Premier Kathy Dunderdale’s year-end talking points for 2012 were pretty grim.
As she told CBC’s David Cochrane, the provincial government is facing an enormous deficit. The deficit is the result not of government spending but of the up-and-down nature of the commodities on which government revenues depend.
The result is that government will have to raise taxes or cut jobs or some combination of both in order to cope with the deficit next year.
This should sound awfully familiar to people.
Last winter, she spent three months talking about the deficit, job losses and spending cuts.
In December, though, she warned that public sector employees should expect smaller increases. In January, Dunderdale she talked about a couple of years’ worth of deficits. And by March she was going around in circles on whether or not there was a mess and what she and her cabinet colleagues might do to cope with it.
In the end, the government hired a bunch of people, boosted spending, and made a commitment to deal with the deficit and debt eventually.
Leave aside everything else. The one thing that leaps out about Kathy Dunderdale’s year-end message is a puzzle: why is she talking about financial problems a month earlier than she did last year?
At this point, there is no clear answer. But it is something you need to keep asking yourself. There’s a reason she is talking about financial problems now rather than later.
It’s especially curious given that, as with last year, the government budget contains some areas that could turn an apparent deficit into a surplus. Dunderdale spoke no less fervently last year about the problem as she’s been talking this year.
Let’s Talk about It
One big difference between this year and last year is that last year, Kathy Dunderdale was talking about a couple of years of tight times. As she said in December and implied in January, the provincial government had the cash on hand to power through a couple of years of hard times.
This year, Kathy Dunderdale wants to talk about everything. At about the nine minute mark of the interview David Cochrane, Dunderdale is talking about the need to discuss the province’s financial state with someone – she’s vague on with whom she wants to talk – so that we don’t have to keep having these budget problems.
Interestingly, she glances off camera immediately before she says “have a frank discussion.” Otherwise he eyes are fixed firmly on Cochrane. Who was she looking at?
Odds are good she was looking to one of her handlers. And odds are pretty good as well that the bit she was just getting to was a line that her handlers wanted her to work into her patter
A Curious Perspective
In the Cochrane interview, Dunderdale talks about where government spending goes: health care (37%) , education (19%), and social welfare (13%). Those percentages are from the current budget Estimates.
What’s odd is the way Dunderdale talks about them. These are core government responsibilities - like buying food for your family - that have always been paid out of general taxes to one extent or another since 1949. Yet they don’t bring in any revenues to sustain them, according to Dunderdale. As a result, what the provincial government spends on them is like “putting groceries on a credit card.”
The analogy would be spending beyond your means regularly such that you have to put essentials like groceries on your credit. Dunderdale’s way of looking at these things is just…well… bizarre.
If you listen to the interview two or three times, though, focus on how Dunderdale talks about things. Listen to the way she answers Cochrane’s questions.
Right off the bat she begins by reciting the official talking points on the financial problems. We have a “white hot economy”, Dunderdale says. More people working than ever and making lots of money.
Still and all, the “treasury is suffering.” That’s because we are so dependent on oil and minerals. They are “roller coasterish by their nature” as Dunderdale puts it.
Cochrane rightly challenges her about spending and how the Tories have increased spending over time. That was necessary, says Dunderdale without missing a beat. But still there’s that dependence on oil, which we will get rid of through Muskrat Falls.
He goes back at it again, noting that the government budgeted for more than $2.0 billion in additional debt over the past nine years. Cochrane was rightly pointing at the idea that the government is responsible for what it spends or plans to spend. Dunderdale’s reply is a laundry list of things that don’t deal with the core point: the problems in the fishery, the unfunded pensions liability – something she refers to as part of the “volatility”, the global recession. Thanks to oil – yes, that pesky oil stuff – says Dunderdale the government was able to get through all that.
And then she goes back to the problem when so much of the budget depends on oil and minerals. Let’s just pick this up for a second at around the 5:35 minute part of the interview.
…over one third of your budget completely dependent on oil prices, iron ore prices which are by their very nature volatile and …then you come from a place where there is an infrastructure deficit. Your economic program and your social program are interwoven and we need to drive the economy in the province beyond iron ore and oil and so you need to make investments and that’s what we’ve done.
Cochrane notes that even with oil budgeted at $124 a barrel, government decided to spend a budget with revenues beyond even that. He challenges Dunderdale to explain the thinking behind what has been a consistent pattern of budgeted deficit spending.
“Because that’s a process that’s required,” answered Dunderdale. She then talked about increased salaries for public sector workers and how lately government has cut spending. Cochrane jumps in to point out that the cuts were to the amount of increases.
