A few days ago, Stephen Taylor posted a table from a 2010 study that showed how big Quebec’s public debt is compared to that of countries around the world.
The results weren’t pretty.
A similar comparison for Newfoundland and Labrador isn’t pretty either.
A rough comparison for Newfoundland and Labrador reveals some interesting results. The figures come from the Auditor General and the provincial budget documents for 2009.
The 2008 provincial gross domestic product was $32.5 billion and the provincial gross debt (total liabilities) was $13.4 billion. That gives a debt to GDP figure of 41%. Looks good.
But Newfoundland and Labrador’s economy is heavily dependent on oil. The provincial government’s debt load is vulnerable to changes in oil prices. Just for curiosity, let’s take out the value of oil when we calculate the gross domestic product. Debt will stay the same.
What we are left with is a debt of $13.4 billion and a non-oil GDP of $19.8. That’s a debt to GDP figure of $67.6. Not as extreme as Greece but we are getting up there.
Let’s go one step further and pull out another highly volatile commodity on which the government and the GDP is heavily dependent. Non-oil minerals accounted for $4.7 billion in shipments. Now our debt is $13.4 billion and our non-minerals GDP is $15.1.
The debt is now 89% of the remaining GDP. Feeling a bit more uncomfortable?. You should be.
Don’t take any comfort from the Desjardins study, by the way. If you look at their Table 3, it looks like this province is one of the least indebted provinces in the country. They claim the provincial gross debt to gross domestic product figure for Newfoundland and Labrador is around 30%. As it appears, they confused the provincial gross debt with the net debt figure pushed ou by the provincial government. Big oopsy.
Now there are some differences between the Desjardin comparison and the numbers offered here. Desjardin uses a method used in a comparison study by the Organization for Economic Co-operation and Development. They use gross debt but then remove “net liabilities that are tied to pension funds.” Desjardins also added a share of the federal debt to their gross debt. this gives you the debt load for Quebec as if it was a country.
Let’s do that for Newfoundland and Labrador and see what happens. In 2008, the gross federal debt was $594.39 billion. Newfoundland and Labrador comprises 1.7% of the Canadian population. A really simple calculation gives you another $10.1 billion in debt that Newfoundlanders and Labradorians carry from the federal government.
That last one is likely going to be a bit of a mind-bender for some people. That would be the band of local politicians and their followers who like to pretend Ottawa is nothing more than a cross between a punching bag and a bottomless money pit. That would include, for example, the people who get “fustrated” at the federal government.
Using that calculation of gross debt, then Newfoundlanders and Labradorians owed about $23.6 billion in 2008. That puts the gross debt to GDP number at 72.6% Not as bad as Quebec’s figure in the Desjardin report but nowhere near as rosy as some would believe.
Peel off the oil share of the province’s gross domestic product: debt of $23.6 billion and GDP of $19.8 billion.
119%
That’s worse than Italy.
And if we hauled out non-oil minerals for the same reasons we did that above, then you get a gross debt to GDP figure of 156%. That’s not far off Japan.
Don’t panic. Newfoundland and Labrador is not about to fall into an economic pit tomorrow. This is a rough sketch and even if everything in it were true, the province has lots of time and room to deal with whatever financial problems it has. This is not 1934.
Still, it’s a useful exercise to look at the provincial government’s finances from different angles. For one thing, it helps you to check to see if it matches what the people in authority are telling you. Not surprisingly, it doesn’t.
Things are nowhere near as rosy and golden. What you see is much closer to what the bond rating agencies tell you with the provincial government’s bond rating. It’s the lowest of any province the in the country, slightly below that of Quebec.
The OECD approach also gives us another reminder of our debt responsibilities both federally and provincially. Kathy Dunderdale and the provincial government is responsible to voters in the province just as the federal government is. In her melt-down last week, she was confused. Kathy isn’t responsible for holding the federal government to account. Individual voters do that for themselves. She needs to focus on her own stuff. Those same voters will hold her to account for that.
If you look at public debt in the correct sense, including the federal share, the average Newfoundland or Labradorian has a crushing load to bear. That’s one of the reason why they cannot take lightly the provincial government’s persistent mismanagement of provincial public finances. Two premiers in a row, their finance minister and at least one other minister admit they have have mismanaged our affairs: that’d be the unsustainable public spending thing. On top of that, Newfoundlanders and Labradorians can’t ignore the plan those same mis-managers have to add another $6.6 billion and more to the public debt and without any source of revenue to cover but taxes on the people who are already heavily in debt.
And if you have lost sight of the challenge in there, take a look at the 2011 value of goods and services in the province without oil in it: $22.3 billion.
Take the gross public debt: $13.1 billion.
Add the share of the federal debt each Newfoundlander and Labradorian is also carrying around: still around $10 billion.
Total: $23.1 billion.
Take a deep breath.
Take another one.
Don’t panic.
Just resolve to do something about.
You can start by rejecting the soft soap provincial politicians toss at you about public debt and their financial management achievements.
-srbp-
