There is no limit to how selectively provincial Conservatives will read a document in order to find some microscopic filament that might possibly confirm that they have really been running the most magnificent administration in the history of the galaxy.
They still insist, for example, that they are the tops in leadership and accountability even though the most recent poll shows that 77% of the people in the province don’t think so.
Conservatives also insist they have done financial miracles. No less a personage than the party’s vice president took to the Twitter on Monday to tell everyone that:
According to Fraser Institute, SK and NL are the only provinces that reduced their public debt since 2007.
Well, they said a lot more than that, but evidently Mark Whiffen and didn’t need to read anything but that. Since the rest of us are not obliged or inclined to such delusions, let’s see what the gang at the Fraser Institute actually said.
Before we do anything else, we should recall that the Fraser Institute declared in 2012 that Kathy Dunderdale was the best premier in the country, bar none, at managing public finances.
There were a few problems with that pronouncement, of course. For one thing, they used only one year of Kathy’s tenure on which to make the judgment. For the other thing, they made that judgment the year Kathy planned to spend $1.0 billion more than she expected to take in. Kathy admitted that she and her friends were spending more than the public can afford. Her predecessor said the same thing and Kathy’s successor said the same thing, but they all kept on doing it.
In other words, when you are reading a report from the Fraser Institute you have to keep in mind that they may not be conveying reliable information.
Now with that in mind, you can read this latest report. It is supposed to be about the impact of large public sector debt. This is an important subject. In the big sense, when “government debt expands, it can cause long-term interest rates to rise, which in turn increases the cost of private-sector borrowing. Higher borrowing costs can then discourage private capital investment,….” (p. 5)
High public debt also means that government has to spend a chunk of tis budget servicing that debt – i.e. paying interest on it – rather than spend the money on health care, education and other important things. This is the one that applies most to Newfoundland and Labrador.
As you read along about the problems caused by high public sector debt, you see a comparison of what it costs the provinces and the federal government to service their debt – that is to pay the interest charges – as a share of each government’s annual revenue.
Whiffen skipped that page. The Fraser Institute reports on page six that:
Newfoundland & Labrador [sic], Quebec, and the federal government are now spending more than 11% of their total revenues on debt servicing costs.
Newfoundland and Labrador actually spends the highest proportion of its revenues to service its debt (11.9%). Quebec spends 11.3% of its income and the federal government spends 11.1% of its income to service public debt. Newfoundland and Labrador is well out in front of the next worst two governments in Canada for debt servicing.
And for those of you who might be wondering, Saskatchewan spends about five percent of its income on debt servicing. Alberta has the lowest percentage: 1.3%.
Now let’s take a closer look at that comment Whiffen plucked out. Here’s what they actually said (page 3):
The federal and every provincial government with the exception of Saskatchewan and Newfoundland & Labrador [sic] increased their debt levels between 2007/08 and 2013/14.
Fraser talks about debt servicing and yet here we have Newfoundland and Labrador with a relatively small debt. It doesn’t have the largest debt per person (table on p. 4) And it also supposedly lowered public debt by 11% in the time period covered by the report.
Something isn’t clicking here. If debt has gone down, then surely we shouldn’t be paying the most of anyone in the country as a share of income.
Ahh. Here’s the problem.
The Fraser Institute is talking about net debt. When they talk about debt servicing, they talk about gross debt, as they should. But for some inexplicable reason, the gang who wrote this report decided not to look at a comparison of the debt that people are servicing. They are talking about an artificial calculation that subtracts assets from liabilities. It’s artificial, as SRBP has noted before, for several reasons, not the least of which is that those assets don’t determine how much money a provincial government has to pay annually to satisfy its creditors.
By mixing up the two ideas, you can mislead people into thinking things in Newfoundland and Labrador are better than they actually are. You can also lead them to make a whole bunch of other erroneous conclusions like the other great Conservative debt lie, namely that public sector pensions are chiefly to blame for everything.
Then there is the thing that the Fraser Institute ignores entirely, even though they had the information. They ignore the $5.0 billion the provincial government borrowed (the last year of their report period) in order to build Muskrat Falls. In the short term, they can do a bit of magic and count the cash on hand as an asset to offset the borrowing but if you wanted to be honest, it’s a liability that has to be repaid. The damn and line will be built. There’s no stopping it. The money is all debt.
And you can’t dismiss it because there is a revenue stream to pay it all. There’s a revenue stream for every penny of public debt, if you take that view.
Nope, gotta add the Muskrat money if you want to get an honest picture of public debt in this province.
Take their net debt figure and increase from $9.0 billion to $14 billion and you have something a wee bit closer to the truth. But if you really want to see the picture, accurately and honestly, take the debt we service, all $13.5 billion of gross debt according to the Auditor General and whack the $5.0 billion onto that. $18.5 billion, headed for $20. SRBP laid this all out in April, for those who missed it.
Neither one is a pretty picture.
But if you add that public debt up honestly, then you suddenly discover that Fraser is wrong. Newfoundland and Labrador didn’t decrease its public debt between 2007 and 2014. The provincial government increased public debt.
Rather than an 11% decrease in public debt, you actually have a – wait for it – 69% increase. In 2007, the gross debt consisted of $7.550 billion in accumulated borrowing plus $2.760 in unfunded pension liability for a total of $10,310 billion. At the end of the 2013 fiscal year, you had $5.693 billion in accumulated borrowing, $7.630 billion in unfunded pension liabilities, plus the $5.0 billion for Muskrat Falls.
The sharp eyes among you already noticed that there was already a 20% net increase in public debt ($2.0 billion) before Muskrat Falls. A growth in unfunded public sector liability wiped out any reductions in accumulated borrowing. And the growth in the public sector pension liability was due to the massive hiring the public sector that accompanied all that unsustainable spending the Conservatives have done since 2003. Again, SRBP went through all this last April.
Now that’s not just something your humble e-scribbler worked out on his own. No less an authority than the Auditor General explained all the details of the unfunded pension liability last spring even as people like Mark Whiffen plugged their ears and screamed at the top of their lungs until he stopped talking so they wouldn’t have to know the black truth.
So as much as the Fraser Institute makes some solid points about the importance of dealing with public sector debt, their reliance on misleading information actually led them astray. They discuss Ontario and Quebec as examples of the problem when Newfoundland and Labrador is, arguably, a far better case study. In this province, you can see not only how ballooning debt is a huge threat to the province’s future, you can see how a whole raft of really bad, politically driven actions – Muskrat Falls, overspending etc – work together to create that threat.
It’s right there in front of your face.
All you have to do is look.
-srbp-