Gone, baby, gone #nlpoli

In September 2008,  four cabinet ministers went to Harbour Grace to announce that the provincial government was giving the company $8.0 million in public money,  interest free.

The provincial government communications people circulated a picture of the four at the time - from left, Jerome Kennedy,  Danny Williams, Paul Oram, and Trevor Taylor – as they tried on some of the boots made at the plant.  Every one is smiling.  The $8.0  million in taxpayers’ cash was supposed to help the company add another 50 full-time jobs on top of the 170 at the plant.

It’s an interesting picture because within 12 months of the announcement,  the two on the right – Taylor and Oram – would be gone from politics.  Williams left in 2010,  the year the provincial government started a “review” of the loan after the company cut the work force to 100.  They never did add any jobs. Kennedy hung on the longest of the lot,  but five years after his trip to the boot factory, Jerome was gone from politics as well.

The Vibrant Unsustainable Super Energy Debt Warehouse #nlpoli

The Conservatives used to say that Newfoundland and Labrador was eastern North America’s energy warehouse.  Once Danny Williams ran for the hills and left Kathy Dunderdale in charge, she kicked everything up a notch.

Energy warehouse was too plain for Kathy, whose party ran on the slogan “New Energy” in the 2011 general election.

With Kathy running the place, it became a super warehouse.  “We are an energy super warehouse,” said Kathy countless times. 

The New Energy Party even clipped this bit of Kathy from the House of Assembly for its website back in 2011:

Mr. Speaker, this Province is an energy super warehouse. We have what the world wants. We will bring it to market. We will supply our own people, Mr. Speaker, and we will earn from those resources for generations to come.

“We will supply our own people, Mr. Speaker.”

The Decline of the Forest Empire #nlpoli

While an official with Corner Brook’s municipal government  understandably has to say wonderful things about the economy in the west coast city, a look at some numbers shows the city is feeling the effects of a larger problem in the province.

SRBP took a look at newsprint production levels and the value of newsprint exports from 2003 to 2012.  The numbers are all from the annual editions of the budget document called The Economy.

The picture is not pretty.

Edging #nlpoli

Over at cbc.ca/nl, John Gushue has an excellent column on the recent prosperity, in particular the apparent contradiction between a supposedly booming economy and the government cuts or the sense some people have that they aren’t part of the boom.

Take some time and go read John’s observations, if you haven’t already.  You will always be rewarded by John’s accessible style that reveals some very sharp insights.

For all that, though, there’s a sense that there’s something missing from Gushue’s column.  The piece gets right up to the edge and then just doesn’t bring the thing to a satisfying conclusion.

Never fear.

The relentless labradore fills in the bit John missed.

GovSpeak Translator #nlpoli

A “forgivable loan” is another way of saying that a private-sector company is getting a free gift of public-sector money.

-srbp-

Some help for the St. John’s Board of Trade #nlpoli

…who have suddenly discovered that the provincial economy is in serious need of diversification: a 2010 series called the Fragile Economy.

• Staying the course (March 2010)
• Reductio ad argentum (April 2010)
• …and two steps back (April 2010)
• Now three steps back and loving it (April 2010)

If they really want to get a handle on economic diversification, BOT chair Steve Power and his colleagues could start by reading the 1992 Strategic Economic Plan.  What the Board of Trade has been slavishly been supporting since 2003 is diametrically opposite to the 1992 SEP and its call for diversification based on  – gasp! – entrepreneurship, competitiveness, and innovation.

Frankly, it’s been pretty bizarre since 2003 to have a bunch of business owners who endorsed excessive public sector spending and clammed up about entrepreneurship, competitiveness and other subversive ideas.  In November 2010, here’s what the chair at the time said:

Chairman of the Board of Trade, Derek Sullivan said government contracts give a competitive advantage for local businesses and “can be a very powerful and reliable revenue stream.”

-srbp-

Brand Failure #nlpoli

In another great service to Newfoundland and Labrador, the country’s leading shit-disturber has translated poll results by Abacus Data into a nice table.

It shows the results for each province across a range of topics.

The Perfect Storm #nlpoli

“In the fishery of the very near future,” SRBP wrote in February, “fishing subsidies like federal employment insurance wage subsidies,  state-sponsored marketing schemes and the stalinist political control of the economy… will all go by the wayside. International trade talks are already laying the groundwork for massive change.”

