30 December 2013

The 2013 SRBP Themes (Part 1) #nlpoli

The end of the calendar always brings the string of Best of, Top 10, and any other kind of year in review piece.  In the conventional media it’s the season of the interview with leading politicians.

At SRBP this year we did a Top 13 for ‘13 list.  It just ran through all the posts and pages that attracted the largest number of readers during the year.

You get a bit of a different picture of the year when you go through the posts month by month to see what turns up.  Patterns emerge that aren’t as readily apparent when you are reading them – or writing them – daily.

Public Finance

We started the year talking about the way the provincial government was spending public money.  The Premier, the finance minister, and government consultant economist Wade Locke were all out talking about spending cuts and lay-offs.  They blamed it on global economic forces that – according to Marshall – weren’t really hurting things in the province directly.

A Manufactured. Right. Here. mess (January 2013) took their talking points to pieces.  The government has a serious financial problem. It’s the result not of temporary factors but of the current administration’s policy of chronic overspending.

The place is in a mess because of decisions made by finance minister Tom Marshall and his colleagues over most of the last decade.  They made decisions for the short-term that benefited them politically.  They spent money and made themselves popular.

Tom and his colleagues made bad decisions.  They had a very simple idea.  As finance minister Tom Marshall told CBC’s David Cochrane recently, when he had money, he spent it and now that there isn’t money, there’ll be cuts.

Tom Marshall calls it “responsible”.  Most people would call it bullshit.

Putting selective facts on the splitting table (January 2013) added a crucial detail to understanding the provincial economy  - and government spending plans  - that likely surprised a few people:  two thirds of the tax filers in the province report gross income of less than  $35,000 a year. 

It’s interesting to see how little has changed in the year since that post took Kathy Dunderdale to task for selectively choosing “facts”.  She did it again in a year-ender with CBC’s David Cochrane.  Taxpayers – those people SRBP reminded you make less than $35,000 a year  - wouldn’t bear the burden of a $5.0 billion debt for public sector pensions,  warned Dunderdale.  She never mentioned that her plan for Muskrat Falls involved those same people bearing far more of a burden than $5.0 billion. You don’t need to understand brain surgery to get the problem in Dunderdale’s comments.

When it comes to understanding the government’s reliance on oil money, The cost of not doing the math (January 2013), walked everyone through some problems with comments from finance minister Jerome Kennedy on equity stakes, royalties and the benefits of the government’s Hebron policy. 

Once we got into the days and weeks immediately before the budget, The arse that laid the golden turd (March 2013) laid out some details on the annual overspending by the current provincial government.  Lastly, The ongoing net debt fallacy (March 2013) sought the toad of truth that squats ion the swamp of jargon spewing from the provincial government whenever they talk about public spending and debt.

You’ll hear about all of these things again in 2014, by the way.  There won’t be as much talk about lay-offs because those are politically unpopular. The Conservatives abandoned the tough talk as quickly as they could last spring.  The Lady is for turning (April 2014), as SRBP noted.

You’ll hear more talk about the public sector pensions and how we can’t carry all that debt around, but realise that public sector pensions aren’t a new issue.  As SRBP told you in 2010, they are just part of the bigger problem.  They came up in the 2011 election and in an SRBP background post from September of that year.

Political management

A large part of what you see in these year-end interviews is an example of The importance of framing (February 2013) an issue.  You pick out the bits you want people to focus on and ignore other stuff.  The public sector pension liability is a big issue because it is unaffordable debt.  Politicians will blame it on something, but not on one of the major causes, namely the unprecedented growth in the public sector over the past decade that has been, of course, an integral part of the Conservatives’ financial mismanagement.

Framing is one thing, but 2013 was also the year in which an old SRBP subject came back with full force early in the year.  The Conservative slide in the polls  - especially the one poll the local elite pays attention to – brought back a discussion of how the Conservatives have tried to manipulate public opinion. SRBP explained the difference between Influence and manipulation (February 2013) and a couple of months later discussed The significant impact of open line (April 2013) on public opinion in the province.

