24 May 2010

That’s gotta hurt, too: oil prices edition

The provincial government’s 2010 budget – due to pass the House of Assembly by next Monday – is based, in part, on crude oil average about US$83 a barrel for the entire year.

Just to make sure everyone is keeping a sharp eye on the unsustainable Tory financial ball, the budget forecasts a cash deficit of about $1.0 billion. That would eat up just about all the surplus cash on hand.  As a result, the net debt, which was hidden from prying eyes by all the surplus cash would spring back into full view in all its $10 to $12 billion splendour.

And if the following year’s budget needed some propping up, the provincial government would be back in the markets looking for some bank will to see the public debt balloon even larger.

But oil is trading this past week down in the neighbourhood of US$70 an the dollar is still pretty close to par.  Production is slightly below last year’s so there doesn’t seem to be much hope extra production would generate extra cash.

Oil is now the major source of provincial government income by quite a margin.  It’s about twice the amount the government gets from federal transfers which  - when piled together is the next biggest source of income at about $1.2 billion.  Oil royalties, forecast at $2.1 billion is about two and a half what personal income tax, the next largest provincial government’s own revenue source, brings in.

There are a couple of things to take away from all this.

First of all, when Danny Williams talks about putting the province’s finances in order such that there is less dependence on Ottawa, he’s pretty much jerking everyone in the province around. 

Nothing – and let’s say that again for good measure – n-o-t-h-i-n-g, not a single, solitary, flipping thing Danny Williams and his cabinet have done in provincial government spending since 2003 has put the provincial government on a secure financial footing.  To the contrary, they have put the provincial government in an incredibly precarious financial position even compared to when they took office.

The facts on this speak eloquently for themselves in both the fragility of the economy and unsustainable level of public spending. When he announced in early March that balanced budgets were no longer a target for his administration he pretty much confirmed that none of his claims about sound fiscal management were close to being accurate.

Second of all, bear in mind if oil stays at current prices, the cash deficit is more likely than not going to be about $1.0 billion and we are yet again staring at the prospect of one of the largest if not the largest cash deficits in provincial history.

Put all the faith you want in people who forecast triple digit oil prices as the way of the future.   Oil is not going to be the saviour of this province if its government keeps spending the way it has been spending.

It’s that simple.

So as all things out there go sour for the current administration, as it faces the prospect of hundreds of millions of dollars in costs from the Abitibi expropriation fiasco, as investment interest in the province dries up, the parlous dependence of the provincial budget on oil prices just adds to the pressure.

Imagine what things will be like a year and a bit from now when voters troop to the polls.

-srbp-

23 comments:

George said...

I'm certainly not hopeful of oil springing back to life well ahead of any positive economic news out of Europe. The four "pigs" countries have got to show that they can pay down debt at the same time as handle their loan repayments and then show modest economic growth, all at the same time. With oil trading at $65.96 US today's market close and July futures nosing below the $70 mark, I can't help but wonder what the Tories are going to do to handle the new Newfoundland and Labrador "debt crisis" because that's what it's going to be...
Secondly...I don't know where they got the "advice" that oil (WTI) would average $83 US for the year and I would certainly love to read over their rationale...

Ed Hollett said...

As I recall George, the forecasts early in the year ranged from US$62ish up to US$83.

I think they took the high end estimate because it gave them a neat excuse not to deal with the deficit problem they created and thereby admit the huge problems the province is facing.

As for the gurus of high oil, you have people like Jeff Rubin, who is the keynote for NOIA's conference this year. He evidently doesn't do a very detailed analysis of what is driving prices: he just says things like "if oil is at 85 now and we are just coming out of a recession, what's it gonna be once we are fully recovered?" with the clear implication he is liking at US$100 plus.

That sort of bullshit is seductive to people in a huge jam and with no political will or ability to deal with the jam. It's the same logic they relied on into 2008 when - if you recall - Danny claimed the recession was likely going to skip us by because we lived in a magic bubble.

Wm. Murphy said...

Nothing – and let’s say that again for good measure – n-o-t-h-i-n-g, not a single, solitary, flipping thing Danny Williams and his cabinet have done in provincial government spending since 2003 has put the provincial government on a secure financial footing.

Didn't they pay down some of the unfunded pension liabilities?

Wm. Murphy said...

Imagine what things will be like a year and a bit from now when voters troop to the polls.

Just imagine when people have to place their "X"...they get to choose between Danny and Yvonne.
The only thing that will come of that is that the Lib's will probally increase their Opposition research budget next time around!!

Nothing – and let’s say that again for good measure – n-o-t-h-i-n-g, not a single, solitary, flipping thing will come from Yvonne leading the Libs in the next election

Mark said...

"Just imagine when people have to place their "X"...they get to choose between Danny and Yvonne."