The very near future arrived this week.

The politics of logic and history #nlpoli

“Government does not work on logic,” a wise man once told your humble e-scribbler.  “It works on the basis of history.”

When faced with a new problem, people tend to do what they did before, not what might make sense in the new circumstances.

You can see that the preference for history over logic in Kathy Dunderdale’s comments on Monday about what she and her colleagues would do for communities where the town fish plant had closed.

Mr. Speaker, we are doing the same thing for these workers, and will do for others the same thing we did in Stephenville, Grand Falls-Windsor, and Harbour Breton.

That would include moving in some provincial government jobs to stuff some cash into the local economy.  So if adding more provincial government employees is an integral part of Kathy Dunderdale’s response to the problems in these six communities, you can be damn sure she won’t be chopping any jobs.

Then again, regular readers of these scribbles already knew that claims to the contrary were bullshit.

The rest of Dunderdale’s comment are just routine political drivel:

We are committed to communities in this Province that find themselves in economic distress. We do not always have the answers at hand. There are not easy answers to be found by anybody, but we walk the walk with communities, Mr. Speaker. We do not just talk the talk.

And when she was done with drivel, she just popped out some truly vacuous bullshit:

Wherever the journey takes these people, their government will be there with them, and we do our best to diversify the economy and meet their needs in the meantime.

Diversify the economy.

Yeah.

Well, the economic development record of the current crowd is exactly zilch.  They spent so much time obsessing over polls and the Lower Churchill after 2003 that they simply didn’t do anything to diversify the economy.  And what they did try – giving away public cash by the bag-full – simply didn’t work. They haven’t been able to pay people to create jobs here.

Here’s how SRBP put it a couple of years ago comparing government spending in the mid-1990s with the current practice:

The province’s business development and economic diversification efforts – ITT then and INTRD and Business today – take less of a share of the budget now.  That’s despite government claims that it has a plan to expand the economy and that the plan is in place.

Mind you, the amounts spent have increased.  For example, the cost of operating the departments has gone from about $50 million for the Industry, Trade and technology department to about $66 million spread over Business and Innovation, Trade and Rural Development today.

The amount available for business investment is also up:  $18 million then compared to $29 million. Even then, though, the province’s business department -  the vehicle through which Danny Williams was once supposed to personally reinvigorate the provincial economy – actually doesn’t do very much with the cash in the budget.  Sure there are plenty of free gifts – like Rolls Royce – or the apparently endless supply of cash for inflatable shelters.

But as the Telegram discovered two years ago, the provincial government spent nothing at all of the $30 million budgeted for business development in 2007. And earlier this year the Telegram confirmed that in the past three years, less than one third of the $90 budgeted for business attraction was ever spent.

The result is that we have a very fragile economy.

Government does not work on the basis of logic.  They go with what they did before.

Like that has worked so well  for them so far.

-srbp-

Why People in Corner Brook (and elsewhere in NL) are Worried #nlpoli

About four years ago, your humble e-scribbler pointed out a fundamental strategic problem with the way the provincial Conservatives spent money.

The premise was pretty simple:  at the same time that we knew  - as a matter of irrefutable fact  - that provincial costs for things like health care were going to skyrocket, the provincial government wanted to start building megaprojects. 

In 2008, we were just talking about Hebron and the few hundred million dollars.  We didn’t know and still don’t know how much the final costs will be. That was before the Premier and other ministers acknowledged provincial spending was unsustainable. That was also before the global recession.

It was before the provincial Conservatives wanted to spend upwards of $10 billion on a hydro-electric project that won’t produce any revenue outside the province.  And it was way before those same Conservatives decided to embark on a decade long period of public sector job lay-offs and spending cuts. Well, at least, that’s what CBC reported on Thursday night that the Tories plan to do.  They were reporting on what finance minister Tom Marshall told the St. John’s Board of Trade at a luncheon speech..

If anything, that 2008 series of posts about the precarious provincial financial position understated things.  Things are so bad that even Wade Locke had to warn his political friends in the Conservative Party that they needed to deal with the problem.  Locke had this to say in 2011:

“It gets progressively worse as you go out, from five years onwards,” Locke said. “The next five years, it’s manageable, but after that it gets less manageable if we don’t start dealing with it now.”

