26 March 2015

More of the same. It’s the economy. And, … #nlpoli

Past behaviour is a good indicator of future behaviour.

If that’s the case, then lots of people are getting their knickers in a very great bunch over nothing when it comes to the budget.

The Conservatives set their course with Wade Locke’s prosperity plan. Here are the key elements, as SRBP laid out in 2013

  • Government will budget for annual deficits of about $500 million (accrual)/$1.0 billion (cash), if necessary.
  • The money to cover that deficit will come from borrowing.  That is, government will borrow from lenders, as Tom Marshall said in 2012, or government will take money out of temporary cash reserves, with no apparent intent to re-pay that own-source borrowing.
  • Government will make up any shortfalls beyond that deficit level by cutting spending in one area and shifting the spending to other areas.  

The Conservatives have given no sign they plan to do anything more than that.

Not a peep.

The dire warnings have come from other people.

There are powerful reasons for the Conservatives to stick to their original plan, even though the government is spending way beyond what the public can afford..

First, there’s the forecast of three years of recession.  Any cuts to government spending would deepen the annual recession and potentially lengthen the recession beyond three years.

Second, public opinion polling  - including some simple stuff for the Premier’s Office – confirms public sensitivity to any major changes to provincial government spending. 

Third, this is an election year.  While everyone has already concluded the Liberals are likely to win, the Conservatives aren’t interested in doing anything that will make their position worse at the polls.  Major layoffs.  Cuts to spending in rural areas.  All of those would make sense in order to deal with the government’s financial problems.  They’d also be suicide at the polls.

Just to be sure about the financial position let’s do a crude check on some of the numbers.

Average oil production over the past three years was about 78 million barrels.  If we assume an average price of UYS$50 a barrel for oil, that will produce about $3.9 billion in total revenue from oil sales.  The province’s take on that,  allowing for the difference in the Canadian and American dollar, would be less than $1.5 billion. That’s about a billion less than the government forecast for last year.

So if the government needed to come up with about a billion dollars,  they could do a few things. Here are the significant ones.

An increase in HST would yield about $200 million annually.  That’s according to Wade Locke’s assessment two years ago.

That leaves roughly $800 million they’d need to come up with.

They have already allowed for $500 million in borrowing, at least.

That gets us down to $300 million.

They can find that in capital works.  Last year’s budget included about $1.2 billion in capital spending.  They can trim some of that back, knowing, of course, that in the event of a rebound in the economy, they can restore it.  Or if things get worse, they can rationalise a jump in capital works spending to buoy the economy.

Some of you might remember that Ross Wiseman said the problem was about $1.5 billion.  Okay. So increase the amount of borrowing and trim a bit more off the capital works spending. They can pick up a few more millions with some increases in fees and charges and by adding a new marginal tax bracket for the relatively small number of people making more than $100,000 a year. 

There’s no guarantee that’s exactly what will happen but let’s go out on a bit of a limb and sketch in what the immediate future might look like.

The Conservatives will go for more of the same:  the course is set.

It’s the economy, stupid. They can’t afford to sort out government spending. 

And don’t forget health care.  Everyone is concerned about health care.  Expect the Conservatives to hammer any spending on health care and to reaffirm at every opportunity their firm commitment to health care.

And in case you forgot, already, health care is the most important thing there is.

If the Conservatives do anything more than that,  we can all be totally surprised.