20 June 2012

Premature Budget Panic #nlpoli

Premier Kathy Dunderdale didn’t bring up crude oil prices at a scrum  after her speech to the offshore industry association.  Reporters did. [Link: CBC story and scrum video]

No harm.  No foul.  That’s the way these things work.

She accepted the way the reporters framed questions and went into her usual rant about fiscal responsibility and saying “no” and all that.  She repeated the old Tory lie   - and it is a lie - about the provincial government being bankrupt in 2003.

Not surprisingly, some media picked up on Dunderdale’s line about

"We are watching very carefully, and our deficit may end up at the end of the year larger than we forecasted .… We are keeping a very tight grip on the purse strings at the moment in terms of sanctioning spending that we announced in the budget,…”

No one should panic just yet.

Oil is trading at about US$95 a barrel these days.  The budget forecast was that oil would average US$124.Sure oil is way below what the Tories forecast.

The budget Estimates forecast a deficit of $1.06 billion with an estimated oil revenue of $2.22 billion.  If oil held at the current price, they’d wind up about another $500 million or so short on revenue.

The thing is that if we have learned anything over the past few years, it is that the Tories love to present a budget which is largely fictional.  They used to low-ball oil revenues.  As things have changed lately, they’ve taken to hiding money in other places in the budget. 

Last year, they claimed they would spend about $1.2 billion on capital works.  They produced a surplus largely by chopping their actual capital spending to half of what they budgeted.

This year they budgeted for capital spending of $1.5 billion.  They can cut that in half as they did last year and that will make things look a lot better. If you looked through the budget you may well find that they have padded all sorts of other line items way beyond what they are actually likely to spend.

And if worse comes to worst, they always have the cash investments they have from other years.  Sure it is currently earmarked for Muskrat Falls, but that project is looking less and less likely every day.

It’s a bit too soon yet to panic about the 2012 provincial budget.  Check back in September – about half way through the fiscal year – and see what things are like then.