Halfway through its fiscal year, the provincial government apparently expects a deficit - presumably on current account - of about $60 million. The shortfall is apparently due to the production shutdown at Terra Nova being longer than planned. The floating production and storage offloading ship (FPSO) was due to be out of service for three months; that turned into six months.
[Left: Finance minister Loyola Sullivan grimaces during last November's mid-year financial update. Photo: Greg Locke.] Cochrane noted that there is a possibility this projection will disappear since the provincial budget was based on assumption that oil prices would run at an average of US $55 per barrel. It is current trading at US$56 but has been considerably higher than that for most of the year.
The most striking thing about Cochrane's figure is that it is low. A $60 million shortfall is nothing for the Newfoundland and Labrador government. It is nothing in the context of a budget that calls for spending $5.3 billion. That's a 1% variance.
Whoopee ding.
The figure is also low when one considers the problems and setbacks in the economy:
- Terra Nova: In June, Sullivan predicted the anticipated downtime would cost the province $200 million in deferred revenue. It isn't really a loss since the oil that would have been pumped in June will be pumped later at whatever the price is at the time.
- Stephenville: The budget obviously took into account the loss of jobs and business taxes resulting from the closure.
- No Hebron. The provincial budget was decided around the time the negotiations were in their last stages. There doesn't appear to have been any allowance for Hebron but the financial picture would have been considerably rosier if Hebron was underway.
- Fishery fiasco: The fishery is in the slings. Exports are down and Fishery Products International's processing facilities are not working, or certainly aren't working at capacity. That means there is a measurable difference in government revenue from people collecting employment insurance who ordinarily would collecting a paycheque.
Cochrane attributed the small deficit to oil and that's the surest thing anyone can say. The provincial government is raking in so much money from oil exports that it really doesn't need to blink over a mere $60.
[Right: Provincial budget officials rework spending and revenue projections for the FY 2006 during a recent lunch meeting in the West Block cafeteria. Calculations later showed the deficit would be about $100.]To be frank, though, given Sullivan's horrendous record of budget predictions this $60 million could be a surplus 10 times larger than his projected shortfall.
Sullivan projected a $6 million surplus when he tabled the budget last spring. The year before he wound up with a surplus $76.2 million in Fiscal Year 2005 having predicted a deficit of $492 million.
But wait, that really isn't what happened either.
The so-called cash statement released in August, showed the government's performance in handling its annual operating budget: the current and capital spending. That figure is the one to notice since it reflects the actual annual performance of government itself.
The numbers Sullivan usually bandies around are accrual numbers and contain all manner of debts and theoretical liabilities. The "cash" statements, usually released in November as part of the audited public accounts were released in August during the poll-goosing period since they purported showed the provincial government had a modest surplus of sixty-odd million more than projected.
But even that wasn't a straightforward statement of the cash performance. Sullivan's Budget 2006 showed that capital and current accounts were in deficit by about $62 million.
By August, the revised figures showed the provincial government finished FY 2005 (year end 31 March 2006) with a surplus of...wait for it...
$524 million.
That's right and it's there in black and white on page three. Now Sullivan doesn't call it a surplus; instead it's a cash "contribution".
But it's there.
Those variations are matched by every single budget Sullivan has introduced. He has predicted horrendous deficits in some years and wound up in surplus by almost the same amount.
However, 2005 was a record year, even for Sullivan. Incidentally, the current account was in surplus by over $700 million. By the time he accounted for a deficit in the capital account spending, the thing came down to half a billion dollars.
At no point has Sullivan indicated whether that was just a paper surplus, i.e. money budgeted but not spent or if it was real, as in cash he had sitting in the bank to roll over into the current fiscal year.
Fundamentally, Loyola Sullivan's track record as finance minister has been spotty when it comes to predictions. It's also bordering on the deceptive in the way he has switched from talking about "cash" accounts and accrual accounts. He talks about "cash" when he wants good news to goose a poll, for example and even then he very carefully chooses his words - "$60 million more than expected" versus $524 million - so people have a hard time seeing what actually occurred.
But at other times, Sullivan trots out a deficit - on an accrual basis - when he wants to tamp down expectations. Far from being genuinely transparent and accountable, Sullivan engages in the same verbal gymnastics of some of his predecessors, tossing out figures in mesmerising detail to suit his political purposes.
These days Sullivan has to tamp down expectations. Pharmacists are clamouring for more money. Bridges need to be replaced, roads paved and ferries built. If people knew exactly what the financial state of the province was, they might actually expect cabinet to spend some money.
If all that wasn't bad enough, the cabinet has been taking a hammering in its ethical standards with announcement of public money for a private sector cable deal.
And so, despite having announced budget consultations well in advance, Sullivan suddenly postponed them for an "update" and, as one might sometimes expect a leaked set of figures to reporter.
The political goal of the leak and Sullivan's Thursday statement is two-fold.
First, Sullivan wants to shut down demands for spending. It's that simple.
Second, he wants people to start focusing on possible budget cuts, he wants them to keep feeling the province's finances are shaky, so they will stop thinking about the cable controversy. In political circles, that's called wagging the dog or changing the channel.
Fundamentally, though, Sullivan knows that his prediction of a deficit - accompanied with his usual dour delivery - is just a diversion to suit a transitory purpose.
Sullivan knows the true financial picture isn't anything as bad as he says it is.
Sullivan knows his own abysmal record of fiscal accountability better than anyone else.
