Speaking on VOCM’s Open Line on Tuesday, finance minister Tom Marshall explained what will happen in the House of Assembly during the Muskrat Falls debate coming up in June:
The opposition will get its say, then the government will get its way. That’s how democracy works.
That pretty much sums up the fundamental problem in this province since 2003.
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There’s something truly frightening listening to politicians and former politicians discussing the provincial government’s supposed plans to apply a surplus in the current fiscal year to the provincial debt.
They aren’t doing it.
Full stop.
The provincial government is not using any of the surplus to reduce actual government debt.
And if that wasn’t all bad enough, you get three panelists on CBC’s On Point – starting with Lana Payne - talking about the need to have an “adult conversation” about the provincial debt and public spending. You cannot have an adult conversation about anything when the conversation is essentially based on fiction. All six political panelists on the show had their own particular fictions they spouted.
Payne then demonstrated how hard it is to have such an informed conversation. She justified the unsustainable increases in public spending and growth in the public service over the past seven years using the Tory lie about “catch-up”. Then for good measure she promised that labour unions will resist any financial restraint in the public sector.
For the hat trick of dark humour, go back to last week’s financial update. Finance minister Tom Marshall said that we “need to start the debate around where Newfoundland and Labrador sees itself 10 to 20 years from now.
Too late.
Tom and his colleagues have already made that decision with Muskrat Falls.
The only discussion left to have is how future provincial governments will cope with the mess Tom and his pals have created.
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Celebrity economist Wade Locke thinks it’s just great that the provincial government is going to use any surplus on its current budget to pay down debt.
As he told the Telegram:
Putting it towards debt was the best thing, I think, you could do.
Too bad for Wade that he is praising them for something they aren’t doing.
Wade did have some comment about spending the cash:
Spending it would be wrong and it would create more problems in the future.
Wow.
Two for two in one quote.
Wade’s on a roll.
Hang on. Wade did the hat trick:
“You still have to, when you’re doing your budgetary stuff, think about what is the long-term focus you want to have. What are your priorities?” Locke said Thursday. “We haven’t had that discussion, and I don’t think the government has had that discussion either.”
Of course, they’ve had the discussion, Wade, old man.
They had and then they had their decision ratified in the recent election, or so they thought.
Their priority is Muskrat Falls.
Wade can’t comment on that, though just like he wouldn’t comment on it when he made his earlier comments about the coming debt crisis.
Wade, you see, has done some consulting work on the project. That’s why he left it out of his debt analysis.
Maybe you should read Wade’s comments again about what a good idea it is to pay down debt.
But this time take an extra pinch of salt beforehand.
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Tom Marshall can’t seem to make up his mind whether oil prices are easy to forecast or tough to figure out.
On Thursday, he seemed to tell the St. John’s Morning Show host Anthony Germain that figuring out what oil prices will be in the future is pretty much a blind guessing game.
Prices could go up.
Or as Tom joked, they could go down too.
Yep.
And if you think that’s bad, labradore noted Tom’s problem extends to forecasting what his view was on forecasting oil prices.
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Tom Marshall made the rounds on Thursday talking up his latest financial update.
But after a call to Randy Simms on Open Line, Marshall likely felt likely he’d gone a few rounds in the ring. Simms asked a few sharp questions rather than let Tom ramble on with his usual shite. And in asking a few simple questions, Simms just had to sit there and listen as Tom tied himself in contradictory knots. Tom’s been in the state before – like on Muskrat Falls and Bay d’Espoir – but this time Randy wasn’t letting up on him.
Things started badly for Tom when he had to explain right off the bat that all his bullshit on Wednesday about applying the surplus to the net debt was, not to put a fine point on it, just bullshit. No surprise for regular readers of these e-scribbles as Tom explained that net debt is just a calculation of assets and liabilities.
When Randy pressed Tom on what the provincial government will actually do with the cash, Marshall said they’d be spending it on capital works rather than borrow, as planned. Fair enough, but then he noted that the provincial government hasn’t borrowed for capital works in years. Tom wound up going around and around before it became clear that his talk about using the cash to avoid borrowing was not what Tom was trying to make it out to be.
It was, in fact, far less.
To get a sense of what might have buggered up the finance minister, take a look at the Estimates. That’s the budget document that lays out the proposed spending on day-to-day operations and capital works for 2011.
And just so that everyone is on the same page with this, understand that Tom the Finance Minister reports the Estimates on what is called a cash basis while the budget speech and the financial update use accrual accounting.
One big difference in how the two different methods show the government’s financial performance comes right up in the front of the Estimates.
In the budget speech, Tom Marshall talked about a $59 million surplus. What you can see in Statement 1 of the Estimates is a deficit of about $769 million. In other words, when the finance department looked at the actual cash it would receive in 2011 and the bills it would pay, the government planned to spend $769 million more than it would actually take in.
The only way they’d make that up is to borrow cash. Normally, governments would have to go to the bond markets or the banks and borrow the cash.
