while paying down some of its whopping debt.

The provincial government has hiked total expenditures to $6.4 billion from $5.8 billion and intends to slash its accumulated debt to $10 billion, down from $10.3 billion the previous year.

But pegged at roughly $20,000 for every man, woman and child, that's still the highest per capita in Canada.

"It's never been my thought to reduce the entire debt. It was always my thought to deal with it in a reasonable and responsible way, to get it down," Marshall said.

"It's not how quickly we do it. It's the fact whether we get it right or not."

Two years ago, the debt was $11.6 billion.

About $3.7 billion will be spent on education and health care, an increase of about $200 million from last year.

For months, education and health-care groups have called on the government to improve the state of the province's mouldy schools and aging hospitals.

An ongoing public inquiry into botched breast-cancer tests has also highlighted the need to upgrade outdated medical equipment as well as address a glaring shortage of nurses and doctors.

Marshall brushed aside suggestions the government was downplaying its revenue estimates from the soaring price of oil.

"We have to be prudent," he said. "I don't want to be low, but if we are low and the prices are higher, well the worst (that) happens, we have more money. I would hate to be wrong on the other side."

Marshall noted that the current downturn in the U.S. economy and rising food and energy costs are still having an impact on the everyday lives of residents, as well as the province's forestry, manufacturing and fishing industries.

"No government can insulate or isolate all people from rising costs of food or oil out there," he said.

"I fill up my car as well. I know what's going on. I know how people are hurt by this."

Cuts in personal income taxes in the budget will make Newfoundland and Labrador the province with the fourth lowest average tax rates in Canada. Two years ago, it had the highest.

The surplus marks a stunning turnaround of the economic situation Premier Danny Williams inherited after he was first elected in 2003.

At the time, the Conservative government faced a deficit close to $1 billion and the prospect of slashing public services.

But now the province faces a new challenge: a decline in offshore oil production.

Last year, output from its three projects dropped by 31 million barrels, and that decline is expected to continue for the next several years. So far the rising price of oil has more than offset the decline in production.

The budget comes one day after Statistics Canada reported that the province's economic growth last year was 9.1 per cent, more than triple the national rate.

Upon hearing that Ontario could be an equalization-receiving province in two years, Newfoundland NDP Leader Lorraine Michael laughed at how outrageous that sounds.

But she questioned the significance of Newfoundland's economic turnaround, saying it won't have any measurable impact on many Newfoundlanders.

"It depends on who you are in this province and where you are on the economic scale, because if you're a senior citizen who can't afford your prescription drugs ... telling them we're no longer a have-not province is not going to mean much to them," Michael said.

Opposition Liberal Leader Yvonne Jones said getting off equalization is a major coup for the province, but warned that the government has become too reliant on revenues from a volatile industry.

"Right now, government is really banking all of its plans on the oil and gas sector," Jones said.

"This government has really had a stroke of luck."

 
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