20 September 2012

The Budget and Oil Prices #nlpoli

Just when everyone thought it was safe, a  gigantic Twitter exchange erupted on Wednesday evening between Telegram report James McLeod and Deanny MacDonald, the guy everyone thinks is already the Liberal Party leader .

They wound up discussing oil prices and the provincial government budget, something you’ll find in Macleod’s article in the Thursday Telegram.

MacDonald was slagging the current provincial government for forecasting Brent crude at US$124 a barrel compared to other jurisdictions that forecast oil much lower.  McLeod pointed out that when other jurisdictions – like Alberta  - forecast oil at US$95 a barrel, they were talking about West Texas Intermediate.

MacLeod’s right.  You can’t compare the forecasts for two different types of oil at the best of times.  You really can’t do it when Brent has been selling much higher than WTI these days.

In another comment, MacDonald was right:

huge difference cause govt tells nlers what services to expect and then has to cut back. And can rack up huge deficits.
Overestimate the revenues and you can wind up getting into financial trouble.

But neither MacLeod or MacDonald got to the point about how the government puts its budget together. 
In any given year, the provincial government has to look at all its sources of incomes.  Oil is about 30% of the cash coming in these days. They’ve also got to look at retail sales tax, corporate taxes and the like.

The finance department will look at all sorts of information about past trends, look at expert forecasts for different parts of the economy, produce its own expert forecasts and then come to a conclusion.

In the past, the provincial finance department was good at predicting revenue down to a percentage point of what actually happened.  Over the past five or six years, the provincial government has been way off in its forecasts. 

This year it looks like the provincial budget will be off by quite a bit.  it appears the major culprit was the oil price they chose. The truth is that isn’t why the budget is screwed up.

The provincial budget will be off in 2012 and got it wrong in recent years too because the provincial cabinet – the politicians  - decided to spend a whole pile of cash for their own short-term political gain. It’s not the first time politicians have done it in this province and it won’t be the last time. 

All that government spending made people love the government during polling season.  In the metro St. John’s region, the government spending did all sorts of great things for all sorts of people.  Some of them profited hugely by skyrocketing house prices, for example. Some of that profit came back to the Tories in the form of political donations. 

Everybody had a good time and the people who had a good time included the business community.  For some strange reason, Deanny thinks these guys have been left out of provincial politics and should get more active.  Go figure.

Most of all, though, all that political love they bought with public money allowed the Tories to pursue their pet projects like building the Lower Churchill without pesky questions from the public.  And to be frank, like pretty well all politicians before him, Danny Williams likely figured he could spend now and leave any mess for someone else to clean up.  That’s if he even thought that far ahead, of course.

The current financial mess the province faces is pretty much as MacDonald describes it.  The bond raters are telling the provincial government to tighten its spending in order to avoid a financial disaster.  The bill for Danny Williams’ free lunch got delivered at last.

What it all boils down to is both simple and distressing:  basically, the provincial government made their budget the way they always have.  That’s the simple bit.

The distressing bit is MacDonald’s contention that the mess comes down to a something as simple as what number the finance department picked for oil.  Here’s what he said to the Board of Trade:
“What really makes me mad is I think it’s just a plug number to balance the budget, which means there’s all sorts of overspending,” he said, saying that Alberta budgeted on a $95 barrel of oil.
MacDonald displays an astonishing lack of basic knowledge about the provincial budget for a guy who wants to run the place. We are not talking intricate details, here. This is pretty basic stuff and MacDonald apparently gets it wrong. If MacDonald really does understand what is going on but choses to spout such a dorky line because he thinks the public will buy it, then it just gets worse.  

We bury the needle on the distress metre when you consider that MacDonald  - some people’s heir-apparent to the Danny mantel as premier - talks about financial problems and mismanagement by the Conservatives at one moment and then backs their ludicrous Muskrat Falls project at the same time. 

Someone who genuine appreciates the provincial government’s tough financial state, who understands the economy, and who understands what needs to be done to sort out the mess can’t back Muskrat Falls at the same time.

And just to really make you shake your head in utter belief,  just recall that both Deanny and Kathy say the same thing in much the same way.

Kathy Dunderdale has said we have to sort out our finances and that Muskrat Falls is a great idea.  So does Deanny. 

Kathy started off a comment recently about her political future with the words “When you take on stewardship…”.Now take a gawk at this quote from MacDonald’s scrum last Friday after the Board of Trade:
“It’s not about partisanship. It’s about good stewardship.”
Scary stuff, iddn’t it?