…

“There is a a serious problem in terms of debt and deficits,” Locke said. “I understand that people believe that we are a ‘have’ province, which we are technically. However, they then believe that there’s unlimited money to address all of our needs and wants. That is not true.

People in Corner Brook are worried that the provincial government is going to have problems building the new hospital they promised in 2007.  They were supposed to start construction this year but, as it now appears, they won’t be ready to start work for at least another year.

People are nervous.  The politicians are more nervous.  You can tell they are nervous by the way Tory politician Vaughn Granter shat massive, enormous, huge bricks on Twitter Thursday night.

If he could, Granter probably would have used a 72 point font in addition to the capital letters to make sure everyone knew just how enormously, massively complicated this hospital project is.

Huge, it is.

Bigger than humans have ever done before on the planet. 

People on the island’s west coast won’t be persuaded by Granter’s amateurish horseshit.  In fact, no one would be surprised if his nervous tweeting and the same sort of foolishness in person only served to increase public anxiety about the hospital.

Of course, as people start to realise the way all those big economic things are coming together, the provincial Tories will have a harder time persuading people that the hospital and other projects aren’t at some risk.  It’s not like the Tories can avoid building something in Corner Brook. They need to replace Western Memorial Hospital. But that doesn’t mean that they will build the hospital they promised in 2007.

It wouldn’t take much to make the current tight financial situation all that much worse.  Drop the price of oil at the same time that  - as we know - oil production will drop off over the next decade.  Drive up the cost of Muskrat Falls at the same time.  Nothing radical and nothing at all unusual. Then think about building a hospital project that they said would cost the better part of a billion dollars before they started building it.

Then think about all those projects that were far less complicated, as Vaughn Granter would tell you,  than the new hospital.  Think of a small aquaculture office building, for example.  Announced in 2007 to be finished in 2009.  They didn’t start construction until 2009 and by the time they turned the key on the front door, the cost was more than double what they estimated originally.

Hospital in Labrador.  Started at $56 million.  Hit $90 million and still counting on a project that has actually been longer in the “planning” stage than the one in Corner Brook.

That’s a 60% increase in cost, incidentally.  Sixty percent is the low end of provincial government cost over-runs, these days.  So if, by some estimates, this Corner Brook hospital started out at $750 million, think of how much it might really cost.  $1.5 billion wouldn’t be outrageous.  $1.2 billion would put it on par with the Labrador cost over-run.

Now go back and lower the price of oil, increase the cost of Muskrat Falls and do all those other very likely things. The more people like Granter talk up the enormous cost and the complexity of the hospital and the longer they delay getting it started, the more likely people are to worry.

And it’s not like they weren’t worried already, before the politicians started protesting too much in their denials about a problem in Corner Brook.

- srbp -

No truer words #nlpoli #cdnpoli

“When you wage an ideological war,” wrote Lana Payne this past weekend, “lies are necessary weapons.”

Payne, for those who don’t know, is president of the province’s labour federation and a major player for the provincial and national New Democratic Party.  She has a column in the weekly Telegram, for which she once worked.  That’s where she wrote those words, at the start of a column about the federal Conservatives.

Payne has a special hate on for Stephen Harper and his Connies. Sometimes it seems that hardly a moment goes by before Payne is tweeting, writing or telling a reporter about the awful f*ckers, those federal Tories.  No words are too strong for Payne to use in condemning Harper and his cronies.  There are no crimes, it seems, that she could not imagine them doing.  There is no evil too black for them to plot, deep in their caves,as they stroke their beards and lick the blood of some freshly killed innocent from their lips.

Payne hates Tories the same way any ideologue hates competition. Doesn’t matter if the ideology is religious or political. The reaction is the same, one for the other.  Payne’s column follows the form:  the Tories are waging an ideological war. She is merely exposing them.  They Lie, the blasphemers.  Only the “I” can tell you the Truth. Her opening sentence is a tracer round fired to light up the enemy.

Only a true ideologue, though, could start a column about the crucial role of lies in ideological war and not – apparently – realize the veracity in all tracer rounds  Tracers, you see, point both ways.

The same weekend that Payne fired at Harper about fighter jets and cooked books, Payne appeared in her usual role as pundit on CBC’s On Point with David Cochrane to talk about next week’s provincial budget.