Over the past few years, the provincial government here has managed to pile up a couple of billions dollars or more in cash and short-term investments. Rather than borrow from the bank, they’ve covered off cash deficits by taking the money out of that pile of cash.
It’s still borrowing, of course, even though it would never get repaid.
And last spring, that’s what Tom Marshall planned to do: borrow cash to cover a deficit. He and his colleagues planned to overspend and they planned to borrow cash from every person in the province to pay for it.
When Marshall announced in May that the surplus would grow to $200 million, that was on the same accrual basis as the $59 million.
But on the cash basis, the deficit would have only dropped from the $769 million Marshall planned for down to a little over $500 million.
But it was still a deficit.
A real deficit.
And Marshall would have had to take a wad of cash from the piles hidden under his mattress to cover it off.
So now that Tom has boosted the accrual surplus to $755 million, some of you might be already leaping ahead.
Yes.
That’s right.
And for the rest of you who resisted jumping ahead, understand that if the new revenue projections hold, Tom Marshall will likely still have to borrow some cash to cover it off. Another $755 million in cash would leave him short about $14 million on that $769 million deficit in the Estimates.
So that borrowing Tom talked about with Randy Simms likely wasn’t about capital works spending. It was likely the borrowing in the Estimates.
When it comes to provincial finances since 2003, about the only surplus there’s been has been bullshit flowing from the provincial government’s spin machine. The latest update is no different.
The provincial government’s financial truth deficit, on the other hand, continues to grow.
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Finance minister Tom Marshall delivered his fall financial update on Wednesday. Thankfully they no longer wind up being called mid-year updates since they appear long after the middle part of the fiscal year.
Having successfully lowballed some of their numbers from the spring budget, Tom’s officials have produced a surplus – on an accrual basis – of what they figure will be more than $750 million.
The extra cash is due to higher than forecast oil prices coupled with higher than forecast offshore oil production.
“This surplus will be applied directly to debt, decreasing the province’s net debt to approximately $7.7 billion, which is a significant achievement,” said Minister Marshall. “There has never been a better time to live in Newfoundland and Labrador. A robust economy is producing record employment, income levels and consumer confidence. Having said that, we must remain prudent in our fiscal management as there are challenges on the horizon that we must face.”
In a media interview, Liberal finance critic Dwight Ball clapped the minister on the back for paying down debt and gave him a bollocking for not being able to forecast things more accurately.
New Democratic party leader Lorraine Michael gave Marshall a dressing down for not spending all the extra cash. it was so predictable a statement one wonders why Lorraine is still hogging the spokesperson job.
One statement.
Three stories.
Wonderful stuff, of course, except that everyone seems to have missed the one gigantic fib in the whole thing.
No one is reducing any public debt whatsoever.
Tom Marshall claims he will do it. he claims in the media release that he and his friends have been doing it all along.
But it is complete nonsense.
You can tell it’s nonsense because both the news release and the financial update itself refer to net debt.
And as regular readers of this corner know, net debt is nothing more than an accountants statement of all that you owe less anything you have on hand you could sell off to pay the debts.
This extra bit of cash that’s just turned up won’t actually be used to reduce any debt at all. Most likely it will be set aside to pay for – Lorraine will love this – to cover off an increase in spending next year or to help pay for some massive cost over-runs on this, that or another infrastructure project. SRBP went through the whole thing back in May when Marshall forecast that he would have a healthy surplus. As it turned out, his forecast of a bigger surplus than originally forecast still lowballed the final result.
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Why would Nalcor mislead the people of Newfoundland and Labrador, asks finance minister Tom Marshall with all the seriousness he can muster.
Yes folks, the fellow with one of the worst cases of pinocchiosis politica ever seen in this province wonders how people at a Crown corporation who hang out regularly with politicians some of who are infected with P. politica could catch the same disease.
Let’s leave the question of motivation out for a second and look at whether or not Nalcor and the provincial government are misleading people about Muskrat Falls.
The answer is undeniable: yes, they are.
Take recall power as a classic example.
The province will need more electricity within the next decade, according to Nalcor. For the sake of this post, let us assume that this is correct.
And what’s more, let’s go with the idea that the extra electricity is measure on the scale of several hundred megawatts.
Where to get that extra juice?
Muskrat Falls, says Nalcor. Gigantic project, but we have to do it because the power is needed and it will be cheaper in the long run.
Again, for the sake of this post, let us allow all those things.
Recall power, sez someone on a morning open line show. Bring power back from Churchill Falls.
Not enough.
Only 300 megawatts, total. Some is already sold and used in western Labrador and the rest just isn’t enough to meet the need. One of Nalcor’s communications people even sends the radio show host and e-mail making the point.
While the information is correct, it leaves out a whole bunch of other stuff.
And that’s what makes Nalcor’s version of recall power grossly misleading.
Under the law that is supposed to ensure the people of the province get the electricity they need at the lowest possible price, the public utilities board could recall as much electricity from Churchill Falls as the people in the province need.
