14 March 2005

Loyola Sullivan's Credibility Gap: Welcome to the Grand Canyon

It is possible the CBC story actually misquotes Loyola, but I don't think so.

Let's compare the claims Loyola makes and compare them to the facts

Claim 1: "Starting with its first budget last March, the Williams government has changed the way it reckons its books.

Last year's projection, for instance, included the cash or current account deficit of $362 million, which traditionally has been the only figure governments have reported as its deficit.

However, the Tories now included all liabilities, including pension deficits."

This is CBC background but it reinforces the general tone of Loyola's comments. These aren't Loyola's errors directly but they increase the errors of Loyola's actual comments by putting them in a false context.

Fact: The provincial government switched to accrual accounting two fiscal years before the Williams administration took office. Those projections included all liabilities, including pension deficits.

Fact: There was nothing new in last year's budget figures.

Fact: The $362 million cash shortfall Loyola predicted was wiped out by economic growth including oil price windfalls.

Fact: The 2004 accrual deficit will be closer to $500 million, almost half the amount projected in March 2004.

Claim 2: "Sullivan says it would be impossible to balance the budget in the next three to four years without deep cuts to government spending.

Instead, he expects the deficit to hover at around $500 million for at least a few more years."

Fact: Provincial government revenues will increase annually for the foreseeable future.

Fact: The provincial government's own projections show oil revenues in Fiscal Year 2006 will be at least $600 million. That's three times current annual revenues.

Therefore, it should be possible to balance the province's books on an accrual basis without "massive cuts" to spending.

Claim 3: "That could change, he says, if oil prices soar and government revenues increase.

However, Sullivan says the debt will continue to grow, no matter what happens."

Fact: the ONLY way that the debt will continue to grow despite revenue increases will be if the provincial government fails to address the deficit and debt as it pledged in the Blue Print AND it increases spending in the meantime.

Fact: Oil prices are expected to remain at high levels, therefore increasing provincial government revenues beyond the projections used in the first six months of 2004.

Fact: The federal government has already announced increases to federal transfers in addition to the January offshore deal.

Fact: Voisey's Bay and White Rose will begin production within the next three years increasing government revenues by hundreds of millions of dollars annually.

Fact: Hebron-Ben Nevis will likely be brought onstream before 2010, further increasing government revenue. Development spending will increase government revenue before the field comes on stream.

Claim 4: "In particular, he says the government needs to spend money on infrastructure to help the economy and to boost government revenue."

Fact: There is a need to spend money on infrastructure like roads and schools.

Fact: This spending is designed to correct previous neglect, not to help the economy. The economy is thriving largely due to resource developments that are not dependent on infrastructure spending.

Fact: Government spending on infrastructure will not boost government revenues. [Let's allow that this sentence is an error by the CBC webpage writer. Maybe the increased government revenues is something else the government needs to do besides spend on infrastructure. As anyone can see, though, government revenues will increase anyway.]