Asked about the provincial government’s limited restraint coming in the next budget, Payne blessed it as sound since the government’s problem was “short-term”. Things are growing. Things are good.

She dismissed Telegram editor Russell Wangersky’s challenge that the problem wasn’t so transient.  We have paid down on debt, according to Payne. The debt-to-GDP ratio is among the best anywhere.

The provincial government has done no such thing of course.  The public debt remains at record levels. It only appears smaller by some calculations if you include a raft of cash the government has laying about.  The money is ear-marked, of course, for Muskrat Falls.

So paid down the debt?  No.  That would be false.

And as for the debt-to-GDP ratio?  Well,  that would depend on your definition of debt.  The provincial auditor general uses net debt.  As we’ve noted, that figure can be misleading since it includes cash that is actually already ear-marked to be spent.  The result is a misleading, low number for debt compared to a value of the economy, which, by the way, shifts based on a couple of highly volatile prices.  

Really with that indicator you are dealing with the same problem as the first one.  So far Payne is zero for two biggies on the veracity front.

Payne also doesn’t talk about the vulnerability of the economy, built on the precarious base of public sector spending that comes from volatile and unreliable oil and mineral prices.  Think of that as a lack of veracity by omission.

Zero for three.

These omissions must be a necessary weapon in the ideological war, as Payne told us. The ideology in this case is Payne’s concern to represent the major unions in her federation. They represent people who get their paycheques from the public purse. More public sector good.  Less public sector bad, always, according to that ideology.

Now ideology, like religion, can be a good thing. It can help people give shape and meaning to life. It can help them do good.  It can be a comfort.

The problems start when ideology becomes a barrier to other ideas or to thought and reason.  That’s when you get tunnel vision.

And nothing good for anyone ever came from tunnel vision.

-srbp-

Dundernomics 101: Public Sector Employment Numbers #nlpoli

In an interview with CBC’s David Cochrane, Premier Kathy Dunderdale said that the public service has grown by more than 2,100 jobs in the past eight years and that total employment in the public service is about 9,000.

Well, not exactly.  That depends on what you consider to be public sector and “public service”.

As labradore noted last July, the entire public service sector in this province – federal, provincial, municipal and Crown corporations accounts for was more than that.

The growth in public sector employment alone 11,500 between 2006 and 2011.

If you look at figures for 2010, the totals are way more than what the Premier talked about:

In the first quarter of 2010, approximately 53,780 people in Newfoundland and Labrador worked in some portion of the provincial public sector: 11,550 in the provincial civil service, 20,400 in public health-care and social services establishments, 10,900 at Memorial University and the public colleges, and 10,930 employed by the various public school boards.*

Even if we allow that the Premier defined “public service” pretty narrowly in 2012,  you can see that in early 2010 there were 2,500 more people working in the public service,  that is, just working directly for the provincial government than the Premier currently claims work for government in total.

And yes, that is way more than the 2,100 jobs the Premier claims she and her colleagues added – in total – since 2003.

Confused?

Well, obviously the Premier is.

And if she doesn’t understand what is going on now and what has gone on in the recent past – stuff she actually lived through and decided already – then it is going to be very hard for her to understand whatever the current review comes up with.

Confusion about the basics also explains why the Premier could claim that 3% of what she herself has called almost $8.0 billion in public sector spending is about $100 million.

Three percent would be $240 million.

Two percent would be $160 million.

One point two five percent (that is 1.25%) comes out to $100 million.  And for anyone who is still unsure, 1.25% is closer to one percent than it is to two percent.

All those jobs come at a price.  Here’s another pretty chart from labradore to give you a sense of what those payroll costs are:

The figures are for early 2011 and the total bill hits about $2.65 billion.

None of that is about whether the jobs are needed or not, whether the people do good work, what the impact of any cuts would be or anything else related to it. 

This is just to establish so everyone can plainly see that what the Premier said everywhere last week on several occasions and what is actually going on are two completely different things.

To her credit, the Premier acknowledged in one interview that she had frigged up her explanations of things last week.

But that was before she told David Cochrane that temporary employees could be getting the heave-ho in order to meet her  targets.

That likely isn’t correct either, by the way.

So as we start the week, expect that the most common noise you will hear will be the gigantic garbage truck of government communications beep-beep-beeping as it backs up  - yet again - and tries to move forward  - yet again - again without turning the same information into road kill for the third or fourth time in the past seven days.