Churchill Falls (Labrador) Corporation – the people who make the power – and Hydro-Quebec – the people who buy it – would get paid for their lost power. They’d get compensation.
We don’t know at this point how much the compensation would be but the cost would be not even half what Muskrat Halls power will cost people in this province.
Heck, your humble e-scribbler would lay odds it would not even be even ten percent of what the Muskrat falls power is going to cost local taxpayers.
All the provincial government would have to do to make that happen is tax take back an exemption Nalcor got from the provincial government while Beaton Tulk was interim Premier. The exemption makes sure the PUB can’t control electricity in the province. It also ensures Nalcor doesn’t have to deliver power at the lowest cost to consumers, if the company doesn’t want to do that.
All that Nalcor would have to do is run a line from Churchill Falls to Soldiers Pond. And gee, isn’t that line what they already have planned and costed at less than $2.0 billion.
Poof.
Job done.
Total cost: not even half of the current estimate for Muskrat Falls and all the transmission lines.
No question: Nalcor is misleading the people of the province about recall power.
But why would they do it, asks the finance minister?
Well, only the gang at Nalcor can say for sure, but let’s just recall what Fortis boss Stan Marshall said once about the problem with Crown corporations like Nalcor and expensive projects:
“Simply when things go wrong we’d like to be able to rectify them,” he told reporters.
“If you’re going to go in with a partner you’ve got to know that partner very, very well, have a lot of commonality.
“Governments … their agenda can be very, very different than a private enterprise.”
Government’s agenda can be different from that of private enterprise.
In other words, Crown corporations might do things for political reasons instead of sound business reasons. Muskrat Falls gave Danny Williams the political cover he needed to quit politics. Now Muskrat Falls is the Tory party’s election platform.
Nalcor couldn’t disown this project even if they wanted to.
It’s politics.
So they have to tell only half a story, like the misleading story they tell on recall power.
Or, for that matter, like the story Tom Marshall tells about the public debt.
If Tom Marshall wants to know why Nalcor misleads people, he need only look in the mirror.
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Earlier this week, finance minister Tom Marshall announced a second increase in the estimate for offshore oil production for 2011 and with it an increase in provincial government revenues.
Marshall claims the money will go to paying down the public debt.
It won’t.
Every time Tom Marshall says he’s paid down the debt, his nose grows. Marshall has a case of pinocchiosis that defies medical science.
If his case of pinocchiosis politica swelled something other than his nose every time he bullshitted about paying down the debt, Tom could do porno as if he was Johnny Wad and Ron Jeremy and Long Dong Silver combined.
The cash will either:
Speaking of spending, that’s exactly what the local chapter of the New Democratic party wants to do with the windfall cash.
"This money, I think, needs to be seen as revenue that has come early, and we [should] keep it until we look at how we need to spend our money in 2012/2013," Michael told CBC News.
You will not be able to slide a sheet of paper between the political parties in this election. They will all have the same policy, especially hen it comes to spending.
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How many false or misleading claims can one cabinet minister make in one letter to the editor of the province’s major daily newspaper?
Let’s see how Tom Marshall did in a letter to the Telegram headline “Province in excellent shape”.
Misleading:
When this government came into power, Newfoundland and Labrador’s finances were in a very precarious position. Annual deficits were approaching $1 billion and an independent review at the time noted that if significant changes were not made, the provincial debt was projected to reach almost $16 billion within four years
What Marshall doesn’t say is that his current plan would increase the public debt to more than $16 billion base don a combination of continued deficit spending on the annual budget and the Muskrat Falls project.
False:
To turn things around, we developed a plan and stuck to it. In that short span of eight years, the turnaround that has taken place in Newfoundland and Labrador is remarkable.
The plan - if there was one – had nothing to do with any subsequent provincial government financial windfalls. The whole thing came from a combination wild oil price increases and royalty deals signed before 2003.
False:
Instead of increasing, our debt has actually decreased by almost $4 billion.
The total public liabilities sit at $12.5 billion according to the most recent Auditor General’s review. The provincial government has current financial assets on hand of $4.0 billion but those are already committed to other things. While they appear to reduce the public debt for accounting purposes – what Marshall is talking about – the reality is that what the provincial government owes is, at best, only marginally lower than what it was in 2005.
False:
Of course, that means our debt servicing costs have also dropped, which leaves us with more money to invest in the people and communities of the province.
According to the most recent Auditor General’s review, debt expenses increased in 2010 to a level they haven’t hit for three years.
Misleading:
We have not borrowed in the capital markets for operational purposes since 2004 and only borrowed in 2007 to reduce the unfunded liability in the province’s pension plans.
They may not have borrowed money from the markets but they have borrowed from the cash surpluses (that’s the stuff that makes the debt appear smaller than it is). Borrowing to cover a deficit is borrowing and it has a cost.
Misleading, maybe false:
Once developed, these assets will provide a stable, predictable revenue stream which will cover all debt servicing costs.
