17 April 2019

Budget 2019 - revised trends #nlpoli

Budget 2019 was an election budget in the sense it contained a lot of little goodies, but there was nothing to get overly excited about.

While everyone else is focused on the shot-term,  the long-term trending contains more interesting tidbits.  The following slides update the post from Monday.

Income versus Spending

Budget 2019 forecasts cash spending (capital and current) of about $8.0 billion, about $200 million above the 2018 actual spending.

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This chart looks different from the Monday chart and its earlier iterations because there was a mistake in the earlier versions.  This shows the actual spending in each past fiscal year.  Essentially,  the provincial government has held total spending to just under $8 billion each year since 2016.  Own source revenues have averaged around $5.35 billion.  The government has covered the gap in between with a combination of federal transfers and borrowing.

Surplus or Deficit

The cash deficit in 2018 was slightly more than $2.0 billion.  The forecast deficit for 2019 is slightly under $2.0 billion.

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Debt Servicing Ratio

According to Marc Joffe,  governments run a risk of default when more than 25% of revenue goes to paying the interest on public debt.  In 2018, debt servicing was 15% of the provincial government's cash revenue from all sources.  Budget 2019 forecasts revenue from all sources at $6.232 billion.  That gives a Default Risk Threshold of $1.558 billion.  The budget forecasts debt servicing for the year at $1.394 billion.

The chart below shows debt servicing as a share of the provincial government's own-source revenues, that is, without federal transfers included.  Federal-source revenue is less than $1.0 billion annually.

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Using either the own-source or all-source calculation,  the provincial debt servicing cost is approaching the Joffe default threshold at an alarming speed.