24 February 2015

The Unsustainability Problem #nlpoli

The annual budget consultation farce started on Monday with a couple of sessions.

This year the provincial government has turned out a budget simulator that is supposed “to illustrate the tough budget choices” the provincial government is facing and “to promote a public dialogue on how we can set a sustainable fiscal course.”

The simulation can’t really do either of those things.  The information is relatively recent but the options to adjust income and spending don;t cover the full range of policy choices the government can make.  The ones it does offer are artificially limited to presented increases or decreases.  That’s a programming choice as much as anything else, but the reason for the artificial limitations is not important.  The fact is that the choices are deliberately limited.

The result is that people can’t really see what sorts of choices the provincial government might make to set a “sustainable fiscal course.” In that sense, the current “consultation” is as artificial as all the other ones the provincial government has run over the past decade or so.   People aren’t stupid.  They can handle the truth.

The politicians and bureaucrats can’t.

Or more specifically, they can’t handle the public having the truth.  In the government world, knowledge is power. The bureaucrats and politicians have it.  Everyone else doesn’t. 

And that’s the way the bureaucrats and politicians like things.  That’s why bureaucrats and politicians spend so much energy trying to keep information from the rest of us.

The budget “consultations” aren’t about dialogue, letting the ordinary folks set government policy, or anything else of the sort.  The consultation is about channelling public discussion in a way that the government can control it.

While everyone else is busily being channelled,  let’s go down a different road. There’ll be lots of time to do more detailed discussion of public finances. For today, let’s just look at one chart.  It’s one we’ve used before around these parts but it’s worth updating it to include the most recent information we’ve got.

rev less oil and exp

The blue line shows the provincial government’s annual spending.  The red line shows the total revenue – including federal transfers – but with the oil royalties subtracted.

Oil royalties are one-time cash. Once they pump the oil and sell it, the oil is gone. Oil gone,  cash gone.  That’s why they call it a non-renewable resource. 

The provincial government spends all the money it gets. All of it. Including the oil money. Now if they spent the oil money on stuff that was also a one-time expense, there’d be no problem when the price of oil dropped or when the oil runs out altogether. But the Conservatives haven’t done that. They’ve spent the oil money on the day-in, day-out stuff that you can’t get rid of all that easily.

Like people.

People are funny. You hire them on and pay them for work and they expect to keep working. They go out and do foolish things like buy houses or refurbish the ones they already have. They get married and have children because they expect their jobs will be there.

All that spending helps drive the economy. People have a good time.  They love the politicians who spend all the money.  They love them right up until there isn’t the money to pay them any more.

That’s where we are today.

The fundamental problem – unsustainable spending – has been there for some time. Most people haven’t been able to see it now because the price of oil has been so high, the provincial government has been able to mask the borrowing.  For some years,  they actually didn’t have to go to the banks to borrow money. They spent a couple of billion in surplus that came in over the course of a couple of extraordinary years.  That was still borrowing:  it was borrowing from ourselves.  No one paid any attention to that, except for a few of us who knew what they were doing.

Go back to the chart.  In 2005,  all the non-oil money coming in and all the money going out were roughly the same. In 2006 and 2007, the government spent more than the non-oil money coming in.  But starting in 2009, they really opened up the taps. After that, the problem just kept getting worse as spending went up but the non-oil revenue didn’t.

Here’s how much worse things have been getting.

2014 $2.523 billion
2013 $2.689 billion
2012 $2.126 billion
2011 $2.100 billion
2010 $2.013 billion
2009 $1.924 billion
Take a look at the budget simulator and you’ll see a budget deficit of around $1.0 billion. That’s not the problem. That’s just the immediate problem.  The real problem is the $1.6 billion on top of that $1.0 billion all of which is coming from liquidating a resource we only get to liquidate once.
That’s the unsustainability problem defined.