There is no evidence to suggest that the provincial treasury will gain $1.0 billion in annual royalty and fee payments from Muskrat Falls or any other Nalcor asset.
Misleading:
Our debt to GDP ratio, one of the primary indicators of the financial health of a province, is among the best in the country and has improved from an unsustainable level of 70 per cent in 1999…
The debt to GDP ratio changed because of the massive increase in oil prices. If it drops, the debt ratio will drop with it back to levels that are “unsustainable”.
And if Marshall’s Muskrat plan goes through, then the “unsustainable” level gets easier to hit.
Misleading:
It is also worth noting that the credit rating agency Standard & Poors, while upgrading our credit rating from ‘A’ to ‘A+’ in 2010 (the highest it has ever been), noted that Newfoundland and Labrador “has a strong liquidity position, reflecting its past operating surpluses and prudent spending practices.”
‘Strong liquidity” is a reference to the cash and means that if they had to the provincial government could pay off a raft of debt in a hurry.
But since the cash is earmarked, it really isn’t as readily available as that comment makes it seem.
Marshall makes an oblique reference to that with the next comment: “Using current revenues from non-renewable resources for renewable energy projects for the future benefit of Newfoundland and Labrador is the core of this province’s Energy Plan.”
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Take a look at this picture.
It comes from Wade Locke’s presentation at a conference of the province’s credit unions in Gander in the latter part of May.
The blue line is government income (revenue). The red line is government spending (expenditure).
When the blue lie is above the red line, you have a surplus. When the red line is above the blue line you have a deficit. The distance between the blue and the red line is the size of the surplus or deficit in any given year.
Let’s zoom in on the last bit there because it shows a period where government spending is going to outstrip income in every single year. yes, despite being a have province and pulling in billions in oil money every year, the current administration is forecast to rack up the public debt by plain, old-fashioned overspending.
Now there are a couple of things to note here.
First of all, Locke is allowing for constant spending. As he notes in the text under the slide, it is actually different from the provincial government version that claims a drop in spending three years out.
Given that the current budget shows a sizeable increase in spending you can safely forecast a five percent increase in annual government spending in every single one of those years. That’s actually much less than what the Tories have done since 2003 but let’s be - no pun intended – conservative in our forecast of their overspending.
Second of all, let’s look at Locke’s explanation for this problem: “growth in oil royalties does not offset loss of $540 million in Atlantic Accord monies in 2011-2012”
There are two words for this: pure crap. In more polite terms, this is where Locke’s economics proves woefully unable to contend with a fundamental problem in government policy. His comments, as a result, are simplistic in the extreme and – at the very best – misleading.
What you have here – in simplest terms – is a government that has no control whatsoever over public spending. The reason spending outstrips income is because the provincial government lacks a policy that would allow it to establish spending priorities and to stick with them.
What’s more, those big blue spikes there in the middle and the surpluses they represent are purely accidental. The only reason they exist is because the money flooded in so fast that the finance ministry ran out of places to spend the money during the year.
Sound fiscal management – spending public money wisely – is the most fundamental responsibility that a responsible government has. If a government doesn’t control spending it can wind up, in the extreme, in the situation newfoundland found itself in the early 1930s.
All Locke does here is offer an excuse by trying to shift responsibility from the government responsible for the mess to one that isn’t. What’s more, even if the federal government agreed to continue sending $500 million annually to St. John’s any provincial government that cannot control public spending will always be running up deficits.
What is truly chilling in this slide is that last bit. It ends in 2017, the same year the current administration forecasts it will have finished building the multi-billion dollar Muskrat Falls project.
Locke has a good chart of the debt over the next six years. What you have to realise is that he is basing it, apparently, just on the growing deficits on annual spending. Locke rightly notes that any changes in spending or in oil prices will make the deficit in any one year bigger or smaller than he has shown it.
If you can’t pick out the numbers there, the last one is $10.5 billion. That’s the same number it was in 2003 when the provincial Conservatives took power. And as Locke notes, things don;t get better after that point.
Things also aren’t really going to be as rosy as those numbers might appear to some. Locke left out – apparently – the debt resulting from the Muskrat Falls project.
Conservatively, you can add another $5.0 billion to that figure. That’s because the $6.0 billion the Dunderdale crowd say that Muskrat will cost is laughably low. It will likely wind up costing closer to $10 billion than not. Even if they can somehow use cash reserves or other money to keep the borrowing down, the provincial government and Nalcor won’t be able to avoid borrowing about half of the total cost of the project.
And if all that doesn’t leave you cold, just remember that Wade Locke usually makes comments that pout the current provincial administration in the best light possible. The fact he delivered a talk recently that suggests there are serious problems is a sign things are nowhere near as rosy as some would have you believe.
There are problems ahead.
Serious problems.
The current administration helped create the problems.
They have no intention, let alone a plan, to deal with the problems.
That is Dundernomics at work.
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Finance minister Tom Marshall has always had a curious relationship with reality.
