18 April 2016

The Austerity Budget Pantomime #nlpoli

According to the Oxford dictionary, financial austerity means "difficult economic conditions created by government measures to reduce public expenditure."

Reduce government spending.

Three key words.

The most important is reduce,  meaning to lower or to  lessen.

Keep that in mind.

Where Down is Up

The provincial budget announced last Thursday increased government spending by 12%.   The government will spend $8.5 billion in 2016 compared to $7.6 billion in 2015.

The provincial government budget announced in April 2015 planned to increase spending by 12% over the previous year. They didn't quite make it but, as the saying goes,  the Conservatives came close enough for government work.  They fell $200 million shy of their goal.

That means that government spending has gone up roughly 24% in 24 months.

The bond rating agencies were satisfied with the Conservative budget and, as of Friday, they are generally satisfied with this Liberal one.  Their supposedly dire warnings a few weeks ago amounted to very little. DBRS actually downgraded the government rating, but it is a minor drop.  More importantly, DBRS has switched their trending on the government from negative to stable.

That is a green light for lenders. The other two bond agencies are happy, apparently, at least for now. There was actually a sign when the warnings came out that a downgrade was likely so Friday's release is not really any news.

The Budget Pantomime

Budgets in Newfoundland and Labrador are an annual political pantomime. It starts with the "consultation" farce.  The Conservatives created a special theatre troupe to run the farce and this year, the Liberals got them to deliver a farce spectacle that was every bit as enormously farcical as the government's financial problem is real.

The government crowd, the opposition parties,  the public sector unions, and all the other folks inside the political echo chamber had their scripts written before the budget appeared. This was going to be an austerity budget no matter what actually happened.  As soon as finance minister Cathy Bennett revealed what the cabinet had decided, the government folks talked about how they had no choice but do what they did given the poor management of their predecessors.  The others bitched and complained about how the new guys broke their promises, lied, and generally destroyed the universe.

That's not to diminish in any way the impact this budget will have on folks.  let's just realise that this budget actually did as opposed to what people say it did. Spending on health care operations will go up in this budget. Same thing for education.  Post-secondary education is going to see a very small reduction. We'll be paying a lot more to pay interest on the growing public debt but a raft of smaller government departments will spend less this year compared to last.   But not a lot less.

In 2015,  the government had to borrow $2.6 billion to make ends meet.  In 2016, the government plans to borrow $3.0 billion.  When you take the 35% of that money destined for Muskrat Falls,  it turns out that the government operating deficit in 2015 will be the about same as the one in 2016:  $1.7 billion. In 2016, as in 2015,  the provincial government made a few cuts and shuffled the money into more spending.  In both years, the provincial government had to raise some taxes and introduce some new charges to bring some extra money to pay for things.

The Hypocrisy Horse

The political world inside the echo chamber is full of hypocrisy.  You cannot have a proper pantomime without a hypocrisy horse.  The New Democrats and the Conservatives are locked in a bitter struggle this year to see who will get the role. Having actually caused the financial mess mess and done nothing to clean it up,  Steve Kent and Paul Davis have a lock on the part.  One will be the front of the horse and the other the back,  but the NDP will not go down without a fight.  They have a pair ready to get in the suit.  They would just need to figure out which one is the horse's ass.

Anyway,  last year,  NDP leader Earle McCurdy was the lone political leader in the whole province who said - truthfully - before the election what needed to be done.  All options are going to have to be considered I guess, from both the revenue and the expenditure side, to make the best of a challenging situation,” NDP leader Earle McCurdy told CBC last August.

“All options” would mean more job cuts,  spending reductions, and public sector layoffs in addition to higher taxes.  Earle's endorsement of “austerity” as a serious option was a radical change of direction for the provincial Dippers. The problem for Earle was that his party had already taken a position against the truth he spoke. 