– srbp -

The Fragile Economy: addictions management #nlpoli

The provincial government in Newfoundland and Labrador spends more per person on delivering services for most things than does any other provincial government in the country.

Health care is the one the Premier highlighted a couple of weeks ago.  There are others.

This is not something new.  Here’s a snippet from a post in 2009 back when Paul Oram lit the issue up from inside the current administration.  Note, though, that the quote highlights the situation three years earlier:

That level of per capita spending [second only to Alberta] is unsustainable in the long run. As a recent Atlantic Institute for Market Studies assessment concluded:

“If the province fails to reign in its whopping per capita government spending (about $8800/person [in FY 2006]) and super-size me civil service (96 provincial government employees /1000 people) it will quickly erode any gains from increased energy revenues.”

The reason for all this spending and the generally high cost of government in this province is simple:  government spending is all about paternalism, patronage and pork. 

Note that the largest employer in Grand Falls-Windsor these days is the local hospital.  The town is also a centre for government services and, as in Stephenville, the major provincial government response to the mill closure was to push in more public service jobs.

Public spending is all about jobs.

The problem with public spending is that it is easy to get hooked on it.  Not surprisingly, a recent post at the Monkey Cage went with the title “The Narcotic of Government Dependency”.  It’s a pretty concise discussion of the issue from the American perspective with plenty of interesting links.  Follow the links and you’ll find plenty of stimulating stuff. 

Canadians might find it especially interesting to see reference to David Frum’s assessment of the inherent contradiction in conservative arguments.  While they rave and rant against public spending on a ideological basis, on a practical basis, American conservative constituencies are also among the biggest beneficiaries of federal government programs.

Now in this province, the local conservatives don’t really have an ideological basis to argue against public spending. They aren’t really caught in that trap.  But it is interesting to notice the gap between their self-image of being fiscally conservative, debt- fighting wunderkind and the reality of running up the biggest debt load in the province’s history and wanting to jack it higher.  Plus they’ve increased dependence on government spending and increased the public service to an unprecedented size.

looked at from that perspective, Kathy Dunderdale’s recent speech about the need to tighten public spending wasn’t so much about putting the province on some kind of methadone program for patronage junkies so you could get ‘em off the junk.  It seems more likely to have been about another type of addictions management, more like “b’ys we gotta lay off the pipe for a while and just do the oxys and some percs”.

- srbp -

Busting the boom in central #nlpoli

Headline:  “Grand Falls-Windsor growing without mill”.

Sounds marvellous.

Then you read the story.

Turns out that the central Newfoundland town is doing well without its major private sector employer because people are shifting there for the public sector jobs and services.

There’s a passing reference to mining, and then this:

But more importantly the community is a service centre for towns in the Exploits River Valley and communities on the northeast coast.

The hospital in Grand Falls-Windsor was already the town's largest employer before the mill closed and the community has a shopping mall, restaurants and car dealerships.

Some people from nearby communities have been moving in for those services.

Regular SRBP readers have seen this before, like in 2010.  The core of the story is still the same.  People – mostly retired people on fixed incomes – are headed for town where it is easier to shop and get medical attention when they need it.

Nothing surprising in that at all.  That’s what we’ve been expecting them to do, in fact.  Government demographic assessments dating back 20 years all pointed to this as one side-effect of the aging population. 

But any economic assessments at the time anticipated there’d be a large private sector employer that would be bringing new money into the economy from export sales.  That new money would help drive the economy in the form of wages and help pay for municipal services through various taxes.

That employer is gone and so central newfoundland, like so many parts of the province, is depending very heavily on the bloated provincial treasury to keep pushing out cash as it has been since the Tories took office.  There’s absolutely no question about the relationship between public spending and the local boom in central when the public purse is the source of the boom. Cuts to public spending, whether in Grand Falls-Windsor directly or in the surrounding communities, will have an effect on the town’s economy. 

The boom might soon start to bust, at least if the provincial government actually does what Premier Kathy Dunderdale says they’re going to do. Tighten those belts, folks.

- srbp -

The reality of her world #nlpoli

Some people are trying to make a controversy out of Premier Kathy Dunderdale’s recent comments that public sector unions should “expect a more modest increase” than the salary rises they’ve been used to from the Conservatives since 2003.

