15 October 2019

No change in the weather? No change in we. #nlpoli

The problem we have is not a lack of options and opportunities to sort out the government finances ourselves.  The problem facing Newfoundland and Labrador is that the leading people of the province, not just the politicians but all the leading people,  don't have the stomach for making the kinds of decisions needed. They don't even want to talk about sensible things. They talk about foolishness like Equalization or fight against imaginary "austerity" instead.
SRBP, "Sovereignty",  January 2017

Lately, Alberta economist Jack Mintz likes to remind Canadians that Alberta is pissed off with the federal government.  The Alberta government is running massive deficits but Mintz thinks Ottawa is to blame, not, you know, the provincial politicians who actually made the decision to spend more provincial tax money than the provincial government takes in.

Mintz turned up in the Toronto Star and CBC Radio last week pushing Ottawa to bail out  Newfoundland and Labrador.  He’s hooked up with a shadowy new outfit calling itself the Schroeder Institute that also launched itself last week with a campaign to get Ottawa to funnel money to Newfoundland - as Schroeder’s Twitter feed keeps calling it – to stave off financial catastrophe in the province.

Then local musician and business owner Bob Hallett took 2,000 words on CBC’s local website to deliver the same message:  Newfoundland’s financial mess is Ottawa’s responsibility to clean up.

That’s a wonderful sentiment sure to get lots of support from people in Newfoundland and Labrador who are worried about their future.  Sadly for those people, Schroeder, Mintz, and Hallett rely on a string of old fairy tales that have been long debunked – not to mention stuff that is just wrong – to make their case. They also are a reminder that wisps of air and pixie dust are a piss-poor foundation for successful policy against very real problems.   That is, after all, how Newfoundland *and* Labrador got into its current mess in the first place.

Take for example, the power contract between Hydro-Quebec and BRINCO for power from Churchill Falls. 

The Schroeder Institute claims it happened in 1966 and that it was about fighting separatism.

The 1969 power contract had nothing to do with Quebec separatism at all.  There’s an old fairy tale from the 1980s,  started by Joe Smallwood, but that was effectively debunked by economist Jim Feehan in 2011.

Lots of people, including Joe Smallwood, have claimed since the 1980s that Lester Pearson asked Smallwood not to push for a power corridor for Churchill Falls electricity through Quebec.  There’d have been an incredible backlash in Quebec at a time when separatism was on the rise, so the story goes.

Except, of course, that it never happened.

Lots of people have tried to make a case that Ottawa is responsible for Churchill Falls and should pay up.  Schroeder, Hallett, and Mintz are just the latest.  The argument fails because as more information emerges,  their case crumbles in light of the facts from the time.  If you want to know what actually happened in negotiating the contract,  there are decisions in a number of court cases that provide excellent summaries of the history of the deal.  The earliest was the 1984 water rights reversion reference.  The most recent was the decision in the “fairness” case issued just last year. 

Even the traditional nationalist perspective that underpins Ray Blake’s version in Lions or jellyfish presents the development of Churchill Falls in a far more complex way than suggesting that it was all Ottawa’s fault or that the deal helped keep Canada together.

Government Income

The Mintz/Schroedinger/Hallett take on Equalization is no better.

The program is actually very simple. 

Equalization is about provincial government incomes, not outcomes (deficits).  The program is designed so that every provincial government has at least the same amount of income to spend delivering services to the people in that province.  Money for Equalization comes from federal government revenues.  No provincial government contributes a penny to paying for Equalization.

The way the program works these days,  the federal government works out an average income for each province and then figures out the national average.

Here’s a key bit that a lot of people – including Mintz - bugger up:  since 2007, the feds actually work out two averages.  One leaves out half the revenue from natural resources revenues. The second one leaves out *all* natural resource revenues. If a provincial government qualifies under either calculation it gets cash – subject to an upper limit on own income plus Equalization – because the federal government, even one run by Stephen Harper, still wanted to push as much as possible to provincial governments that qualified.

It’s misleading when Mintz talks about personal income as the definition of being a “have” province when he knows the whole program is about government income.

Newfoundland and Labrador’s personal disposable income is above the national average, according to Statistics Canada figures.    The transformation in the thirteen years after 2003 is astounding, as the illustration at left shows.  Newfoundlanders and Labradorians were in last place in 2003.  By 2016,  they had the fourth largest individual disposable income per person, right behind British Columbia, Alberta, and Saskatchewan. So Mintz’s claim that the province is below the national average on disposable income is just not true.