Earle's truth came hard up against the position taken by the party backroom.   NDP heavyweight Lana Payne was typical.  She'd already said on Twitter stuff like this: 
“don't be fooled, austerity fuels inequality and inequality does not build a better Canada.” (April 20, 2015) 
“So austerity has been discredited everywhere yet #NSbdgt embraces it with a vengeance. Austerity doesn't led to jobs or prosperity.”  (April 9, 2015)
As fast as Earle said that everything would have to be reviewed and likely chopped,  he called open line to suck it back.  What he actually did was affirm that everything would have to be on the table in his world.  In their platform, the NDP did like all the parties and promised to increase public spending. No austerity, no matter what their leader had said. Now they criticise the Liberals for promising one thing and doing another.  if Kent and Davis fumble,  Payne and McCurdy would be a fine hypocrisy horse in this year's budget pantomime.

If you think this was bad...

The Liberals promise for this year's budget pantomime is that no matter how bad this year looks so far, the worst is yet to come.

It has to come, first, though.

In 1996, the Liberals under newly-elected Premier Brian Tobin and in 2004, newly elected Conservatives under Danny Williams both promised to chop the public sector in pretty much precisely the same terms as the current administration has been saying they will.  The first two called their plan "program review".  This time, it is a Government Renewal Initiative,  which the bureaucrats have taken to linking with Meeting to get GRIM.

Not just program review.

Government review.

That is how serious the Liberals are and that is how serious the situation is:  this plan has a new name.

In 1996 and again in 2004, the government abandoned the plans for changes to the public service in the face of public opposition. Once the polls showed the public didn't like the cuts, the politicians in power stopped the cuts.  In the first two cases, though, the government got in some cuts to the public service in the first round and they imposed a wage freeze from the outset.  They had managed to make some progress in sorting out government finances before public opinion shut things down.

The New New Approach

In the GRIM version of things, though, the Liberals have done what they could to piss off voters first and done practically nothing to the people in government. Apparently, this is what they called the New Approach in the throne speech last month to distinguish it from Danny Williams' New Approach in 2004.

The losses in the various public service empires in this budget are modest if not down-right negligible. They consist of very low-hanging fruit.  In fact,  the fruit is so low that it has been rolling about on the ground for the past five years.  The five schools being closed are an excellent example of that.  Ditto getting the school board out of Atlantic Place. They should have been done years ago. Over in justice,  converting four desperately under-used courthouses to circuit courts is desperately long overdue. They are not used half as much as they could be and the courts can dispense justice on circuit as they have been doing in Placentia for years now.

Notice, though,  the way the left-over bureaucracy the Liberals kept from the former crowd got the new administration to characterise the very modest changes to the public service.  The language is dire.

The courts are being cut, for example, with word on the circuit part coming later after much consultation among the judges.

But the courts are lost.

Gone forever.

This has given New Democrat Jenny Wright the chance to unleash her prepared script about the devastating impact largely imaginary cuts will have on women, especially rural women who are - Jenny told us via Twitter - suffering domestic violence far worse than their urban sisters.  Indeed, Jenny would have you believe the budget itself is an example of violence perpetrated against women.

No words are too extreme for Jenny but they are not half as revealing as the interview given by the province's chief Provincial Court judge to the Telegram about cuts to the courts.  Regular readers will know Pam Goulding already for her role in the Family Compact charade last year.

"Very challenging times for the administration of justice," Goulding said,  laying it on just a wee bit thick.  "We are trying to deliver a service to the people of Newfoundland and Labrador and these are very difficult circumstances under which to do it."  All in line with the official talking points but it is hard to take it seriously.  Hard times, in Pam's case, amounts to a mere $1.3 million.

That's it.

