28 March 2013

Budget downs and ups #nlpoli

Earlier this year, our government projected a deficit for 2013-14 of $1.6 billion. 
We are now forecasting that the deficit has been significantly reduced to $563.8 million – a billion-dollar improvement to our bottom line.
That’s the way finance minister Jerome Kennedy started the 2013 budget speech in the House of Assembly on Tuesday.  He said the dramatic change to two factors:  more money coming in and “deliberate actions” by government to “rein in spending.”

One Telegram story on the 2013 budget ran with the idea of extra cash:  “Unexpected oil revenues help with deficit”.  Eight million extra barrels of oil production will bring in $265.5 million in new cash.

A CBC online story said the billion dollars came from two places:
Just over $301 million of the billion-dollar boost over recent projections is attributed to government cuts. Another $696 million came from improved expected revenues for the coming year.
Take away the money the Telegram tallied up and you get about $440 million.  The CBC story said that came from “…royalties or corporate taxes from oil and mining.”  Another news report added in a windfall in HST money from Ottawa.

All sounds wonderful.

The only problem is that the whole story doesn’t add up.

First, no one ever saw the details of the original forecast of a $1.6 billion shortfall.  We don't know what assumptions someone in the finance department used to come up with it.  We also don’t know if it was a realistic option or a worst-case scenario.

Aside from a drop in oil production, what Kennedy told pre-budget “consultation” audiences could hardly be taken seriously.  He blamed most of the supposed shortfall on a loss of federal transfers that the provincial government knew would run out and that actually ran out last year.  One of the great losses  - supposedly - was Equalization, which the province stopped receiving almost four years ago.

Second,  there’s Kennedy’s account to Anthony Germain of how the oil money turned up.  Supposedly there was an unspecified “anomaly” in the CNLOPB projections.  By some unknown process, the board officials turned up a few million barrels. Then later on newly appointed chief executive Scott Tessier turns up and announces that he has found another few million barrels.  Maybe Scott found it in a drawer in Mmax Ruelokke’s old desk underneath some spare note pads and a half-used box of Tic Tacs.

Kennedy’s version sounds rather contrived.  After all, these are projections, not guaranteed numbers.

The thing really takes on a “no shit, Anthony,  this is what really happened, swear to God, on my sainted mother’s eyes, no my fingers aren’t crossed behind my back” quality when Jerome’s voice starts climbing up in pitch and he talks about the amazing volatility of oil projections.  Maybe if Jerome waited a week or two the boys could find enough spare oil projections laying around to kill off the rest of the deficit and make the layoffs unnecessary.

Third, the budget itself doesn’t contain any evidence of any of the claims about extra money.  Corporate income tax and mining royalties are substantially below last year’s numbers and federal transfers are about on par in the Estimates.  In order for these things to make up $440 million, that initial deficit estimate looks like it would have had zeros in some of those headings.

Don’t think so.

In the accrual numbers used in the budget speech, estimated revenue for 2013 is the same as the actual revenue for 2012 plus about $20 million.  Corporate tax goes down but, unlike the cash budget, mining royalties go up. There’s an extra $60 million or so in federal transfers but total revenue actually goes down in the accrual budget tables.

Then there’s the $300 million in cuts and layoffs.

No sign of it anywhere.

The budget numbers on an accrual basis show no decreases in spending.  To the contrary, total spending for 2013 is forecast to be almost $200 million more than the 2012 actuals with a deficit of about $500 million. In the Estimates, the cash budget shows a spending increase of $500 million and a deficit of about $1.0 billion.

A revenue drop of $1.6 billion is big.  Even if you allow for a deficit of between $400 and $500 million two years in a row, you’d still have to come up with a combination of new income and cuts that make up that other cash. You’d expect to see that reflected in the budget documents somehow.

But the budget shows revenues about on par or slightly less than last year and a significant increase in spending for  2013.

Something doesn’t add up.