The Canadian Press

Newfoundland and Labrador will dip into deficit for a second straight year with a budget that promises big spending on children and health care as it racks up debt.

The provincial budget tabled Monday projects a $194-million deficit for 2010-11 as net debt jumps to $9.2 billion from $7.9 billion last year.

It also forecasts deficits totalling $349 million in the next two fiscal years ending in 2013.

Those shortfalls are expected after a $295-million deficit for 2009-10 amid waning oil production and lower commodity prices.

The surging Canadian dollar has also affected the relative worth of royalties paid in U.S. dollars.

Despite the growing debt burden, the Tory government of Premier Danny Williams says now is not the time to rein in spending as a fragile economic recovery continues.

Finance Minister Tom Marshall said in a speech to the legislature that the budget aims “to ensure our children’s future is rich with opportunity and secure.

“We’ve been weathering the storm, strong and confident. Because of real leadership and the right choices, Newfoundland and Labrador is farther along the road to self-reliance today than we have ever been in our history.

“This is not a time to slam on the brakes. Our seventh budget is about moving forward,” he said.

“These are responsible investments that will grow our economy, strengthen our communities, diversify our industries and improve the lives of our people.”

The province will spend a record $3.7 billion for infrastructure, health and community services, including upgrades for roads, bridges, schools and a new early learning program.

Unemployment is forecast to come down about half a percentage point but will remain high at 15%.

The province’s second annual foray into deficit — after surging oil prices netted surpluses in the four years before — is a sobering reminder of its stark exposure to volatile crude oil and mineral values.

“We’re heavily reliant on those resources,” Marshall told a news conference before he delivered the budget. “There’s no question.”

Still, Marshall says he has options to combat the red ink because of the $4.1 billion in surpluses tallied in the four years before “major economic tsunamis” hit the province.

“Our debt will go up but we don’t have to borrow for that,” he said. “We have cash to pay for that.”

Offshore royalties account for about one-third of total revenues and have vaulted the province from relative rags-to-riches status. Production from three offshore oil sites has recently declined, but the expansion of the Hibernia field and development of the Hebron project could reverse that trend.

Despite the pinch of lower oil and mineral prices, the government opted for some modest tax breaks that will put $49 million back into the pockets of seniors and small business owners.

Targeted personal income tax cuts are also aimed at attracting professional and skilled labour.

Marshall defended the decision to cut taxes, saying that was a promise he wanted to keep.

A competitive tax climate is vital for drawing the wide range of social workers, engineers and other skilled professionals the province needs, he said.

The province had forecast last fall that the 2009-10 deficit would hit $750 million. That amount was slashed by about 60% as oil prices rose above the US$50 per barrel figure that was used to calculate those numbers.