Look at “the reality of the world”, Dunderdale admonishes everyone.

Well, a look at the world she lives in  - as opposed to the one people imagine exists - reveals a great deal.

Revelation One:  As labradore has noted repeatedly, the provincial Conservatives are responsible for expanding the public service both in absolute numbers and as a share of the provincial labour force.

In his most recent version, labradore notes both the size of the public sector: 25% of the provincial labour force.  Then he adds Revelation 2: the growth in the total value of the pay packet.  Since 2006, the total public sector pay cost has gone from about $1.9 billion to about $2.65 billion by January 2011.

Revelation 3 really puts it in perspective. Scan down through David Campbell’s commentary in the Globe on December 28 and you’ll find plenty to knock your eyeballs out about the growth of the provincial economy. Take the bits rom labradore and put it together with this on the relative position od the public sector pay envelope compared to the national average:

In 1998, the average weekly wage in the public administration sector in Newfoundland and Labrador was more than 22 per cent below the national average. Now it is 3.3 per cent above. That is a monumental shift in wages over a short 11 year period. A similar, but less pronounced story is found in both the health care and education sectors.

Most of that increase came since 2006.

So for anyone who is still harbouring any misapprehensions, understand that the provincial public sector has been driving the provincial economy for the past decade.  Thousands of more employees making – collectively – hundreds of millions more year over year and you have the growth since 2006 focused on the northeast Avalon. 

Now add to that the sources of provincial government revenue, as laid out in the annual provincial budget Estimates. You start to see the role that taxes on individual incomes and consumption play in fuelling the explosion in government spending since 2006.

Mining taxes and royalties produced about $167.5 million in revenue in 2010.  Personal income taxes brought in $888 million and sales taxes brought in another $791 million. Even gasoline taxes brought in more than mining royalties ($168.45 million) in 2010.

The forecast for 2011 did include an increase in mining royalties and taxes to $343 million. But even with that, two of those three taxes will still produce well over double the amount for the treasury than will come from rent companies pay for the privilege of exploiting the province’s non-renewable mineral resources.

When you look at the reality of things, Kathy Dunderdale and the Conservatives can’t afford to chop into provincial spending without putting a gigantic chill in the local economy.  As much as Dunderdale likes to admit that she and her colleagues have been irresponsible in boosting public sector spending to unsustainable levels, they haven’t left themselves any real manoeuvring room politically.

Now this might seem a bit harsh to Kathy’s delicate sensibilities, but the reality is that Dunderdale can’t do anything but provide the public sector with some lovely increases in their coming contract negotiations. 

When Kathy Dunderdale says public sector unions should expect more modest increases, we should understand she is probably speaking relatively.  Compared to their last contract when they got an eight percent jump followed by three successive years of four percent, public sector employees should probably look for something like four years of four percent. or four percent followed by three over the subsequent years.

But any serious confrontation?

Don’t count on it.

The Tories don’t have the nuts for it, pea or otherwise.

- srbp -

Labour crunch coming

Only the naive or the demented would portray the looming labour crunch in the province as a “tremendous opportunity”.

A report released on Wednesday by the provincial human resources department forecasts that by 2020  - less than a decade from now - there will be 70,000 vacant jobs in the province.  They will be in all sectors of the economy.  They will be in all areas of the province.

The primary cause of the vacancies will be retirements. Only 10% of the vacancies will come from employment growth, that is from new job creation.

This is not an opportunity of any sort.  Newfoundland and Labrador will face a labour shortage at the same time as the rest of North America will go through the same problem. Many of the jobs will remain vacant because there won’t be anyone to fill the positions. Some other provinces, notably Quebec, will face a far worse situation.

This is a situation that the provincial government, labour unions and businesses have seen coming for more than a decade. So far, they have done nothing about it except talk about it.  Now the problem is here.

It represents a very real financial problem for the provincial government.  As baby boomers retire, some costs like health care will increase dramatically.  At the same time,  revenue sources will drop off as there are fewer people working to produce taxes and other sources of government revenue. Increasing the number people drawing a government paycheque may look good  for votes in the short-term, but when you look at the big picture, you can see just exactly how grossly irresponsible the current administration has been for the past seven years.

