Layoffs inevitable with 'unprecedented' financial crunch, says economist

As the price of oil continues an astoundingslump, Memorial University economist Wade Locke says "there's no easy fix" for Newfoundland and Labrador and that tough choices will have to be made.

• Government not ruling out layoffs as departments, agencies asked to trim 30%
• Don't forget N.L., David Wells says of possible money for oil-producing provinces

Lockesaid the province's fiscal crisis is"more dramatic than the [cod] moratorium" in 1992, when the federal government closed the northern cod fishery and triggered the largest single industrial layoff in Canadian history.

"We ought not to base our long-term policy on what might occur for the price of oil for the next month or the next two months ... what we don't want to do is destabilize the economy more than it its right now."

To cut or not to cut?

Finance Minister Cathy Bennett is not ruling out layoffs as the government asks departments, agencies, boards and Crowncorporations to identify budget cuts totaling 30 per cent.

Speaking with media Wednesday, Bennett said all options areon the table to find the savings needed, including layoffs.

"When you do the math, we're short 28 per cent of the money we need to pay the bills," said Bennett.

Lockesaidthe writing is on the wall for poor times ahead, andagreedthat all options should be on the table.

"We have a fiscal situation that's unprecedented ... and it doesn't matter whether you're in government or outside government it has dramatic and negative implications," he said.

"If we're cutting 30 per cent ... then it does mean layoffs, there's no way around that."

Locke said thecut willhave a serious impact on services, the housing market and general confidence in the economy, adding that the faster the cut, the harder it will hit.

"It's a balancing act ... and there is a case that if you do it slower you will face credit downgrades and higher costs of borrowing there's not a right answer here."

HST hike?

Locke isn't sure about the politics of whether the government can bring in a2% HST increase after cancelling the hike planned for Januarybut he said people might be willing to pay for it.

"Up until now, we've hadthe luxury of being able to provide almosteverything that we thought was appropriate to providebecause we had the revenue source to do it," Locke told CBC.

Now, theoil industry is also shedding jobs and reducing production.Oil prices rose above $31 US a barrel on Friday but the prolonged drop has already taken millions in revenues from the province.

"We're in a situation whereprices have fallen more dramatic than anybody could have thought," said Locke.

The drop also stung the oil-rich province of Alberta, eliminating jobs held by thousands of people who commuted there, bringing largepay cheques to rural communities in Newfoundland and Labrador.

Long-term looks better

As bad as it is,Lockebelieves the situation will rebound. He said it'sjust a matter of when, and decisions need to be made about what to give up.

"We'reused to a certain kinds of services ... and weexpectcertain standards of living that we're not prepared to relinquish," saidLocke.

Butif the province doesn'ttake some action, he said, it will reach the point where it can'tborrow the money needed to finance the deficit.

As for getting help from the federal government, Progressive Conservative Senator David Wells is asking that Newfoundland andLabrador be included inany infrastructure programs designedto alleviatepressure on oil producing provinces, but Lockedoesn't think we should bank on that either.

"For the most part, you should assume that the revenue sources we have, are the revenue sources that we have," Locke said.

"The problem you have right now is you have anincreasein supply that's matched bya decrease in demand butthat will take care of itself as the rest of theworld starts togrow."

He said major oil projects, such asHebron,are still set to go ahead and other futureprojects will likely not be affected by current prices.