The provincial government has a very serious financial problem.
The forecast deficit for the current year is the second highest on record at $916 million.
No one knows how big the deficit will be next year, but with oil prices forecast to stay in their current range for the next couple of years, odds are very good that the provincial government will turn in a record deficit next year.
That is saying something. The forecast in 2004, the first year the Conservatives took office, was for a deficit of $840 million. Finance minister Loyola Sullivan called it “the largest deficit in our province’s history.” He was a wee bit off. The actual accrual deficit in 2003 was $958 million.
Normally, an SRBP post on the province’s financial situation would get into a discussion about accrual and cash deficits. In this case, we don’t need to bother. For one thing, the accrual deficit is large enough to frighten the bejeebers out of anyone with half a clue. For another, we can make the point without any discussion of accounting. Breathe a sigh of relief if you must.
Back in 2004, the provincial government dealt with the financial crisis it had at the time by freezing wages, cuttings spending, and laying off workers. In 2012, the provincial government had another financial crisis. They dealt with it by freezing wages and laying people off.
There was another financial crisis in 2008-2009, in case it slipped your mind. The provincial government didn’t cut and lay people off that time. They kept spending high even though they didn’t have the money coming in for a year or so to covers the bills.
By now, some of you have already gotten the point. Since 2003, the provincial government has had four financial crises where its spending far outstripped its income. There have been plenty of years when the government overspent. In fact, the current crowd either overspent or planned to overspend every year they have been in office so far.
What makes these four times stand out is that the financial problem was so bad each time that the government actually had to do something about it or risk some pretty serious consequences. Sticklers will immediately argue about 2008 and 2009 but if you look at the size of the drop in income, the government would have had to do something except for the fact they had so much oil cash laying around, they just kept on spending.
Four crises in a decade.
Not exactly the popular perception, is it?
Certainly the politicians who’ve been running the place the past few years wouldn’t want you to notice the frequency of the financial problems. They’ve even got a neat little explanation for how it happened. People wanted ‘em to spend. They had the money. So they spent it. That’s pretty much what finance minister Ross Wiseman told CBC’s On Point last weekend.
Anyone who gives that a wee bit of thought won’t find Wiseman’s explanation so satisfying though. People always want government to spend money. Government never has enough money to spend. That’s why people expect governments to decide what to spend money on and what can get left out. They may not always like the choices but that’s what people expect governments to do. Just like people expect government to explain what the government is doing and why.
What they’ve gotten instead over the past decade or so is a government that does exactly what Wiseman said. The provincial government spent. They had lots of money but, as we’ve seen in the past five or six years, they actually spent more money than they had coming in.
The provincial government has had a convenient enabler in their plans, too. Wade Locke is a Memorial University economist. He’s most famous lately for being the provincial government’s financial advisor. Enabler would be a better term. In public, Locke’s taken on the job of being the government’s chief excuser. Locke is so familiar that local media outlets call him up to offer comment on the government’s predicament as if Locke was an unbiased, impartial observer. He’s anything but any of those things. But they call him, anyway.
In the same way that the financial crises and the excuses have become predictable, the other side of it is predictable as well. There are a bunch of stock ideas floating around that some people suggest would fix the repeating cycle of financial crises.
Dwight Ball and the Liberals want to cut the number of politicians sitting in the House of Assembly. That’s supposed to be a way of helping to control costs. You’ll see a similar idea this week offered up by Russell Wangersky at the Telegram. He wants to cut the number of cabinet ministers. He also wants to cut back on the entertainment and travel expenses cabinet ministers charge.
On the surface, there is something appealing about the idea of sharing the pain, as Wangersky calls it. He also recognises that the sums involved in cutting a few trips and meals or even cabinet ministers themselves is nothing compared to the size of the government’s financial problem.
Still, Wangersky argues, “it’s hard to tell people it’s time to tighten their belts when the people who are doing the talking are letting theirs out a few notches.”
If that were true, then maybe Wangersky would have a point. But it really isn’t true. Politicians aren’t letting their belts out a few notches, as in they are giving themselves raises and spending relatively more than anyone else working for the provincial government. The provincial government will have to raise taxes, lay people off and cut spending because the taxpayers of the province just can’t afford to keep spending the way the politicians have been doing. Making politicians fly economy class on airplanes or forcing them to wear itchy shirts every second day won’t actually do anything to curb spending that could be – conservatively - 20% or more beyond what’s affordable.
What Wangersky is proposing here is nothing more than the illusion of tackling the provincial government’s financial problem while actually doing nothing about it at all. In that respect, it’s like Ball’s idea of lopping off a few elected representatives here and there.
Arguably, we could use more politicians to keep an eye on the spending, not fewer. The fewer there are, the easier it is for the whole gang of them to get chummy and let all sorts of excess slide by. Before you dismiss the idea, take note of the number of former cabinet ministers – Trevor Taylor and Charlene Johnson for two – who recently noted that now that they are out of politics they are free to tell the truth as they see it.
Such a notion says far more about the pols than it does anything else and what it does say is hardly flattering. It also tells you a lot about the way our political system runs in this province. Now what Charlene may have meant during the recent by-election was that she wanted all along to tell us all that we were just ungrateful liars. Let’s imagine that what she really meant was less about revealing that she was an ignorant twit and more about that she had to go along to get along. Imagine how different things would be if politicians spoke up rather than kept their mouths shut in order to be part of the club.
If that doesn;t suit you, consider Ball’s suggestion from another perspective. Let us pretend that government is a corporation. Ball’s idea – and he has lots of support in his proposal – is that the way to fix a problem with the corporate budget is to let go a few of the board of directors. That’s the big idea. Ball is admittedly ballsier than Wangersky. Russell’s idea would be to give the directors tap water instead of Perrier so that it appears the directors are shouldering a burden along with the folks getting pink slips. Ball at least is talking about chopping a couple of jobs.
But that’s really all that this view allows. By the way, Ball is the current champion of this view but lots of people believe the same thing. They’ve also been around for years, just like Wade Locke has been spouting the same philosophy of spend now, borrow later for the past 25 years.
What Ball, Wangersky, Locke, and Wiseman miss is that the budget didn’t get out of whack last week or even last month. We didn’t get $18 billion in the hole since oil prices fell. Rather, the fact that we have had a major financial crises in the provincial government every couple of years for the past decade – on average – is a clue there’s something fundamentally wrong with the way the provincial government operates.
For one thing, politicians and other opinion leaders spend too little time considering spending every year. The budget is an annual exercise that the political parties go through each year in the House of Assembly. They spend a total of 75 hours talking about the budget. But the politicians do that by breaking into temporary committees of people who have had no time to study the documents. The committees meet so that provincial government officials can answer questions posed by people who really who have no idea what is going on. And all this takes place in a legislature that meets on average for fewer days in total than the St. John’s, Mount Pearl or Corner Brook city councils..
The provincial government’s financial problem is serious. Our current crop of opinion leaders – politicians and journalists alike – need to get the problem clear in their own minds. There’s no sign they’ve done that so far. We will have to start dealing with it next year and next year isn’t that far away.
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