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| If we had Equalization, we'd have a budget surplus. |
On Friday,
20 Mar 20, Premier Dwight Ball wrote to the Prime minister to say that the
financial arse was out of Newfoundland and Labrador.
Ball included
in the letter not a shred of financial evidence nor did he include any hint as
to what exactly he expected the federal government to do to fix this situation.
Last
weekend, once the public heard about this alarming letter, the Premier was
anywhere and everywhere confirming that the provincial government was mostly,
completely destitute.
*This*
weekend his finance minister is – not surprisingly – telling a completely
different story.
Osborne needed to change the government’s messages in order to
reassure the markets, not to mention the people of the province, that things
were okay at least in the short term.
Everything’s
okay.
We got by
with a little help from the federal government.
The
provincial government didn’t need that last $200 million it hadn’t borrowed
since last November but by the end of the fiscal year – quite literally on 30
and 31 Mar – Tom Osborne’s had managed to cobbled together a couple of hundred
million in short- and long-term debt under the old fiscal year.
And, while
Osborne didn’t use these figures himself, we know thanks to other sources that
the provincial government has been able to borrow another $464 million of the
$2.0 billion it needs – so far in 2020.
That fiscal year started on Wednesday.
So, three
days into the new fiscal year and Osborne has already eaten through 25% of the
borrowing he needs for the whole year.
Where might
this end, NTV’s
Michael Connors asked Osborne last week for Issues and Answers. Could it mean a deficit of $2 billion?
Oh, quite possibly
yes, said Osborne. We had already
forecast a deficit of $1.2 billion before all this Covid-19 stuff happened and
the arse fell out of the oil markets. So, while Osborne didn’t spell it out,
the drop in income and the extra spending from COVID could easily add another
$800 million to the deficit.
Connors mentioned
Moody’s estimate that the deficit could reach 25% of revenue. That would be roughly $2.0 billion give or
take, on an accrual basis.
On a cash
basis, the deficit would be well over $2.0 billion.
There are a
few things to note here, COVID to one side.
For
starters, the revised deficit for 2020 was already 50% higher than Osborne’s estimate
last year. COVID just made that worse by some amount no one can calculate yet.
So, before
we even get into the impact of COVID, the provincial government was already way
off track to balance the books by 2023 despite Osborne’s repeated claims
everything was fine. This is in Moody’s
statement as well since the bond rater already acknowledge the government would
face intense pressure to spend more than it took in after 2023.
Things are
not really okay.
Rate mitigation
talks with Ottawa – as Osborne told Connors – are on the back burner. On the one hand, that’s not a big deal since COVID
has pushed the date for Muskrat Falls first power back a bit anyway.
On the
other hand, though, the government is going to be in even harder shape once
this is all over and it is in hard enough shape now. Osborne told VOCM
that the economic impacts of COVID and oil prices will last well into the
future.
And since
the government’s mitigation scheme was dodgy all along, even with a bit of
federal help, the provincial government’s financial situation means that the next
administration will have to rethink what it is doing once Dwight Ball finally
gets out of the Premier’s Office.
The $700
million in borrowing approved for Hydro (Hydro debt was below its ceiling
before the House approved a new ceiling) is unrelated to COVID. Cabinet approved the change on 20 Feb
20 before sending it to the House.
So what's it about?
And lastly, there's Equalization.
Again.
Tom talked about it last week, suggesting that if the provincial government got the Equalization payments from Ottawa to which it was somehow entitled, we'd have a surplus.
For the past decade, provincial politicians and bureaucrats been misrepresenting Equalization, frequently helped by Wade Locke, now head of the economics department at MUN. Locke's
misrepresentations of Equalization, Atlantic Accord provisions, and oil royalties in 2004 and again in 2007 fueled
public support for the provincial government's political fights with Ottawa.
As finance minister Tom Marshall blamed deficits after 2009
on the loss of federal handouts, even though oil royalties in some years were at least four
times the Equalization "loss".
And since 2015, Dwight Ball and Tom Osborne have talked
about Equalization relentlessly.
All of this is an excuse/misrepresentation hard-wired to
the bureaucracy and readily repeated by politicians. Clamouring for federal hand-outs is
politically easier than taking the tough political decisions of adjusting to
decreased revenue.
No surprise, therefore, that Alberta, Saskatchewan, and Newfoundland and Labrador whine about federal handouts despite having more than enough revenue to meet their provinces's needs.
The difference in the way
politicians talk about federal handouts - Alberta complains about the welfare bums it supports; NL wants
to get EQ - is rooted in the local political culture and historic political
rhetoric.
But the driver of the whining is the same.
-srbp-