23 January 2012

Muskrat Falls and debt: some quick points #nlpoli #cdnpoli

There are some big misconceptions out there as a result of the way people in government talk about debt. That has implications for any discussion of Muskrat Falls.  Here are some quick comments, coming in part as a result of Tory MHA Paul Lane’s call to Open Line Monday morning.

The gross public debt in March 2010 (the most recent year for which we have audited figures) was $12.56 billion. It’s not likely to be significantly below that number today.  That's the sum total of everything owed by the public either directly through the provincial government or indirectly through corporations like Nalcor.

Net debt. People like to toss around the term net debt.  It’s an accounting term and basically represents all the liabilities less any cash or other assets on hand.  If you follow that link from the 2010 auditor general’s report you will see the provincial government had about $4.0 billion in cash laying around.

One way to look at net debt is to think of it as what your debt would be if you had to shut down tomorrow.  You could take the cash on hand and pay down your total liabilities by that amount.  What’s left is what you’d have to deal with.

But here’s something to bear in mind.  When you figure out what you have to pay every year to service the debt (principle and interest), you are working on the basis of what you owe.

What we owe is $12.5 billion or something pretty close to that, not $8.0 billion.

Muskrat Falls:  No matter how you slice it, Muskrat will show up on the public accounts as part of the debt we all collectively owe through government.

To say it is stand alone or separate from everything, as Paul Lane did on Monday, is just misleading.

To say it’s no problem because that there will be money to cover it through electricity rates is also misleading.

The revenue for Muskrat Falls rates won’t be coming from Nova Scotia, Quebec, Ontario or anywhere else.  Under the current plan, It will come entirely from Corner Brook, Quirpon and Carrick Drive.

If government and Nalcor have to borrow $5.0 billion to finance the project, then you can add that to the public debt.  If there’s cash coming in to pay the annual costs, then it won’t be so much of a problem.

But it will still show up on the books as debt.

And the same people are liable for it either way.

Finance minister Tom Marshall told Open Line on Friday that he wants to list the generating plant and lines as assets so the provincial government’s net debt will remain the same.

He can take that up with his accountants.  It doesn’t change what the taxpayers must pay off.  And until the project starts bringing in money, the public debt will climb according to how much gets borrowed.  The money for that annual debt servicing payment will have to come from somewhere, as well.

You can’t escape debt.

- srbp -