Regular readers of these scribbles will be very familiar with the implications of the looming labour crunch. Unsound financial management by the current administration promises to make the problem much worse than it would have been if people in responsible government positions had acted instead of talking before now.  The Muskrat Falls megadebt project looks even stupid in this context than it does standing on its own.

Only the naive or the demented would look on this as anything positive.

Government, labour unions and business leaders have seen this coming and they’ve done nothing about it except talk.

On Wednesday, they carried on as if nothing happened.

- srbp -

Public sector job growth outpaces private in NL

From labradore:

In the five years since the recent-historic low, in early 2006, of about 55,600 public-sector employees, the public-sector labour force has increased by about 11,500 or over 20%. As a share of total employment, the public sector has grown from 26% to 30%.

The twelve-month average ending in June 2011 was 67,100 — an increase of 4100, or 6.5%, from the same period twelve months earlier. This represented an increase of over half a percentage point in the public sector's overall share of the employed labour force.

Then there are the pretty charts showing the public sector employment, federal, provincial and municipal, in thousands of people:

and the private sector:

 

So when you have digested the full impact of that little bit of information, consider what the Muskrat Falls project is really all about: the megadebt will be worth it because it will “bring significant employment and income to the residents and businesses of Newfoundland and Labrador.”

 

- srbp -

Related:

• The Fragile Economy;  … and two steps back
• The Fragile Economy:  hard numbers

15 ideas (and more) – Setting the Table

Our economic vision for Newfoundland and Labrador is that of an enterprising, educated, distinctive and prosperous people working together to create a competitive economy based on innovation, creativity, productivity and quality.

Strategic Economic Plan, 1992

Our social vision for Newfoundland and Labrador is of a sharing society which balances its economic and social interests, cares for its disadvantaged, nurtures its human and physical environment, celebrates its quality of life and traditional values of individual respect and community responsibility and provides opportunities for personal and collective achievement.

Strategic Social Plan Consultation Paper, 1995

 

Within a mere two decades, Newfoundland and Labrador transformed almost two centuries of economic backwardness into unprecedented growth.

And yet, as we enter the second decade of the 21st century, a number of factors, some identified in the early 1990s, threaten to rob Newfoundlanders and Labradorians of the bright future they worked to achieve through careful planning, steady work, and a steely determination to endure.

Public sector debt remains at record levels.  Rather than reduce debt, the current Conservative administration plans to increase the debt burden still further by building an economically unsound megaproject.  What’s more, the most recent economic forecast predicts that the current administration’s policies could triple the debt within a decade.  That is on top of the burden from the  Muskrat Falls megaproject.

Changes in the province’s population, forecast in the early 1990s, have started to create pressure for new government spending and more government spending.  Just paying the interest on the growing debt will rob money that could be helping to pay for those new services.

The highly competitive global economy that has emerged in the past 20 years, coupled with fall-out from the recent recession, will demand even greater inventiveness if businesses in Newfoundland and Labrador will meet the challenges these changes present. 

Yet, over the past decade government policy has fostered greater social and business dependence on government hand-outs.  The result is a fragile economy that will grow less robust and more susceptible to set-backs.

The answer to these challenges can be found in the principles that lay at the heart of the 1992 Strategic Economic Plan: 

• We must foster a change in people.  We must renew genuine pride, self-reliance and entrepreneurship. We must once more become outward-looking, enterprising, educated and innovative. 
• We must change government.   Our people do not need saviours or demigods.  They can run their own affairs.  We must introduce fundamental democratic reforms.  Decisions about education, health and economic development must be made closer to the people directly affected by them. The role of government is to create an environment in which the private sector can develop economically and environmentally sustainable  businesses.
• We must change relationships. We must replace the chaotic, secretive and highly centralised government of the past decade, with mature, professional and open government based on sound long-term planning and a genuine understanding of the province’s long-term interests.  Beyond that, we must forge new relationships among governments, business, labour, academia and community groups of the sort envisioned two decades ago. We must build a strong relationship between the federal and provincial governments in order to deliver government services as efficiently and effectively as possible while ensuring that the people who pay for those services can hold the right government to account for what they do.

The ideas that will follow in posts over the coming days and weeks are nothing more than the starting point for discussion.

Only through vigorous, free-wheeling public debate can we build a mutual understanding among all the people of the province on both the necessity of change and of the specific changes themselves.

Change is not a luxury.

Change is not merely possible.

Change is essential.

