“Muskrat Falls is a project that will not impact net debt by a single dollar,” finance minister Tom Marshall said in a provincial government news release.
Unfortunately for taxpayers, they won’t pay the net debt. That’s an accountant’s calculation of what the provincial government owes less any assets they could theoretically sell off if they had to clew up business in a hurry.
What taxpayers will have to contend with is the total liabilities and Tom plans to make those liabilities get a whole lot bigger than they are today. On the day that Tom Marshall predicted that his current budget will have a deficit three times what he forecast in the spring, Marshall also forecast billions more in borrowing to pay for Muskrat Falls and to pay for the government’s day-to-day expenses.
You’d think that a finance minister would understand that.
Evidently, Tom Marshall doesn’t.
Either that or he thinks the rest of us are so stupid that they would accept his ridiculous comments as if they were true.
Things are Really Bad: The Tale of Two Deficits
By now, most of you will have heard about Marshall’s “mid-year” fiscal update:
The projected budget deficit for 2012-13 is now expected to be $725.8 million as compared to the projected deficit of $258.4 million at the release of Budget 2012.
That’s on accrual basis.
Marshall delivered the operating budget on a completely different basis, as usual. The Estimates forecast a cash deficit of $1.095 billion back in April.
There’s no word on the current cash shortfall will be, but we can get an idea of what the number could be if we look at some of the information in the “mid-year” statement. (in millions of current Cdn $)
| Oil royalties | - 436.3 |
| Mining royalties | - 113.5 |
| Corporate income tax | - 47.1 |
| Personal income tax | + 91.1 |
Marshall reported expenses would only be lower than budgeted by about $20 million.
An Epic Financial Mess
If these numbers turn out to be real, then they would represent, without doubt, the worst budget performance in the province’s dubious financial history.
Covering off the anticipated cash shortfall without borrowing from external sources like a bank would probably drain the $1.4 billion in cash the provincial government has on-hand. Next year, the provincial government would have to borrow and borrow more in years after that.
And then there would be the lay-offs and other cuts to the public service. Here’s a chunk of CBC’s online story:
Marshall said unions should be aware that in times of falling revenues, the government must exercise restraint.
"When revenues are lower, then we're going to have to review the size of the civil service," he said. "We will have to streamline it and we will have to right size it."
That works out. Since Marshall made the government “wrong-sized”, by his own logic, he should know how to fix the problem.
But It’s A Wonderful Life
In his news conference and later in the House of Assembly, Marshall blamed the financial problems on global economic problems.
At the same time, Marshall talked up the wonderful state of the local economy. Here’s part of what he said during Question Period:
Mr. Speaker, the economy of this Province remains strong. It is strong right now and it is going to continue to be strong. We have capital investment the highest in our history. The rate of growth is highest in the country. It is driving employment. Employment is higher. There is a new record in employment and the people are getting higher wages.
Average weekly wages in this Province are now the highest they have ever been. For the first time in our history, they are higher than the Canadian average. Mr. Speaker, that is leading to business confidence and consumer confidence. We are seeing it in retail sales, we are seeing it car sales, and we are seeing it in new records in car sales and housing stats that are the highest in our history.
The economy is strong and confidence is strong. Unfortunately, we have a fiscal problem caused by the slowdown in the world global economy.
The Fragile Economy
Bear in mind two things when you read that.
First, the Newfoundland and Labrador economy is driven by exports into that global economy that Marshall blames for the problems this year. If that global economy keeps on staggering along for a while, those things that drove down commodity prices this year will continue to depress the provincial economy.
All that wonderful today is a carryover from wonderful globally before. Some of it will continue, like Hebron, for example, but lots of it could change as it did in 2008/2009. Some of you might not remember but those were the years when Danny and Tom claimed we lived in a magic bubble that protected us from bad things. As it turned out, we didn’t.
Second, the provincial economy is heavily dependent on provincial government spending that comes predominantly from the money the government gets from oil and minerals. The economy is more dependent on the government now than it was a dozen years ago.
So when Tom Marshall starts talking about cuts government spending, he is pretty much guaranteeing that all that stuff about a strong local economy won’t be lasting much longer.
Deja Vue All Over Again
Once you get over the shock of a deficit that trebled in the space of a year, you will actually realize that all this stuff is really familiar.
<snap fingers> Of course! </snap>
We heard it last winter and spring from Kathy Dunderdale and Tom Marshall. And then when the budget finally did show up, all the cuts didn’t.
<snap fingers> And of course again! </snap>
The fiscal update turned out to be missing some details. A huge deficit they forecast turned out to be a surplus.
Say what, dude?
Tom didn’t mention a few things in his update, like the fact that they budgeted capital spending of more than a billion dollars but wound up spending only half that. Poof. Instant surplus.
And then there were the revenues that that went up instead of down.
But could they do that again?
Well, of course.
The 2012 budget includes over $600 million for Muskrat Falls. They transferred about $45 million already but whatever is left to be transferred - most of it? - is on hold. Natural resources minister Jerome Kennedy said that the other day:
I can tell the member opposite that no further monies have been released from my department until a decision on sanction is made.
That could be several hundred million right there.
According to the Thursday update, both personal income and retail sales are up over forecast. They are listed among general economic indicators on page two of the update, but these are a bit different compared to population and capital investment. Personal income tax is up almost $100 million over forecast, according to the update.
But what about retail sales tax? That’s a good question. If you try to add up the numbers in the Thursday update and match the ones in the text with the ones in the tables you will find that they don’t.
Match, that is.
There’s a small discrepancy of about nine or 10 million. That could be the amount right there, but Marshall’s budget update doesn’t actually include a bunch of numbers that would tell us more precisely what is going to show up in the spring.
Suck and Blow
Tom Marshall’s financial update contained the same internal contradictions that we have seen from Marshall and other ministers over the past year or so. There’s a problem but the economy is great, according to Marshall
It’s like last year’s game of cuts and no cuts.
Sanction is going ahead. And then sanction is delayed and then sanction is going ahead.
And all of it is like the fundamental contradictions in provincial financial policy: they claim they’ve cut the public debt to something less than $9 billion when it’s actually up around $11 or $12 billion. Tom Marshall believes that adding debt won’t actually add debt.
Then there’s unsustainable public spending. Danny Williams and Kathy Dunderdale say the provincial government is spending too much money. They say they will do something about it.
They’ve been saying that since 2009.
And they have yet to do anything about it.
-srbp-
