16 January 2014

The Vibrant Unsustainable Super Energy Debt Warehouse #nlpoli

The Conservatives used to say that Newfoundland and Labrador was eastern North America’s energy warehouse.  Once Danny Williams ran for the hills and left Kathy Dunderdale in charge, she kicked everything up a notch.

Energy warehouse was too plain for Kathy, whose party ran on the slogan “New Energy” in the 2011 general election.

With Kathy running the place, it became a super warehouse.  “We are an energy super warehouse,” said Kathy countless times. 

The New Energy Party even clipped this bit of Kathy from the House of Assembly for its website back in 2011:

Mr. Speaker, this Province is an energy super warehouse. We have what the world wants. We will bring it to market. We will supply our own people, Mr. Speaker, and we will earn from those resources for generations to come.

“We will supply our own people, Mr. Speaker.”

And yet Dunderdale’s government-owned energy monopoly  cannot guarantee they can keep the heat and lights on in the energy super-warehouse in the winter months.

Maybe they said energy when what they meant to say was bullshit.

We are a bullshit super warehouse.

We are an energy super warehouse.

Only one of those sentences is true.

Tom Marshall might be able to help you figure out which one is true and which one is… well… not.

Tom Marshall is the province’s finance minister.

He’s had the job on and off for most of the past decade.

On Monday, he issued a news release titled “Strong Fiscal Management;  Responsible Decisions”. 

In the release, Tom said that “we have made significant progress in reducing [public] debt”.  He said that the government has a “record of effective fiscal management.”

The public debt – the total liabilities - is actually the same as it was when Tom and his friends took over the government in 2003.  It’s around $11 billion. By some measures it was and is $13 billion.  Less really means more, as it turns out.

In his claim about reducing public debt Tom also forgot to mention the $8.0 billion for Muskrat Falls.  The provincial government will borrow all of the money for the project either directly or through Nalcor.

We say $8.0  billion because that is the best guess for how much the thing will cost.  The dam and the line to St. John’s has already gone up a billion dollars since December 2012 and that’s on top of the $1.2 billion the project jumped from when it was first announced.

Let Tom have his net debt fallacy for a second.  With Muskrat Falls on top of everything, then public debt cannot be anything but higher than it was at any point ever in the history of Newfoundland and Labrador.  Tom says that making the public debt $8 billion higher than it was in 2003 is “significant progress” in making public debt less than it was.

Tom has never been one to let facts furrow his brow.

Nor is Tom one to rest on his laurels.  He told the Telegram that he plans to overspend again in 2014.  The difference between 2014 and any other year is that Tom has run out of oil cash to spend.  Now he will have to borrow money to pay for his unsustainable level of public spending. That will mean – inevitably, unquestionably, undeniably – that the public debt will grow. 

The Telegram story ended with a lovely quote:

“Because they have this income and because for four years in a row we lowered income taxes, people have got high disposable income, and they’re spending. So all our numbers are great,” he said.

All our numbers are great.  Well, not really, but that’s trifling.  Tom obviously understands very well what Susan Delacourt pointed out in her recent book Shopping for votes.  Consumer spending has accounted for 60 to 70 percent of American gross domestic product since 1980.  In Canada, it’s been more like 52 to 58 percent nationally. 

“So when politicians say that they are focused on the economy,” Delacourt writes, “what they often mean is that they are focused on getting Canadians to buy stuff.”

You can get a sense of the role consumers play in the local economy by looking at where Tom gets his money from.  The biggest single source is oil royalties at around $2.0 billion according to the 2013 Estimates.  The second is personal income tax ($1.1 billion).  The third is sales tax ($1.0 billion) All the rest are a tenth of that or less.

The provincial government is the largest employer in the province.  The Conservatives inflated the number of people on the public payroll and gave everyone generous raises. 

Now go back to Tom’s comments:  People have a high disposable income.  They are spending it. Therefore, all the government’s income numbers are good.

“I’m generally pleased with the state of the economy,” said Tom to the Telly, “especially given the fragility of what’s going on out there in the world economy.”

Fragility. 

That’s a word Tom knows.  A few years ago, Tom complained about how fragile the provincial economy was when people were uncertain.  He knew, as well, how heavily dependent the government was on oil either directly through royalties or indirectly, and how the economy has grown heavily dependent on oil money either directly or through all that unsustainable government spending and consumer spending. 

Tom said “fragile” in 2010.  The previous September, the people of Newfoundland and Labrador heard the Premier, the finance minister and a couple of others admit the provincial government was overspending. The year after, in early 2011, Tom was complaining that there wasn’t enough economic investment in the province beyond lots of government spending.

The underlying tale of the last decade remains the decline of the private sector economy and the parallel growth of the provincial role in the economy as an unsustainable replacement. 

If we believe the current provincial administration, Newfoundland and Labrador is an energy super warehouse where rolling blackouts may become the new normal. (It is not a crisis)   It is a “have” province with so much money rolling in that the government must borrow and increase the public debt to keep everything running while the finance minister claims debt is going down.

The provincial government spending makes the finance minister happy in the short term.  The numbers are boffo.  But at the same time, Tom understands  - how can he not understand?  - that the fragility of the international economy, as he calls it, also makes his main source of income  - the stuff he uses to drive the local economy - go up and down in ways he cannot control.

Cannot control vibrantly, of course.

-srbp-

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