N.L. and Saskatchewan face hundreds of millions in federal loan repayments

Two provinces already dealing with significant revenue shortfalls will soon start to repay more than $400 million to the federal government for loans they received under the equalization program more than a decade ago.

Newfoundland and Labrador owes Ottawa $271.1-million, while Saskatchewan is on the hook for $132.9 million. Those debts go back to 2004, when six provinces that were receiving equalization were given loans to offset a sharp one-time drop in payments due to a recalculation.

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Prince Edward Island, Nova Scotia, New Brunswick and Quebec will have repaid their loans by April.

But Newfoundland and Labrador and Saskatchewan will only start to repay their loans this year, through a series of annual installments. Ottawa and the two provinces struck a deal last March to allow the provinces to pay it back over 10 years without being charged interest.

The repayment comes at an especially difficult time for Newfoundland and Labrador, where the government is reeling from the global oil slump and the resulting hit on provincial revenues.

The province is projecting a $2.4-billion deficit on an $8-billion budget. Finance Minister Cathy Bennett has asked the entire public sector to identify 30 per cent in cost savings that could be phased in over three years.

"When you do the math, we're short 28 per cent of the money we need to pay the bills," Bennett said in January. "To say that anything is not on the table would be irresponsible."

CBC News reported this week that the province is going to apply for a federal fund that could see the province receive up to $30 million to cope with its financial crisis but that would be almost entirely offset by the $27-million annual installment to pay back the loan.

The situation isn't nearly as bad in Saskatchewan, but earlier this month Premier Brad Wall said the struggling energy sector will force his government to run a deficit this fiscal year and next.

Wall is choosing to go into the red rather than raise taxes or make further spending cuts.

"I just don't want to increase taxes on an economy that has its energy sector challenges. I don't think that the timing for that is right," he said.