He likes to talk about debt reduction, for example, but he never really does anything about it, or as in his plan for Muskrat falls, he actually wants to increase the public debt by upwards of 50% of its current size.
When Marshall delivered the most recent budget – and set a record for public spending in the process – he told reporters that “our economy is sizzling right now.”
Tom must be referring to Bermuda or Barbados or wherever it is he takes the sun during the colder months.
He certainly isn’t talking about his own district of Humber East.
The Western Star reported on Thursday that the major container line serving the province is dropping Marshall’s home town of Corner Brook from its destinations.
Capt. Sid Hynes told The Western Star Thursday afternoon that export freight from Corner Brook has dropped by around 70 per cent and imported cargo has declined by about 30 per cent in the last five years.
Exports down by 70%.
Imports down by 30%.
Since 2005.
Now it surely doesn’t take an expert to tell that this is not an economy that is sizzling.
Anyone who claims it is sizzling might be fried though.
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If it wasn’t for oil prices, the provincial Conservatives wouldn’t have anything to crow about when it comes to public finances.
And since they have no control over the price of oil, you don’t need to be a rocket scientist to understand that building their budget plans on oil prices is something bordering on insane.
You can see that insanity by looking at a chart from the Auditor General’s recent report showing the provincial government’s budget surpluses and deficits.
Three things:
Take 2007, for example. According to the budget for that year, Tom Marshall planned to come up short by $1.2 billion. The year before he actually came up short on cash by $707 million.
While you’re at it, these charts also explode the latest bullshit bomb finance minister Tom Marshall’s been spreading now that the Auditor general’s report is on the street. According to Tom there was a plan, tons of fiscal responsibility and then temporary deficits to make sure the nasty old recession stayed away from our shores.
If you reflect on the actual budget history of the Williams administration, you will see that only real difference between 2009 and all the years before isn’t that 2009 was a year of “stimulus”. It actually follows the established pattern of planned overspending.
What changed was the world price of oil. In 2009, the provincial government’s budget forecast and the actual average turned out to be pretty much the same number. 2010 might not be far off that experience, at least as far as cash flow goes.
And that “stimulus” spending? Well about half of it was actually stuff the provincial government just couldn’t deliver two or three years before when they first promised it. The packaged it up and called it “stimulus” but it as really something a lot less impressive than it sounded. It was, however, a typical Fernando announcement: it looked a lot better than it actually was.
The provincial government has spent the last seven years spending public money.
Lots of it.
At umpteen times the rate of inflation.
And they started unsustainable spending long before the world went into a recession.
If they had a plan, it certainly wasn’t to spend responsibly, reduce the public debt and generally look after things for future generations. In fact, if you look at how much they spent and what they spent it on, it looks like old-fashioned pork-barrelling on steroids.
All that puts the current provincial administration is an especially hard spot. Politically, they won’t be able to start fixing the problems they’ve created. There’s the election and then, if they win in October, they’ll have to settle the leadership thing. They can really only carry on with the spendthrift ways they’ve followed for the past seven years.
At the same time, politically, the public is now clued in to the problem, wise to the government torque and looking for the sort of serious leadership decisions that the Conservatives can’t really deliver.
Not exactly the greatest situation to be in with an election coming in a few months time, is it?
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From September 2002 until March 2009, Government had been preparing periodic financial statements to show the Province’s results of operations and financial position. Officials of the Department of Finance indicated that these financial statements were only distributed to the Minister of Finance/President of Treasury Board, other Treasury Board Ministers, the Deputy Minister of Finance, the Comptroller General, various officials of the Department of Finance, and the Auditor General. Officials of the Department of Finance advised that for the year ended 31 March 2010, periodic financial statements
were only distributed to the Deputy Minister of Finance.
From the Auditor General’s report on Fiscal Year 2009.
According to voice of the cabinet minister, provincial finance minister Tom Marshall is interested - again – in talking about the provincial debt.
Here’s a excerpt from the VOCM online story, quoted here since it may have been disappeared by the time this gets posted:
Marshall proposes several measures in doing so. First, the government needs to balance sustainable and prudent spending with the implementation of steps to lower taxes and net debt. He says the province has to maximize the benefits from its non-renewable resources now so that it is prepared for when they are depleted. Finally, he argues that it is important to diversify the economy, such as focusing on the Lower Churchill Project.
Marshall’s talked about sustainable spending before but only to the extent of making clear he wasn’t the teensiest bit interested in actually doing it. In fact, Marshall’s record is of a profligate spender who never met a deficit he didn’t like.
And just to get the point across, note that current provincial gross debt is about $12 billion. That’s roughly where it’s been for the past four years and it higher than it was in 2003 when Marshall and his crowd took office.
Tom mentioned lowering the net debt. Well in order to do that he’d have to stop overspending as he’s done the past two years. According to the most recent financial statements, the province’s net debt went up in 2009 and it is set to go up again in 2010 (the current fiscal year) if current trends hold.
