12 November 2014

Government Spending and GDP #nlpoli

A couple of weeks ago, finance minister Ross Wiseman said that he can’t cut government spending because it is such an important part of the economy.

Wiseman said government spending amounted to about 30%  of the province’s gross domestic product.  He was absolutely right, if you measure the gross domestic product based on expenditures within the province. 

As regular readers of this corner know, provincial government spending has become an increasingly important part of the provincial economy under the Conservatives. This reverses a very clear trend that has been underway for some time.   When you look at the numbers, it’s pretty clear.

Here’s a table showing the percentage of the provincial gross domestic product represented by provincial spending, including capital accumulation. The figures on which these charts are based used constant 2007 dollars.expenditure gdp constant   

What’s interesting about this chart is that, with the exception of a blip at the onset of the recession in the 1990s,  government spending was a fairly steady percentage of gross domestic product calculated on expenditures from 1981 about 1997.

Starting in 1997,  it declined. That was the year of first oil production.  Then it stayed constant only to start climbing again around 2009 as government increased its spending and GDP declined.  Intuitively that makes sense.  Successive provincial governments tried to hold the line on government spending, even as the economy grew. Public debt was growing s a share of the provincial gross domestic product.  There’s a big drop as oil production and price started to pick up in the early part of the new century.

Things stabilised at around 26%. Then in 2009, the share of the GDP represented by provincial government spending shot up. That’s around the time that Tom Marshall fretted that the provincial economy was fragile. While we don’t figures for 2014 yet, you can tell from Ross Wiseman’s comments that the trend since 2009 has continued.  

Compare those figures with this sample of Canadian provinces and the Canadian national average.  it covers the 20 years from 1988 to 2008.  It’s not exactly the same as the chart for this province, but you can see enough common points to compare.  The chart was prepared by the Ecole nationale de l’administration publique.


Newfoundland and Labrador’s provincial spending is a larger share of the provincial GDP than three of the four provinces in this chart and the national average.  Only Quebec’s government spending is a larger share.