I don't accept that. You can only mark your X for Danny or Yvonne if you live in Humber West or on the South Coast of Labrador.

People in the other 46 districts can choose to elect sheep (of the blue, red or orange variety) or they can elect representatives who will contribute to making government a more accountable institution.

Voters generally get out of the political system what they are willing to put into it.

Wm. Murphy said...

Thanks for the geography election on where our leaders hang their hats Mark.

It's all about leadership and how the leaders attract the sheep you refer.
As someone who is co-chairing the BIG convention this fall...I would take heed about who will lead the Libs in the next election. My assessment is that the Party is willing to sit back and wait while they spend another 4 years in Opposition. Unless there is a clear and competent Leader to lead the province, then we will continue to get much of the same. It's a shame that no one has come forward for September's convention

Ed Hollett said...

Good points, well made, mark.

Murph's comments are based on huge assumptions, the biggest one being that both Yvonne and the Old Man will be leading their respective parties.

Mark said...

Wm - as co-chair, the last thing I'll do is speculate on who will or will not lead the party.

But our Westminster system of government isn't supposed to be solely about leadership. Far from it. It's supposed to be about representative democracy. It is unfortunate that the centralization of executive power has, in the past 50 years distorted that view just about everywhere. (Although in fairness since Joey's day it has probably always been more ledership driven in our province.)

The calibre of members in the House should not depend on whom a leader attracts or does not attract - it should depend on the calibre of representative the voters wish to send to the legislature on their behalf.

Using your own logic for a moment, how could the great Danny Williams be responsible for attracting the likes of Ross Wiseman, Ray Hunter, et al.? Bright lights, indeed.

Ed Hollett said...

Another solid point, Mark.

You will see the Fan Clubbers often resort to the excuse that DW is having a hard time because he is surrounded by all of this supposed deadweight.

Well, that's the deadweight he picked, he recruited, he helped to elect and then he promoted in to cabinet.

But ultimately the voters get to pick who they send to represent them. until they figure that out and reject the whole idea of needing a vote on the winning side, then they will keep generating things like Sprung and now Abitibi.

George said...

You may be right Ed...
It's just that someone up there should have seen this one coming with the fiscal irrsponsibility in Europe, and the way they're doing it here, it just makes you wonder who they modeled themselves after. And with futures pricing showing crude (WTI) at $68 for the time being, then this province is headed for a whole lot of trouble for being too oil dependent!
Funny.... I sw a collapse coming but, just like the little Danish fella with his finger in the dike, no one was listening. I'm just curious where they got the advice that WTI would average $83 US for the year, and how much they paid for that advice...lol
The Tories should have their own network..."CJPC"..."Money well wasted!"...

Ed Hollett said...

George;

If you go way back to 2003/04 you started to see the first signs of a belief among the current crowd that they were special. The rules didn't apply to them. They knew it all and knew it better. if they said it, then magic would happen.

So basically, even if you could show that the Europeans or the Americans did exactly to a tee what the current crowd were doing on every level and the other guys wound up in a disaster, they current crowd would just rationalise it away.

I think I posted it at least once. They look at the old joke: "Rule 1 the boss is always right. Rule 2 if the boss is wrong see Rule 1" and they don't get the joke.

Everything is rationalised. Everything is re-imagined and evidence to the contrary is denied out of existence. And what can't be denied or rationalised is blamed on some gigantic foreign conspiracy. It is government by complete delusion.

People are starting to see that with Abitibi, especially if they look at what happened and then what the current crowd claim happened.

The problms will start to come when:

a. there is a viable alternative, and/or
b. people start to look at other stuff and realise some of that was shagged up like Abitibi as well.

Wm. Murphy said...

Great points Ed...lets all hug shall we

... are based on huge assumptions, the biggest one being that both Yvonne and the Old Man will be leading their respective parties.

These assumptions are not that big. Eddie name another person that has put their name forward besides Yvonne??
Show me something soild that DW is NOT running in the next election. There is nothing except your wish and others that he is not running.

@ Mark

You are correct when you say that our Westminster system of government isn't supposed to be solely about leadership. 100% correct howevr that is not the way it is in NL. Danny's leadership, or perceived leadership trumps all what is supposed to be ion Poli Sci 101

The calibre of members in the House should not depend on whom a leader attracts or does not attract

couldn't agree more..but since 2003 it has. More bufoonjs has rode in on the coat tails of Danny. It is not a new thing as history will show that a few mental giants also came in on the tails of Clyde and Tobin. This is not new. Whether it is good or bad, the same will not be said that Yvonne will attract coat tail ahngers if elected. Sure the Westminister model will be intact, but the number of seats that the Libs will win as a result will be zero.

No matter how much you moan and sqirm Eddie... our politic's are about Leadership or the lack of it.

and this telling quote...