So while that whole “sustainable and prudent spending” thing is a great objective, Tom and his friends haven’t done it yet. After seven years, Tom’s got to have cajones the size of watermelons to talk about debt reduction and fiscal responsibility with a straight face, expecting the people in the province to take him seriously.
Ditto the part where he talks about maximising benefits from oil and minerals. Tom and his former boss specifically rejected any suggestions to set aside sovereign wealth funds, real debt reduction and any other ways to accomplish the goal of putting the money from oil and minerals to work for the future.
And double ditto for the bit about diversifying the economy. The current fragile state of the provincial economy is a direct result of provincial government policy since 2003.
That leaves the Lower Churchill.
Reducing net debt, right?
Okay, Tom Marshall’s current plan is to force taxpayers to borrow at least $3.0 billion and put a total of about $6.0 on the provincial government’s gross debt load.
Tom also wants ratepayers in the province to accept electricity rates roughly double what they are currently to pay for electricity. Can you say “uncompetitive” boys and girls?
And he’d like to ship power free to Nova Scotia for 35 years.
Surplus power would enter the market at uncompetitive rates so the chances of export are pretty much slim and none as it now appears.
Given all that’s going on in the province and what Tom Marshall and his pals have actually done since 2003, the finance minister’s audience on Thursday must have peed in their pants with stifled laughter as he rambled on.
Surely no one would take Tom seriously, not with all the evidence against him.
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Give finance minister Tom Marshall credit for one thing is nothing else.
Tom told a CBC Radio Morning Show [audio file]audience in St. John’s on Wednesday the God’s honest truth about oil royalties and recent windfalls; Danny didn’t do it.
Those royalties are a function of three things, according to Tom:
And, sez, Tom, those are things the provincial government doesn’t control. Regular readers of these e-scribbles will be familiar with the idea.
So there you have it, straight from an authoritative source: Danny didn’t do it.
But the interview on Wednesday was also a chance for Tom to slip back into his regular routine of saying one thing that sounds sensible, all the while denying the insensible stuff he’s actually doing as finance minister.
He told CBC that:
"It would be a travesty if we don't use this windfall we have, this oil — which will be gone one day — if we don't use that to get rid of this massive debt that our people and our governments have accumulated," …
Only Tom Marshall could say that with a straight face.
Don’t misunderstand: not using the oil windfall to reduce the public debt burden in this province should be one of the provincial government’s main uses for the gigantic oil windfall.
The funny part is that the provincial government has been doing just the opposite of what Tom said. He got the verb tense wrong and he ought to know it. It is a travesty that the provincial government has not been using the oil windfall from the middle part of the decade to pay down the huge public debt.
Not “would be”.
“Is”.
Tom Marshall, finance minister, has consistent refused throughout his entire term of office to accept any suggestion that would significantly reduce public indebtedness. Marshall has been very clear about his desire to retain the right to overspend the public accounts free of any fetters:
I certainly would agree with fiscal responsibility legislation … but I'm not prepared to be locked in automatically to a balanced budget every year," he said [in April 2007].
The most he’d accept, apparently, is a law that said balanced budgets might be an interesting idea.
Then Tom went right on jacking up spending whenever he could. In fact, he boosted it up so high and so far that people have called the current financial state of the province as unsustainable.
Who said that?
Well, not just your humble e-scribbler. There was – according to Marshall himself - an analyst for Moody’s bond raters who questioned the sustainability of public spending. Then there was a cabinet minister who muttered the word as he left cabinet.
And most recently, an analyst for the Atlantic Provinces Economic Council warned that the provincial government needed to tackle its massive debt before it started thinking about piling on even more debt for an energy megaproject.
That would, of course, be the massive increase in the public debt Tom Marshall and his colleague’s announced a week and a bit ago.
Tom Marshall: debt fighter.
Or not.
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Back of the envelope calculations that don’t add up.
Cabinet ministers who get to make stuff up during interviews and their comments go unchallenged by simple facts and figures in the newspaper story.
All just par for the “news” course in Newfoundland and Labrador these days, apparently, and for the second time in a week, nottawa has laid out some pretty sharp observations on local reporting and the bogus political claims they contain.
In the latest post, nottawa takes apart comments made by finance minister Tom Marshall in a Telegram story on provincial government profits from video lottery terminals:
First, while disposable incomes in Newfoundland & Labrador [sic] rose sharply in 2006, they've declined every year since.* The first year that VLT numbers rose, disposable incomes in this province were actually declining, not increasing. That tends to happen in a recession. Thus if higher disposable incomes were to account for the rise in VLT revenue, surely that rise would have occurred in the very years that Marshall himself reported that VLT revenues were declining. It's completely contradictory.
As for an increase in population, while the province did report a minor population increase in 2009, Newfoundland & Labrador's population has 6,000 fewer souls than it did in 2004-05, the baseline comparator year given by the great numerologist himself in the Telegram story.
The asterisk just directs you to the Statistics Canada data series that show the declines he mentions.
There are a couple of details that nottawa left out.