What we need to look at for Equalization is *government* income.  Newfoundland and Labrador stopped qualifying for Equalization in 2009.  Those numbers are all in the public domain.  You can see clearly why the provincial government became a “have” government.

But if you distrust *those* numbers, look at other indicators of how the provincial economy is doing. Statistics Canada’s figures show that in 2016 Newfoundland and Labrador’s economy was the third largest in Canada measured as GDP per capita.  These figures hold up since 2009.  The Government of Newfoundland and Labrador is one of the wealthiest in the country.  It doesn’t need Equalization, which is all about incomes.  It should be able to provide services in the province without extra help.

Get this:  the Conference Board of Canada compared Canadian provinces to other countries.  Its figures for 2016 showed some impressive results.  

Not only did the Conference Board rank Newfoundland and Labrador third among Canadian provinces for the value of its goods and services divided by the population but it also showed that the province’s economy ranked eighth out of the 26 countries and provinces it compared.  Newfoundland and Labrador’s GDP per capita ranked ahead of Australia, Austria, Denmark, Germany, and Sweden.

 Government Outcomes

Equalization is about government incomes but what people in Newfoundland and Labrador are troubled by these days are outcomes. The provincial government is running massive deficits annually and will soon have to run even higher ones coping with the lunatic Muskrat Falls projects.

That’s not Ottawa’s fault and it is not Ottawa’s responsibility to deal with it.  Outcomes are solely the responsibility of the provincial government. Even Mintz had to acknowledge in his recent interview with CBC’s Ted Blades that the provincial government would have been better off doing something besides ramping up spending to astronomical heights that oil prices couldn’t sustain. Mintz then makes up a story about how the provincial government didn’t know about the Equalization rules, which of course, is utter foolishness.  The Equalization system is precisely the one the provincial government fought for and every government in Canada knows how the rules work and how the money gets doled out.

The hard reality is that despite all that information it had and despite warnings from the Auditor General, the provincial government decided in 2006 to ramp up government spending based solely on record-high oil prices.  Just as sure as the sun comes up, oil prices collapsed a couple of years later.  But rather than change their ways, the politicians – with the full support of opposition parties and the public – kept on spending.  They have kept on spending far more than the government takes in through another two down-turns in oil prices.

When Dwight Ball came along, he kept up the spending. The central policy dispute at the start of Dwight Ball’s administration was the fight between Ball and finance minister Cathy Bennett over the province’s finances.  Bennett wanted to take action to put the provincial government on a stable financial footing. As Ball told reporters shortly after he took office,  he wanted to do as little as possible, while trying to squeeze money from Ottawa until the oil revenues came back Ball fought with Bennett until she finally quit and left politics.  Ball and his new finance minister abandoned the plan to balance the books by 2023, although they kept misrepresenting the story in every budget since then.  They also made new spending commitments, including a billion dollars of new debt for a risky offshore oil project, that still has not shown up on the provincial books.

So committed was Dwight Ball to keeping up the disastrous policies of his predecessors that he kept in place all the key senior advisors from the Conservative administration.  Not surprisingly, they advised him to stay the course. They wrote superficial rationalizations for continuing with Muskrat Falls, reciting old claims that had been disproven years before.  And they added a new one, Bay du Nord, which they promised would bring back the oil money Ball wanted desperately. 


Danny and Kathy and Dwight did all that not just because they wanted to do it or just because their friends and supporters would make money out of it.  They kept spending because they were wildly popular across the province. Politicians fought with their colleagues to keep the spending up because they knew anything but more spending would spell their defeat at the polls.   Even when defeat was almost certain, the Conservatives kept spending right up until they lost power in 2015.

Remember that upwards of 75% of people across the province supported Muskrat Falls even as the costs skyrocketed.  Some of the most recent polling shows that more than a third of Newfoundlanders and Labradorians till think it was the right idea.  They felt the same way about all that spending after 2006 because it put money in *their* pockets.  They got tax cuts and high paying jobs or big pay increases. And if they didn’t, their relatives did. Heavy equipment operators – the bluest of blue-collar jobs – made a couple of hundred thousand dollars year at Muskrat Falls.  Not accountants.  Not business owners.  Not politicians. Ordinary workers.  Everyone made big money during the binge.

They voted Williams and his crowd back into office in 2007 and again in 2011 and in 2015 they elected a Premier who promised to keep everything going in much the same direction.  When that new government tried some modest efforts to reduce a deficit that was larger than entire provincial budgets 25 years ago, they screamed and howled in opposition. They called for the Premier’s resignation.