- srbp -

Next:  Building the Fishery of the Future

Harris Centre economic forum: the media coverage

The Telegram’s James Macleod had a decent front page summary of the Harris Centre’s discussion of economic issues facing the province and the subsequent discussion.

The CBC has a super short version that is already bumped off the front page of its website in favour of stories like one on a baby bear in Terra Nova park, a batch of fake 20s making the rounds on the northeast Avalon and an earth-shattering story about two idiots who stole metal for scrap and found out it was worth more than they thought when they wound up in court for the theft.  Talk about if it bleeds, leads.

Anyway, for those in tune with evidently less important issues – how does an multi-billion dollar economic mess compare to two scrap metal dorks? -  Wade Locke’s presentation isn’t on line yet but here is the slide likely to be causing a few stomach’s to turn in knots. 

It’s Locke’s deficit forecast based on current trends and current government policy:

Within a decade the current account deficit will be running at record levels if the current administration carries on with its policies. We can expect more of the same from the incumbents since finance minister Tom Marshall is already trying to pretend that the mess doesn’t exist or that he has things under control. 

Unfortunately for the rest of us,  it does and he doesn’t.

- srbp -

The looming debt problem

The government’s favourite economist is sounding alarm bells about the provincial government’s financial health.  The finance minister, on a local talk radio program, sounding stressed as more and more people start talking about what has been obvious to readers of this corner for some years now:  the provincial government is in a financial jam and the current crowd running the place have no idea what to do about it. 

Well, if they do have an idea, they have no intention of doing anything, at least within the next four or five years.

Part of the charade they’ve been relying on the past few years is the perception that not only are happy days here but they aren’t ever going to leave.  In some years, the finance minister hasn’t been above presenting completely laughable forecasts during the Christmas season to keep consumer spending going through one of the most tax-rich seasons of the year.

Just as the proverbial chickens are coming home to roost in Tom Marshall’s office, it may not be too much longer before a fewer fowl start fouling other bits of the province.

Last week local news media mentioned a report on consumer debt.  Newfoundland and Labrador saw the largest jump in the country last year – along with Quebec – at 7.8%.  As CBC reported, the average consumer in the province owes $23, 372. That doesn’t include household mortgages.

Flip back to March and you’ll find a red flag on that issue. It was a report by the Bank of Montreal that warned Canada’s housing prices were getting perilously close to a “correction”: especially in places where prices were outstripping incomes or if inflation rates changed rapidly.

Marketwatch.com’s Bill Mann summarised it this way:

The cautionary Bank of Montreal report  says average home resale prices compared with personal incomes are 14 per cent above the long-run trend, up from last summer, although still below the 21-per-cent peak that preceded the 1989 crash.

But that is not the case in all Canadian real-estate markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms. That province has a booming commodities industry, centered around potash and oil.

Also well above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

Overall in the province, debt servicing costs are the lowest in the country according to the most recent report from the Certified General Accountants Association of Canada. But that doesn’t mean there aren’t pockets of risk.  The CGAA also reported that incomes in the province fell short of previous growth:  problem is the year they are referring to isn’t clear, even though the report was issued in 2010.

Just thinking about it for a second, one could easily imagine there are a couple of potential hot spots in the province.  The northeast Avalon and western Labrador are experiencing particularly strong growth and that’s where you’d be more likely to see heavy debt loads and high debt to income ratios.

Not surprisingly, personal debt is one of three issues Bank of Canada deputy governor Jean Boisvin, right, highlighted in a speech in March that Canadians needed to watch as the country emerged from the global recession:

Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income. In the autumn of 2010, Canadian household debt climbed to an unprecedented level of 147 per cent of disposable income (Chart 7).

The relatively healthy financial condition of Canadian households at the beginning of the “Great” Recession helped the Canadian economy to better withstand the initial shocks of the crisis. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.

Here’s Chart 7 from the speech:

The other two issues were international competitiveness and productivity and investment.

There’s a parallel between the condition of the provincial government’s books and the household accounts in some areas of the province. Just as the provincial government has grown increasing susceptible to small shifts in economic circumstances, so too may more and more households in the province be vulnerable to shifts in the provincial economy.

If the province’s politicians scarcely recognise their own financial problems, it makes you wonder if they might be aware of the issues looming for consumers in the province.

- srbp -