For starters, the Telegram story refers to a cut in the number of terminals and other changes to game play:
In 2006, the government launched a strategy to reduce the number of VLTs in the province by 15 per cent over five years.
That target has been exceeded. The number is closer to 25 per cent.
In 2007, the province brought in other measures to reduce VLT play.
VLT operating hours were cut to a 12-hour window between noon and midnight. Previously, the hours were 9 a.m. to 2:30 a.m.
The machines were reprogrammed to slow play by 30 per cent. And the stop-button feature was removed from VLTs, further slowing play.
Now on the surface that looks like some kind of anti-gambling move. Yay, government! That rosy interpretation would be easy if you also heard the news stories about the Premier’s remarks on online gambling and didn’t get anything else but the superficial version of things.
But that conclusion would also be a wee bit off base once you consider the second element.
Take a look at an aspect of the Telegram story that isn’t right there in your face. Look at the number of machines and the profit and figure out how much each machine that is in service generates for the province’s finance department in profit. Don’t forget along the way that, as nottawa pointed out, that the lottery corporation knows in intimate detail what action each machine gets.
When you compare the profit and the number of machines, you discover that each machine made an average of $32, 266 in 2004-05. The profit dipped to $27.761 per machine the next year but then four years later - 2008-09 - the per-machine take is back up to $34,216. That’s roughly where it was four years earlier.
Fewer machines.
Same profitability.
And from nottawa’s observation about population, you could logically conclude the actual cash take on the machines might well have been the same in 2008 as it was in 2004. Heck, the haul might have even gone down somewhat.
Fewer machines, same profitability and all in the absence of a huge jump in revenue.
Could it be that the lottery corporation very sensibility reduced its costs in order to improve its profit margins? On the face of it, the cut in machines could do just that. By getting rid of unprofitable machines or ones with low profitability the lottery corporation would do two things.
First, it would reduce the cost from payments to bar owners, cash payouts on low revenue generators and maintenance.
Second, it would redirect the cash from the less profitable machines to other machines, often in what was essentially the same business establishment.
Poof! Lower costs would mean increased profitability even if you had exactly the same gross revenue.
When more people start playing the smaller number of machines or start spending more cash, the profitability climbs even higher. This might seem like magic to some people, including, apparently, the province’s finance minister. Remember: Marshall was taking about factors that would increase revenue, but the figures he gave the telegram were profits. The two are connected but they aren’t the same thing.
But really, the lottery corporation apparently just took a sensible business decision when it started to cut back on the number of machines. The fact that it looked to some like an anti-gambling initiative was a bonus. Two birds. One stone. Ya gotta like them apples, or in this case cherries and lemons or whatever it is that VLTs show on their screens.
Now the lottery corporation isn’t likely to give you its gross revenue numbers for the province because that’s a competitive issue. You can find out what the total profit was for this province in 2008, but when the corporation reports profits in the thousands of millions of dollars – instead of billions – you know that obscuring details are important to the corporation.
Even the 35% of the province’s adult population with adequate numeracy skills would have to think twice about the figure of $1,637 million to figure out how much it is. They could just as easily have said $1,637 thousand thousand. Still the same number but not exactly the conventional way of saying $1.637 billion, is it?
All that said, though, if you follow the logic, it is compelling.
But it sure isn’t what Tom Marshall was blathering on about or what the Telegram reported.
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Calamity Kathy Dunderdale, Danny Williams’ hand-picked choice for deputy premier, thinks the future of Corner Brook is built on manufacturing:
The minister said Corner Brook Pulp and Paper, despite its challenges, is a fundamental piece of the economy, thus has the support of the provincial government to help the company through these difficult times. She said both government and Kruger share a positive outlook of the mill’s future. Combined with that, the provincial government has created a new strategy to revitalize and diversify the forestry industry, particularly the integrated sawmill industry.
Quoted in the same article, finance minister Tom Marshall has another thought:
Marshall said it is important to create a knowledge-based economy in this area of the province to replace a declining manufacturing-based industry, something he contributed mainly to the competition of low cost producers around the world. He said the plan is to create an energy warehouse, utilizing the Labrador hydro and alternate sources such as wind, to offset that impact of lower labour costs of those competing manufacturers.
Now not only are these two ministers saying completely contradictory things at the same time, the finance minister is also proposing another nonsense. Not only is Marshall’s future based on things that don’t exist – and likely won’t – but he is proposing to use cheap power as an offset to cheap labour costs overseas.
The Labrador hydro project is basically a fiction.
Wind power, and other forms of alternate energy, are basically a non-starter thanks to current government policy and the obsession with the Great White Whale.
As for giving away power, the last time that was tried, the people of the province wound up with Churchill Falls and the phosphorous plant at Long Harbour. Given that the finance minister is advocating the use of public money for such a hare-brained scheme should cause a great many people to lose sleep.
Not the least of the bleary-eyed and stressed-out crew would be the people who believe the current administration is a Reform-based Conservative Party that wanted to “get our fiscal situation under control.”
