03 December 2015

The real Ministry of Magic exposed #nlpoli

The information the Conservatives leaked to David Cochrane Tuesday on the budget update confirmed the extent to which they are actually the ones who have been running the finance department as if it was a ministry of magic.

The cash deficit this year looks like it will wind up being almost $3.0 billion.  Bear in mind that the budget the Conservatives introduced last spring called for a 12% increase in spending  - although they talked about restraint - and for borrowing $2.1 billion to cover a record deficit.

Incidentally, the accrual deficit figures leaked to Cochrane by the Tories leave out the $900 million the Conservatives planned to borrow for public works.  You need to look at the cash numbers to understand the magnitude of what the Tories did last spring.

If nothing else changes in the budget, like say decreased spending,  revenue will be down by about $700 million apparently. That means we are looking at a cash shortfall of about $2.8 billion.

The banks are the largest source of revenue for government this year. In the revised budget estimate, they will probably be supplying almost triple the revenue coming from things like sales tax.  Last spring it was only double those amounts.

In case you ever doubted it before, Wednesday also confirmed that the folks in the media and elsewhere who have been obsessing about the Liberals’ budget plans really don’t have much of an idea what is going on. Reporters asked Ball if he was sticking to his commitment to reverse the Conservatives’ planned hike in the harmonised sales tax now that we know the revised budget estimates.

Ball quite rightly blew off the premise that the numbers the Conservatives leaked to Cochrane were right.  Ball hadn’t even had the detailed briefing, after all. The new administration will likely take a detailed briefing and ask a lot of hard questions before releasing any information publicly. They’ll also discuss their own plans in more detail, even if some of the reporters don’t quite understand what the Liberals have already talked about without being spoon-fed a technical briefing. 

After all, even if  you look at the actual budget numbers from last spring you’d understand why the obsession with the HST cut borders on the silly. The forecast deficit was $2.1 billion.  The HST hike would only bring in $200 million a year, assuming that retail sales didn’t drop due to the hike or due to a downturn in the economy generally.  When you are talking deficits the size of the one Paul Davis planned to deliver,  a 10% change is frigging at the margins. Now that the deficit is 50% higher again than what Davis originally planned, the $200 million is an even smaller issue. 

After that, things just get funny.  The ballooning deficit is caused “by the slumping oil economy” according to Cochrane.  Nonsense. it’s caused by the Conservatives’ plan to spend $2.1 billion more than the government estimated it would take in.  It’s caused by a 12% increase in spending when oil revenues were falling. It’s caused by relying on the laughable assumption that oil prices would climb when there was plenty of reason to fear that oil prices would fall.

Talk about budgeting by magic wand. The Conservatives’ Wingardium leviosa, turned out to be more Riddikulus than anyone might have feared.

The truly funny thing about Cochrane’s analysis, though,  is that both the Tories and Dean MacDonald used precisely the same nonsense to blame previous massive budget problems on oil prices.

These are not exactly folks  with a track record of producing reliable analysis.  MacDonald was badly wrong about the 2003 deal on Muskrat Falls and,  well,  let’s just say Cochrane is a very brave move by Cochrane to to quote a string of Kathy Dunderdale era talking points on sound financial management and expect people to take him seriously.