Economic policy

Ina year when the provincial government was talking about its own financial problems, we couldn’t help but talk about the government’s economic policy.

Over the past couple of years, provincial politicians have talked about the impact an aging population will have on the economy and on government spending.  That’s true, even if government policy doesn’t give any clue that they really understand how important a factor demographics is.  To help people see the problem, SRBP brought you Demographics in pictures (January2013).  It draws on a paper by political scientist Matthew Kerby.

When you are done with that, take note of two other posts that hopefully helped readers understand what is going on in the provincial economy and how the Conservatives are trying to manage it.

Annual GDP Change (April 2012) showed that the provincial economy shrank in 2012.  Bad overseas and booming at home, as Tom Marshall claimed?  No.

There’s another indication that things aren’t really booming here.  Look at the population growth.  In places where the economy is genuinely booming due to something more substantive and sustainable than massive government spending, the population is jumping by leaps and bounds. In Newfoundland and Labrador, there’s more of an unboom, as we showed in Boom and Unboom (September 2013).

The Wealthy Barber for Government

After months of public angst about provincial government spending,  SRBP took a look at an alternative policy the Conservatives could have followed after 2006. The heart of the policy was the money that came from not just oil but from mining.  The question was what to do with the money.

There was a lot of money to talk about.  The Road Not Taken (April 2013) explained that the provincial government collected about $15.6 billion in oil and mining royalties from 2006 to 2012.  The provincial government spent all but about $1.4 billion of it. 

If you want to understand how the provincial government got itself into the mess, just think about all that money.  Newfoundland and Labrador is a “have” province with a government that is laying people off and cutting programs.  Then realize that for all that cutting the government is still planning to spend upwards of a half a billion dollars a year more than it is taking in.

We called the alternate policy the SIDI simulation after the four major fund headings we created to help manage the money. The Stabilization Fund covered any deficit between an annual four percent growth in spending and a drop in money from oil and mining. The Infrastructure Fund allowed for annual capital works spending of $500 million annually. The Debt Fund allowed for a real reduction in debt or an increase in sinking funds, whichever produced the greater benefit.  The Investment Fund created a pool of cash that the government could invest to make more money.

The second instalment in the series  - Responsible Public Spending (April 2013) described how the Stabilization and Infrastructure Funds would have worked to increase public spending for both operations and capital works in a way that was economically sustainable. At the end of the test period, the combined funds stood at almost $3.0 billion even after the sustained spending according to the plan.

Well on the way to debt freedom (April 2013) showed the simulation results in the other funds.  The Debt Reduction and Investment Funds could have produced a real reduction in public sector debt with the prospect of completely eliminating public debt within a decade.

On top of that, real debt reduction freed up money from debt servicing that could have helped fund annual increases in spending instead of drawing down the Stabilization Fund.  The Investment Fund earned new money on top of all that.

Political Will and Public Policy (April 2013) summarised the results of the SIDI simulation:

  • a steady, sustainable increase in spending each year,
  • an unprecedented, sustainable capital works program,
  • a $3.675 billion real decrease in public debt,
  • the prospect of a complete elimination of public debt within a decade, and,
  • an income fund that would continue to grow with further oil money and generate new income for the provincial government for as long as the fund existed.

It also described the major obstacle to change:  a lack of political will coupled with the inertia of existing spending.  Politicians are stuck on their current path because it is the easiest thing to do.  They can’t even consider alternatives that might produce significantly better results than the one they got.  Instead of change, they want more of the same even though more of the same won’t work.

To see that problem of the unsustainable future of the current approaches, we included a simple graph in the SIDI series. It showed government revenues from non-oil/minerals in red with government spending in blue.

The gap between the red and blue lines is oil and mineral income.  Each year, the provincial Conservatives are spending money they will only get once.  They need more and more of it to keep up the spending.  The problem is they haven’t found a real source of cash to replace the oil and minerals.  Sure they talk about new money from Muskrat Falls, but as we learned in 2013, that isn’t true either.

We’ll get to Muskrat Falls and the other themes from 2013 in Tuesday’s post.