2. OUR ECONOMIC & FINANCIAL SITUATION

Our Economic Outlook

The Provincial economy was weaker in 1996 than in 1995, and is expected to decline again in 1997. The main factors are the winding down of Hibernia construction and the continued closure of the groundfishery. The impending closure of the Hope Brook gold mine and ongoing restraint by all levels of government also will contribute to a lower level of economic activity. Other sectors of our economy should perform well. Tourism should enjoy a banner year in 1997 with the Cabot 500 celebrations. Hibernia production is scheduled to commence in late 1997, heralding a new era for the Province as a petroleum producer.

Economic growth should resume in 1998. The development of the Terra Nova oil field, and possibly the Whiterose field, will follow Hibernia. The Voisey's Bay mine site will be complemented by the construction of a nickel-cobalt smelter and refinery at Argentia. The groundfishery may re-open on a limited basis. Our challenge will be to take advantage of our opportunities to provide the people of the Province with a sustainable and prosperous future.

Our Financial Situation

In the past, governments borrowed money to pay for programs and services. We realize that borrowing is really delayed taxation since the money plus interest must be paid back from future tax revenues. Most governments accumulated large debts, which today hamper their ability to continue borrowing.

This Province faces a financial dilemma. We have little ability to borrow or raise taxes, yet to continue existing programs and services requires more money every year. If taxes do not increase and we continue to provide programs and services in the same way, our shortfalls for the next three years would be: 

                  Fiscal Year           Shortfall

                  1997-98             $130 million
                  1998-99             $180 million
                  1999-00             $235 million

                                Total $545 million

If nothing is done, our Provincial debt will increase by $545 million over the next three years. This is almost $1,000 for every adult and child in the Province.

There are only three ways to lower a deficit: raise taxes, reduce spending or do both. These are the choices we must make in preparing the Budget.

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