03 December 2013

Could be right. Could be wrong. #nlpoli

If you accept the provincial government’s version of things, spending a half a billion dollars more than you are collecting is a responsible decision.

That’s the headline the government’s communications people put on the news release covering the release of the fall budget update.

And if you look at either the Telegram or the CBC version of the story,  the biggest thing to notice is that the provincial government deficit is $100 million less than originally forecast.

Let’s take a deeper look and see what is there.

Don’t worry.  Be happy.

The most important thing that accompanied the financial update is the signal that with Tom Marshall back in the finance department, tackling the financial mess Marshall created is no longer a priority.

Before he got into the actual statement,  Marshall told reporters at a media briefing that the latest assessment of government spending for 2012 was that the deficit would be way less than anyone had previously said.  The numbers were unofficial, but Marshall mentioned those right off the top because they look really good.

Marshall talked up the great local economy on top of that.  And, as he  told reporters later on in the media briefing, “we don't think there is [sic] going to be cuts of the same magnitude that you saw at budget time last year.” 

Lots of happy news up the front end.  That’s a marked contrast to the tone of the past couple of years. 

So take that as a sign that the two years of crappy polling numbers are driving the Conservatives to abandon their plans for financial reform.  That’s exactly what they did in 2004.

Can we trust what they say?

The second thing to notice is that what Marshall should have done in talking about last year’s performance – to be completely accurate – was remind everyone that Tom Marshall  actually forecast a deficit of $725.8 million in December 2012.  That number miraculously dropped and now has miraculously dropped again.

In other words, we went from a deficit of about $250 million at the start of the 2012 year,  up to $726 million by December, down to $430 by the end of the fiscal year in March.  Now a further eight months beyond that again and the deficit is $198 million.

The problem with giving the full accounting is that it hardly inspires confidence. That wide variation in 2012 is matched by another one within a few short months of the new budget last spring. Recall that at one point, Jerome Kennedy talked about a deficit of $1.6 billion.  Then he delivered a budget with a deficit of about $560 million.

It’s the sort of variation that makes you wonder if anyone in the provincial finance department can actually tell us with any accuracy what is going on at any time. 


Tom Marshall talked about how different things are from 2003.  He should have talked about the changes in how accurate his department’s forecasts are these days.  In December 2003,  Pricewaterhousecoopers released its special review of the province’s finances. One of the comments that stood out was the company’s appraisal of finance department:  it had “demonstrated a superior performance for its economic forecast as compared to major third party forecasters.”

Well, not any more.

And you can doubt the department’s ability to forecast accurately because Tom Marshall said you should.  Around the 25 minute mark of the media briefing (check the CBC story for the video) both Marshall and the deputy minister of finance talk about how the figures they released are estimates and nothing more.  The deputy minister, for example, repeatedly refers to the fact that there are 1,000 people throughout government who make spending decisions. They haven’t necessarily all reported everything yet.

What also makes you suspect the numbers in the financial statement is that they are, to paraphrase the deputy minister, a lot of little things across all departments.  There are a few million dollars in capital projects that aren’t happening, for example.  Overall, spending is supposed to drop by a couple of hundred million.  Income is down, as well, by about $100 million.  For a government with a record of getting its numbers wrong, they are claiming that this year’s numbers are actually pretty close to spot on.  That just doesn’t add up.

Balancing the books

That’s another aspect of update that makes it look more like political statements than honest financial ones.  Take the capital works one, for example.  Less than $200 million off, if you believe the official account.

The thing is that last year, the provincial government could only do about half the capital works that turned up in the budget for that year. That was the same as the year before that.  Odds are good, therefore, that they will be off on the current budget projections by the same order of magnitude.  Budget $1.3 billion.  Actually do about $650 to $700 million.

That sort of change in cash flow would go a long way to balancing the books on an accrual basis, which is what the financial statement was talking about.  On a cash basis, they might still be short, which is what you saw last year.

Put it all together, though and about the only thing you can reliably take away from the government’s fall financial statement is that it really is a bit of a pantomime farce.  We might have a better idea of what is going on next spring.