Indeed, most of the departmental trimming amounts to sums of the modest sort that have apparently left the former chief Crown prosecutor so terribly distraught as she does her duty for "the people of Newfoundland and Labrador."  Pam made no mention,  surprisingly enough, of the unnecessary cost to the taxpayers of the province resulting from the appointment of the former deputy minister of justice to a judicial seat that should have been reduced to circuit before now.  Nor did Pam explain how much the shenanigans in Clarenville had cost taxpayers all the while her husband - the former chief - left the courthouse open as his political friends tried to find someone to stuff into the job. All told, the cost would probably be more than $1.3 million,spread over years and counting all the cancelled court dates,  the law suit by the Crown prosecutors against a judge in Grand Bank and the like.

That Clarenville courthouse, underused as it is, won't be affected by the cuts.

But these are trying times in the province's courts.

Poor Pam.

The Incrementalists

The Liberal strategy is to take action a little bit at a time, very slowly,  in increments.  We don't know who came up with this idea but it was a brilliant one.  Well, brilliant for everyone except the Liberals.

The strategy made virtually no real change in the public service.  It gave the opposition parties and the media lots of fodder to continue their attacks, right on cue.  And, for good measure it maximised the pain and suffering on every, ordinary person in the province right away so even the audience could join in the fun of bashing the government politicians senseless.

Gasoline will jump 16 cents a litre in June and then take another jump in July as the on-again, off-again sales tax hike becomes a hike.  Will that new gas tax require more staff to administer, by the way?   That is one of a raft of questions we will not know until later.  Anyway, incomes taxes are up.  Every fee and charge is up and for good measure, they invented a bunch more for this budget.

Undergraduate students will go back to paying loans. The all-grants plan announced last year is scrapped.  People who want to study at Oxford,  Harvard, or any of the great schools and then bring their learning back to this province will have to pay their own way because the same course is offered here.  Nova Scotia parents, though, will still be able to get a discount education at Memorial University thanks to the taxpayers of Newfoundland and Labrador.  The government says it has given Memorial University enough money to continue the freeze on undergraduate tuitions.

If that wasn't enough to cause the Liberals grief,  they promised to slash marketing as a way of cutting spending.  Government's marketing budget is intact, as James McLeod reported in Saturday's Telegram. Then there is the deficit reduction levy.  Cut and pasted from a similar charge in Ontario,  the only thing the local Liberals did was change the name.  The levy is basically a poll tax - a single flat amount paid by everyone - dolled up to make it look better than the flat tax that killed Margaret Thatcher politically.

The dolling up is that there is a modest variation in how much you pay depending on much you make. In Newfoundland and Labrador,  someone making $40,000 a year will pay $450.  About two-thirds of tax filers in the province make that much or less.  The folks at the higher end of the scale won't be paying proportionately the same and that is the fairly obvious problem with the scheme. Folks making more than $200,000  only pay about twice as much levy as the folks making only 20% of their income. Politically, it appears to let the wealthier folks off the hook.  The Liberals would have been better off hiking income taxes more or introducing a second jump in income tax later on.

As it is, opposition to the quasi-poll tax has been swift and nearly universal.  Asked about it, Premier Dwight Ball told reporters on Friday that the rich in the province are already paying enough taxes. He trotted out talking points prepared originally for Kathy Dunderdale to explain how the top 35% of taxpayers in the province already pay 88% of the taxes.  Not much point in hitting them harder, is there?

Well, if Dwight had gotten hold of the actual numbers, he'd have noted that almost 90% of tax filers in Newfoundland and Labrador make less than $100, 000. A very small number of taxpayers cover most of the government's income tax bill.  This is not a have province, by any stretch, and a lot of those folks making in the lower five figures also depend on government transfers to make ends meet.  Kathy Dunderdale never understood that either.

Upping the tax on the high income earners might not bring in a lot of cash but Ball and the Liberals are going to take a hammering for how things look. That is what matters. They look bad.   Having a man everyone knows is rich  - like Dwight Ball - explain that he shouldn't be asked to pay his fair share of misery taxes sounds incredibly insensitive, self-serving, and arrogant.  Don't ask what we can do for our country,  as Danny Williams once put it in a different context,  as we have already done enough.  That will impress the hell out of the folks working very hard who haven't been able to take four weeks off in the past four months and lay on a beach somewhere but who now have to find another $7,000 on a very tight family budget to fight the deficit.

