18 March 2016

Record deficit in 2015-16 #nlpoli

The deficit for 2015 will be a record.

We know that because of comments at the House of Assembly by Premier Dwight Ball and finance minister Cathy Bennett.

News media are reporting that as "raising the province's borrowing capacity" but that's not quite what is going on.  The markets will determine the province's borrowing capacity.  That is, the folks lending the money will tell us how much we can borrow.  What went on in the House on Thursday was a wee bit different.

What Ball and Bennett were talking about was the limit set by the legislature last year. The government can only spend money or borrow money as approved by the House of Assembly.  Last year,  the House passed a loan act - cleverly called the Loan Act, 2015   - that allowed government to borrow up to $2.0 billion to cover the difference between what the government brought in and what they would spend.

 Bill 9 will increase the maximum borrowing limit for 2015 to whatever it will take to balance the books at the end of the year. Media reports put the new figure at $2.4 billion.  That seems a wee bit low given that last year the government's cash short-fall was around $2.0 billion before the bottom dropped on oil prices.

The Telegram's James McLeod is pegging the new loan act for 2016 at $1.6 billion.  That's still a pretty hefty deficit and would show only an $800 million change from 2015. You'd have to do two more changes just like that in order to balance the books within three years.

If we extrapolate from the possible $300 million cut in spending based on the size of the interim supply bill, we'd be looking an increase in revenue of about $500 million in the next budget.  That wouldn't be an outrageous idea.

Don't forget, though, that the bond raters are really only looking for a credible plan to cope with the government's new financial situation.  They aren't insisting on any kind of radical program of cuts. As former Conservative minister Keith Hutchings said in the House on Thursday, the bond raters were happy last spring with government's plan to increase the public debt by about $2.0 billion in 2015 with an expectation that things would balance themselves within five years.

On that basis, the relative modest cut to spending of $300 million,  with some new sources of revenue might just be enough to keep the creditors happy.