14 March 2005

Loyola's Brush: Sullivan signals return to Tobinism

Be afraid.

Be very afraid.

In a CBC Radio story this morning, finance minister Loyola Sullivan, newly stripped by the Premier of his spine - read Flo Delaney, is now warning the people of the province that the government's debt will continue to spiral unchecked under the Progressive Conservatives.

Sullivan is warning that the government's accrual deficit (the difference between revenue and spending) will hover around $500 million for each of the next three years. That adds another $1.5 billion to the province's debt and will eat up every single nickel of the money so lavishly worshipped in the recent Valentine's Day offshore deal celebrations.

Holy Cow.

Think about it this way:

- Sullivan predicted last year that the cash shortfall would be almost $400 million this year alone, with an all-inclusive deficit of a little over $900 million.

- Through a combination of spending restraint, economic growth and windfalls from increased oil prices, the provincial government is expected to post a modest surplus on a cash basis this year. The only thing seriously out of whack in the provincial government's budget will remain the unfunded pension liabilities found chiefly in the teacher's pension fund.

That represents a changed cash flow of almost $700 million, seemingly the largest error in provincial government budget calculations in more than 15 years.

- These huge deficits are projected to come at a time when oil revenues will hit their peak - almost $1.0 billion by some projections - and at a time when the new oil deal will continue to ship federal transfers to the province.

- These huge deficits will occur despite added revenues from White Rose and Voisey's Bay, both of which come on stream within the next three years. The deficits will occur despite the likelihood Hebron Ben Nevis will start swelling government coffers before the decade is out.

In other words:

despite massive record-setting increases in the provincial government record-high revenue - even without the extra $2.0 billion from Ottawa - Loyola Sullivan is warning that we will continue to run record deficits and add to our already record-high debt load.

Sullivan's comments today signal an end to the restraint program announced last year in the Premier's hideous January 5 speech. A seeming long-term program to sort out the provincial government's eternal fiscal problems has been abandoned at the end of Year One.

Instead, there seems to be a return to Tobinesque spending on short-term projects designed primarily to boost the government's (read the Premier's) political popularity.

It sounds like the provincial government isn't going to expend a single penny on fighting the unfunded pension liabilities. Government could set aside an amount from the oil money in a pension fund which would progressively reduce the unfunded liability, even if it did not wipe it out altogether and even in the absence of an agreement with teachers. Make no mistake though teachers are going to have to ante up and help fix their pension problems. Danny Williams should be applying his considerable power to tackling those labour problems, as unpopular as that may make him.

That would be a start and would lower the projected deficit without consuming all the new money flowing.

This is unthinkable.

If Loyola Sullivan wants to be truly accountable, he would release some detailed financial projections with his new budget. We need to see all the figures he has access to. We need to see the basis on which government is making its projections. Then, during his next round of budget "consultations", he might get a rude shock.

The "consultations" might actual contain some concrete directions from his real boss - the voters - as to what he should be doing in order to keep his job.

If Loyola thinks people turned on Brian Tobin after they'd had a good look at thim, wait 'til they get a hard look at a bunch of guys that have more money than anybody else running the place ever had and still manage to spend more and more and more besides.