14 April 2016

The Incrementalists #nlpoli

Today is budget day.

There's been lots of speculation flying around, most of it a confirmation that people have little real information about anything. If you have been paying attention, though, you can probably make a fairly good guess at what Thursday's budget will look like.

What follows is based entirely on what Dwight Ball and his ministers have done and said in public, combined with a general knowledge of the provincial economy, the budget process and that sort of thing.

Read this now and in a few hours you can see how close this is to the actual budget.


Dwight Ball is absolutely, insanely wedded to doing precisely what he said he would do even if circumstances change in the meantime.

Bank on the budget delivering whatever Dwight said it would deliver.  What that means is:

  • no layoffs,
  • attrition as the only means of job reductions,
  • achieve whatever they need to achieve on the labour side through negotiations,
  • HST cut stays because it is a job killer, and,
  • Muskrat Falls goes full steam ahead into the abyss.

Continuity and Change

Someone on Dwight's team wishes he'd watched Julia Louis-Dreyfus' show Veep because they had the most brilliant Dwightish campaign slogan:  Continuity and Change. It is - as one of the show's creators said - "the most meaningless slogan they could think of."

But it is perfect for a campaign last fall that promised to change absolutely nothing about the course the province was on, just to do it better than the gang who was there before.

The Liberals promised last year to power their way through any financial problems by borrowing lots. They will do just that, along with some modest moves in line with what they promised in last year's campaign to find lots of efficiencies.

The Budget

Overall, a change in the income/outflow of $800 million.

Borrowing for last year was $2.4 billion.  It's $1.6 billion for this year.  Basic math makes that $800 million less.

That will come in a combination of more income and less spending, and SRBP is going with less cutting and more cash.

Spending cut by $300 million.

That's the guess based on a comparison of the most recent interim supply bills compared with the final budget.

Lay-offs are highly unlikely in the short term.  Since there has been no advance warning,  a suddenly slash of the public service would send the economy into a tail-spin which is precisely what the government doesn't need.

The provincial government plays a huge, distorting role in the provincial economy.  Even if  - by some complete miracle - Dwight Ball was even capable of conceiving of the idea,  he'd have trouble delivering any radical changes to the position of the government in the economy because it would be a short-term vote killer.

Look at it another way:  the St. John;s Board of Trade is opposed to free enterprise.  They voted to eliminate competition in energy so that their members could make money off Muskrat Falls.  Totally nuts since they will also bear the cost in increased taxes, service cuts, and insanely high electricity prices.  And if you thought that was strange, consider that entrepreneur Paul Antle believes competition in the liquor market will increase consumer costs and reduce variety in the market place.  When you live in a place where even the capitalists oppose free enterprise you can be sure a governing political party won;t do anything to upset them.

No lay-offs but a wage freeze

Ball has said all along that they'd avoid layoffs and let attrition do its work.  Expect them to stick with that.

Freezing wages is the single easiest way to control costs.  Whatever else they do, the government will try and accomplish those savings at the bargaining table.  That's where the unions will have the harder time.  Running cutesy ads, like the unions have been doing, appeals to their members but it does shag-all where it matters.

And if any of the unions want to hit the streets, the government will happily let the unions beat their chest and dip into their strike funds.  Government will save money. Union bosses like Jerry Earle talk tough but they typically just wind up with sore chests.

Revenue increased by $500 million

Go back to what the Liberals said during the election.  They expected to find a total of almost a billion dollars over four years from a very small number of changes to revenue and spending.

Well, now that they have access to all the numbers, there's a very good chance they can do far better than they forecast in one year on both fronts.  They don't have to reverse the HST change either.  They can just make some other changes to fees and charges like hiking liquor prices.  In an administration like the one the Conservatives left behind there's enormous amounts of sheer wasted spending.  You can just clean that up with a broom.

That $800 million change in spending leaves government with basically two more similar-sized changes to come in the next two years to bring the books into something close to balance.  After this first year,  some additional savings will be increasingly hard to obtain so that's where added revenue would help from an increase in oil prices.  The fact we can;t be sure of how well things will go is one of the reasons there'll be another budget adjustment in the fall followed by another annual budget in the spring.

Aunt Judy and Uncle Justin

There might be only $32 million in one-time cash but the federal Liberals have added some new transfers and more are likely coming.  In the short-term, any extra federal cash for capital works allows the Liberals to shift the equal amount over to the operations budget.  That means the Liberals don't have to slash as deeply as they need to.

Muskrat Make-work

Muskrat Falls is about borrowing money we don't have to spend more than we can afford to buy something we don't need.  It is the biggest make-work project in the province's history.  We'll take another look at Muskrat and Dwight Ball's obsession with consistency but for now let's just realise the simple truth that Muskrat Falls is massive economic stimulus and that's all it needs to be for Ball and the Liberals to keep it going.

Fundamentally, their policy is precisely the same as the Conservative one.


But the same.

The Bond Raters

In 2015, the bond raters endorsed a Newfoundland government budget that boosted public spending by 12% and set a record forecast deficit at a time when oil prices were already soft, if not falling.  Bond rating agencies aren't always the most logical, fiscally frugal folks around.  They just need to see an effort to control spending.  An $800 million adjustment in the deficit and a plan to restore balance within the next four or five years will be enough to satisfy them.