If you are seeing Dunderdale’s responses as disconnected gibberish, you are getting the point. Her comment about investments, for example was part of a talking point about Muskrat Falls. Dunderdale’s comment about public sector workers was part of a media line to explain the current talk about what we can euphemistically call restraint. We had money, we spent money. We don’t have money we “cut back”.
But the Premier obviously cannot explain in plain English why government did – as Cochrane noted – budget for deficits year after year even when oil prices were high and there was no recession. She is stringing together a series of stock answers.
By 7:30, Cochrane has her talking about cuts or tax increases. When she turns to using the analogy of a family putting its collective resources to cover household expenses in order to live within its means, Cochrane notes – correctly – that government has spent windfalls on core programs.
Dunderdale says she disagrees and talks about net debt reduction. Cochrane then notes – correctly paraphrasing finance minister Tom Marshall – that the cash reserves that are helping create that low net debt will soon be exhausted from covering all these deficits and we will be back to borrowing again.
“But that’s all been taken into account, David.”
Again, it’s pretty clear that the Premier doesn’t really understand what Cochrane is driving at. Either that or she is having trouble finding the appropriate talking point to counter what is essentially government’s stated policy: spend the cash reserves to cover successive deficits and then get back at borrowing for Muskrat falls and pretty much everything else.
It’s at that point Dunderdale gets into the truly whack-a-doodle comment about spending on core programs that do not bring in revenues. Almost half the budget goes into health, education, and welfare she says (it’s actually more like 70%) and if there are cuts we have to cut those things.
Endless Internal Contradictions
Dunderdale relies heavily on prepared talking points to get her through these sorts of interviews. If you listen to one of these interviews more than once, you can hear it. You can get the same sense of her difficulty if you turn off the sound and watch Dunderdale’s face as she tries to answer Cochrane’s question.
She is struggling.
In her struggles, though, you can see that the Premier is apparently unaware of the contradictions within her answers to different questions
The government’s financial problem is not over-spending, it is volatile revenues. We will end the volatility by bringing along Muskrat Falls and its steady revenue.
She does not notice – apparently – that the Muskrat Falls revenue comes only from local taxpayers. Those would be the same local taxpayers who, as she has noted, have tremendous difficulty paying taxes now. Difficulty such that she is not keen on raising taxes If 16% of taxpayers account for 70% or 80% of government tax revenues, as Dunderdale says, then the other 84% are going to have a hard time paying their new tax called Muskrat Falls.
Dunderdale talks about mining development that will come with Muskrat Falls. If she uses revenue from mining to include in her claim of $450 million per year in new revenue that Muskrat Falls brings, then she clearly does not see that those mines will be producing the “commodities” responsible for the “volatility” in current government revenue streams that Muskrat Falls is supposed to fix. It’s still contradictory for Dunderdale to list the billions in development from mines as part of the benefits of a project that supposedly relieves us of relying on commodities.
She complains about mining deals signed decades ago that return very little to the provincial treasury. At the same time, she seems unaware that her Muskrat Falls policy is to have taxpayers who are not getting their due from mining deals subsidise not just the old mines but new ones as well through heavily discounted electricity prices.
At about the 24:00 minute mark of the interview Cochrane hits the Premier with the reference back to last winter and how familiar her dire warnings seem. Not much came of the last dire warning, as Cochrane noted.
Dunderdale’s answer relies on platitudes about talking with unions respectfully and doing ultimately what is in the best interest of the province.
Her colleagues “from coast to coast to coast” are going through the same sorts of things.
People have “legitimate aspirations.”
For Dunderdale and her colleagues, though, one of the fundamental political problems they face this year is the same as the one last year:
The “white hot economy” is driven by government spending built on volatile revenues from oil and minerals that have shown – as many of us warned over the years – that they have an annoying tendency to go down as well as up.
Government spending remains as unsustainable now as it ever was. However, Dunderdale and her colleagues must realize that cuts to government spending will cool off the white hot economy.
Danny didn’t have the balls to deal with the problem when he was Premier. And that brings us to the other part of the Tory problem. Dunderdale puts in long hours, as she told David Cochrane. And as became evident from that part of the interview she doesn’t have anything else on her agenda that she needs to accomplish besides finishing Muskrat Falls.
The last person to talk that way was Danny Williams before he quickly left office in 2010.
Of course, Dunderdale is really just a temporary Premier. It’s going to be hard for her to chop a bunch of things and then leave her successor to cope with the political mess. Or worse, it would be tough for her not to deal with the financial problems and then frig off.
The Perpetual Talking Point Disaster known as Kathy Dunderdale likely won’t go on much longer.