The fact that Ball and his ministers have taken a $5,000 cut in their own pay,  something Ball will trot out in his own defence, is entirely irrelevant.  People imagine there are more wealthy people than there are.  They also don't count themselves among the rich:  even rich folks don't typically believe they are rich.  In this situation, people know they are taking a kick in the financial head.  If they think anyone else is getting off lightly - like Dwight and the senior leadership at Nalcor, for good example -  they are only going to get angrier than they are already.  That isn't good.

They have to cut, first

The budget pantomime story that will play out in the House and in the media in the coming weeks won't be the story worth watching.  With the incremental strategy, the Liberals have maximised the political opposition to all cuts before they even start the cuts that will make a difference to the province's financial future. They will take a huge amount of political pain for what amounts to no gain at all in the meantime.

The 2016 provincial government budget will become a test of whether the Liberals can endure more political pain for meaningful gains in deficit fighting later on.  Zero-based budgeting won't produce it. What the Liberals need to do is eliminate whole offices of waste like Public Engagement or the RDC. The latter comprises 43 people, eight of whom make more than $100,000, and all they do is hand government cheques to other government departments.   Both were ripe to be slashed last December let alone last week. Both escaped.

They are likely to escape entirely in the future.  The Liberals didn't change any of the senior bureaucracy at all when  they took office.  Over the past four months, the politicians have made personal bonds with them. The new ministers have grown accustomed to their empires... err...portfolios.  All of their portfolios. These offices  - utterly useless as they are - now have advocates at the cabinet table, ministers who will not want to see anything they control reduced in size. They will find willing allies among the senior public servants, themselves, in the internal fight to save the empire.

The empires don't really really belong to the politicians, though.  They belong to the senior bureaucrats who have skillfully protected their fiefdoms without once doing or saying anything disloyal to their new political masters. As they were being very helpful,  the bureaucrats quietly piled the sandbags neatly around their offices to protect themselves against the storm. They sandbagged the politicians, too, in the process.

And if the politicians' own instinct to defend their turf doesn't cut in naturally when talk turns to cutting the public service,  the attacks from the voters will remind the politicians that each of the cuts they are contemplating next will slow the economy even more,  will piss off more people,  will just make it harder and harder for these politicians to qualify for a pension. All politicians want to get re-elected and the longer the cuts go on,  the less and less likely it will be the Liberals will get re-elected.

The Third Act of the First Budget Pantomime

The incremental strategy is brilliant.  It just isn't brilliant for the Liberals.  All the tough but necessary work on the budget is in front of them.  They've raised fees. It brought them $500 million and enormous public opposition with a budget that is precisely as far in the hole as the miserable one the Conservatives brought in the year before.

The budget change can only come from cuts. The problem the Liberals have now is that their incremental strategy ensures that every cut from here on - no matter how small - will cost geometrically more politically than the cut before. The political opposition will be outside government and, given the way these things work,  there'll be plenty of opposition internally from cabinet ministers very unhappy with the prospect of lopping off their own little corner of the government.

The incrementalists plan to carry on these cuts for at least another year.  In truth,  we are talking about years of annual cuts even if we optimistically can balance the budget within a decade.  None of this public anger includes the massive tax increase coming within five years as electricity prices double to pay for Muskrat Falls.  Opposition to that mess will only get worse, too.  Along with other problems we'll get to on that project alone,  the future is not going to be very pleasant for the current administration, if they really try to keep cutting.

The Climax

Brian Tobin couldn't do it.  He faced a far smaller problem than the one the Liberals face in 2016.

Danny Williams wouldn't do it.   He desperately needed the love.

Will Dwight Ball be made of sterner stuff?

That's the beauty of the pantomime.

The audience knows the ending every time even if, as seems to be the case this time, some of the players on the stage don't.