Irresponsible Self-Government

Not surprisingly, the screamers - Ball included - also started to push the idea that the only solution to the government’s problem was an Ottawa bail-out.  That's basically where Mintz, Hallett, Schroeder and others have taken up the same story. They want to keep everything as it is while getting someone else to pay for the consequences of all the decisions that got us into the mess in the first place.  Not your fault Newfoundlanders - oh yeah, and Labradorians – and not your responsibility, either.  

It’s Ottawa’s job.

(Checks notes)

Correction: It is their moral obligation.
What the bail-out advocates ignore is that there are plenty of options that the province can take on its own on Muskrat Falls, for example, that would:
  • pay for the project,  
  • set an appropriate price for electricity, and,
  •   regulate the province’s energy sector more effectively than it has been for the past 15 years. 
We just need to discuss them and pick the one that we can agree on.

The same is true of the financial state of the government itself.  This is the other serious financial issue, on top of Muskrat Falls, that people have largely forgotten about.  There are lots of ways to lower the cost of government, deliver needed services more effectively, and introduce new programs and policies for the future.

We just need to discuss them.

The problem in both cases is that we don’t discuss them.  Instead, we have well-intentioned people like Bob Hallett recycling tired old stories about how everything is really someone else’s responsibility. Jack Mintz tells fairy stories.  And Walter Schroeder gives them the money he got from selling the bond rating agency that helped government work itself into this hideous mess to spread the hokum and nonsense of their "solution".

Bob isn’t the first.  He won’t be the last.  Politicians take up those same lines about someone else's job because blaming others is easier than doing the job you got elected to do.  It is easier to tell people Uncle Ottawa will fix things and then blame the politicians up-along when they don’t.  People lap up the pixie dust stories and reward the politicians with votes so the whole cycle continues.

This doesn’t just happen in Newfoundland and Labrador, either.  Mintz has been doing great business In Alberta where the supposedly Conservative government ramps up the talk of grievance against Ottawa rather than put its financial house in order. “Think-tanks” that are really just political propaganda factories and academics like Mintz play the same role in Alberta that academics like Wade Locke have played in Newfoundland and Labrador:  they give the veneer of credibility to the weak arguments of their partisan allies in the provincial legislature.

Think about it. In Newfoundland and Labrador, we just went through a provincial election in which neither of the three political parties was willing to talk about the problems the province faced let alone offer credible solutions to its financial problems.  Instead, the parties pandered to the delusion they helped create that things are good and that government can carry on spending lots of money we don’t have without consequence.

And after the election, the opposition parties endorsed the provincial government’s plan to keep everything the same, at the very least.  The Tories had no stomach for tackling the government.  The NDP used their position to bargain for a few goodies on behalf of their corporate backers.

A few townies and mainlanders living in the east end of St. John’s want to shift baymen out of their homes.  A few more think that it costs more to deliver services in this province compared to everywhere else on the planet.  But there’s no evidence to back that up claim about expenses and the government’s multi-billion dollar financial problems aren’t caused by a few hundred people and a few million dollars in ferries. But that’s it as far as popular discussion of potential solutions to our problems goes.

Larry Short is right in that we have to start talking about solutions to our problems.  Sadly that’s not possible where no one wants to have a self-governing, “have” province and all the obligations that go with it. Sometime in the past 15 years people in Newfoundland and Labrador decided they no longer wanted that as their objective. They want to have a second home in the woods, take regular trips to Florida and Las Vegas and fight bitterly about paying a couple of hundred bucks for garbage collection. 

But govern themselves?

They couldn't be arsed.

Forget all this hooey from academics about safe spaces, silos, having more committees in the House of Assembly or whatever notions they want to call democratic reform. People in Newfoundland and Labrador don’t want it.  They don’t want the same goal they did when Brian Peckford dreamt of the day when the sun would shine and have not would be no more. 

They don’t want to live in a “have” province.  They don’t. They want someone else to look after them. 

If they wanted self-government and about finding solutions to their problems, not one of them would be talking about finding someone else's supposed moral obligation to bail them out. People who value democracy, who cherish governing themselves simply can’t make argument that denies their own moral responsibility for running their own government, footing the bill for it, and cleaning up after themselves when things go wrong. 

Until we put aside the decades of excuses and fairy tales, there can be no change in the financial weather for Newfoundlanders and Labradorians.