But ultimately the voters get to pick who they send to represent them. until they figure that out and reject the whole idea of needing a vote on the winning side

...certainly says to me that you have already given up the fight that the Libs will not be on the winning side next election.

Because Eddie the voters will not figure things out until they get a credible candidate to LEAD the province. And from my vantage..there is no shining light ready to come forawrd. Maybe there is from your vantage point..but not mine

Ed Hollett said...

Murph:

When you can show evidence you predicted Danny's heart problems, I'll accept your string of assumptions none of which are valid.

Meanwhile, you are simply spouting the same unsubstantiated crap as usual. Just because you insist on something, imagine meanings for things and do whatever else it takes to keep pumping the same baseless conclusions doesn't make any of it real.

Wm. Murphy said...

Great points Ed.

When you are finished gushing over your comments...why don't you let the readers know what points are unsubstantiated crap

Ed Hollett said...

As I think we've established before, Murph it's pretty much all a gloc from your explanation of voting behaviour to your assumption about which two people will be in your fantasy "leadership" match-up.

Wm. Murphy said...

to your assumption about which two people will be in your fantasy "leadership" match-up.

Now that's funny Gryph.

Because I did a quick check outside the door and we have Yvonne Jones as the only leadership candidate declared for the Lib's September convention and when I checked out the back door, we have Danny Willaiams telling us all that he has every intention of running in the next provincial election.

How 'bout those assumptions?

Ed Hollett said...

And no one knew Danny had a bum ticker until someone ratted him out to NTV and no one knew about the Abitibi mill fiasco until the story dribbled out.

You assume that everything in the future will be as it is today.

Shit happens.

Things change.

With your love affair with assumptions, you could be a highly successful economist.

Wm. Murphy said...

You assume that everything in the future will be as it is today.

Okay let's define future shall we...,, I am assuming that the future is up until the next prov general election. Maybe your future is based on where the mighty Gryphon roams..

So now that we have defined the future... I am assuming that things will remain the same as it relates to who will be leading the Libs and Cons in 2012.

How 'bout that for shit happening!!

Ed Hollett said...

Well all you did is confirm, as you have contended all along, that you hold the next 18 months to be exactly the same as things are now.

And, as I have said countless times before, your assumptions are faulty.

As history shows, lots of unexpected things can happen in a time span shorter than the one between now and the next election in this province.

So far you are batting nil for how many tries?

Why not have a go at your voting behaviour theory next. Please restate it again because I think we forgot your assumption about everyone voting for "leadership".

Wm. Murphy said...

okay Eddie I'll dance with you some more....

that you hold the next 18 months to be exactly the same as things are now.


THINGS....the only thing that I mentioned was that Yvonne and Danny will be leaders the next time around. How you can mention that this assumption is wrong is hogwash...unless you have some deep dark secrets on the coming and goings on the 8th and 5th.

if you mean things such as continued fuck ups, policy vacumns and ineffectual leadership (both sides) then absolutely, there will be an abudance of change.

So Eddie, my assumptions are just as worthy as yours.

and just to let you know... I have read a couple of history books and have also read that 18 months is a long time for change to take place. Until and unless something else tells me different we will have the same leadership in 18 months.
Please prove me wrong because the two people that are leaders are both incompetent and useless. Change would be a wonderful thing

Ed Hollett said...

Well, if you've actually been reading my stuff, as opposed to just randomly dropping in now and again to spout off, then you'd understand the reasons why I think that - for example - the Old Man is not likely to stick around much longer.

In general, though, I know that plenty of things can change the political dynamics between now and October 2011 such that any forecasts of "The Tories will win and the Liberals will lose" is basically bullshit of the highest order.

Even if it is based on the leader assumptions you make (Yvonne and Danny), there is no guarantee that the choice facing people in October 2011 will be as simplistic (facile is a better word) as you describe it.

And basically that brings us to the second problem (of many) with your argument, namely that it complete ignores the actual basis on which people vote.

Simply put: there is absolutely no evidence at all anywhere to support your contention that voting takes place in the sort of cage match, monolithic, single issue way you present.

So unless you can actually come with something other than hot air, Murph, you are still dancing skating and otherwise flinging yourself about all over the place in support of a completely useless argument.

Wm. Murphy said...

"Well, if you've actually been reading my stuff, as opposed to just randomly dropping in now and again to spout off, then you'd understand..."

Just like those who randomly drop by other blogs (that they don't read, don't visit, don't like)...spouting off and blowing hot air.

I know what you mean

Ed Hollett said...

An interesting observation in light of your recent attack of curiously familiar bad spelling.

Unless you had access to a blog's stat counter or traffic tracker you'd never know what I read regularly.

In any event, what blogs I read doesn't make your earlier crap about leadership any less crappy.