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Finance minister Tom Marshall told the Telegram’s Dave Bartlett a few interesting things in an interview that appeared in the Saturday print edition but hasn’t turned up on line yet.
Like this bit about the annual “consultation” farce:
He also said it's not true consultations are a waste of time or that he's made up his mind already on where he will spend taxpayers' money.
Marshall said every year someone raises that criticism.
"We're open minded. We're prepared to listen. But we're listening to a lot of people and the problem is ... everybody can't get what they want," he said.
Marshall said if he gets 100 proposals, 95 of them make sense, but there's simply not enough money to go around.
Okay well, the consultations aren’t a waste of time for Marshall since he uses them as a way of sending a message to people of the province. He isn’t really looking for substantive input on how to spend public money.
That’s because – as your humble e-scribbler noted last year – the major decisions are already made. The same point turned up the year before, with an entirely different example of how the major spending decisions are already made long before the finance minister hits the road.
Not a waste of time for Marshall, but for anyone else looking to shift budget priorities via the consultations? Yeah, pretty much an exercise in the utmost futility. The people who show up for these things would have better chances of changing Marshall’s budget if they gathered around a kitchen table, held hands and stared at the magic blue spot from the National Enquirer all the while thinking nice thoughts.
And sure, Marshall listens.
But, as he noted, five percent are patently OTL.
And the other 95% of the ideas he listens to are sensible.
But Marshall can’t do anything about them because he just doesn’t have the money for them, as he told Dave Bartlett and the Telly. A guy who has more money in temporary investments than his predecessors had to spend in total some years doesn’t have the money for these great ideas for one simple reason:
By the time he gets to the “consultations” he’s already decided where the money is going.
And that’s why the whole exercise is a farce.
You see, a statement of fact is not a criticism. It’s like unsustainable spending. Marshall knows it’s a matter of fact. He just won’t admit it until he has no choice.
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The provincial government seems to be in one of those strange places it goes every now and then.
It’s a world where the messages are decidedly mixed, if one picks a generous way to describe it.
Totally confused would be another way of saying there are two completely contradictory messages rolling at the same time.
Both of them are coming from the current finance minister who is also a former finance minister and notorious for running an open cheque-book department.
In the latest incarnation, Tom Marshall is seen supporting a CBC news story that rising oil prices are wiping out the projected government deficit.
Just yesterday it was a tale of looming financial woes. Tom Marshall even repeated the message that government spending - i.e. the spending he oversaw in the job before - is unsustainable.
In the CBC story, though, Marshall tries desperately to avoid giving any firm indication of the province’s current financial state:
If the price averages $70 a barrel for the entire year, it could wipe out the provincial deficit, but Marshall cautions against such predictions yet.
"It's not just the price," he said. "It's the volume. It's the exchange rate and of course we don't know what's going to happen in the future in terms of production numbers."
There are a couple of things to note here.
First of all, Marshall knows exactly where things are at this, the midpoint in the fiscal year. he also knows where things are likely to wind up within a relatively narrow range of possibilities. Marshall just didn’t want to share, even if CBC actually asked, and he likely won’t share until December if recent practice holds firm.
Of course, there’s a reason why the government holds on to information. They clam up so that people who ought to have accurate information can’t get it, but that’s another issue.
Second of all, we can fill in some numbers but not others.
The stuff we are missing includes revenue figures like sales tax, mineral royalties and personal income tax. If those are lower than expected, then it would take more than high oil prices to deliver a balanced budget. It’s unlikely those figures will turn out lower than estimated since the finance department routinely low-ball revenues these days. But still, we don’t know because they aren’t saying.
We also don’t know what government spending is actually like. Operational spending may be up or it may be down. Ditto the capital budget, or the “stimulus” as it is known currently. If projects are behind schedule or delayed – as many are – then the cash budgeted for those projects will reduce the overall spending part of the budget. A healthy chunk of the massive surplus in the last couples of years has been coming from forecast spending that just never happened and wound up not happening for two or three budgets.
As for oil, we can get a fairly good idea of what that looks like.
Price is one element. The 2009 budget used a figure of US$50 a barrel and an exchange rate that put oil at the equivalent of around Cdn$60. Oil is currently almost $20 a barrel higher than that, even allowing for the lower exchange rate with the American dollar.
Production is another element. Last year, oil production exceeded 125 million barrels. This year, the provincial budget used a figure of 98.5 million barrels or a decline of 21%. As it stands right now production in the first five months of the fiscal year is down about 27% compared to last year. A 27% drop in production would mean a total production of about 93.75 million barrels.
But that’s not the whole oil picture.
The other bit is the percentage of each barrel the treasury gets and neither the budget documents last March nor Tom Marshall these days will talk about that publicly either.
Thanks to the 19 year old Hibernia royalty regime, the provincial government take at Hibernia jumped to between 30% and 42.5% this year when the project hit pay-out. Terra Nova and White Rose are already in pay-out and are pumping 30% royalty rates based on the original royalty regimes from before 2003.
And that’s where it gets interesting.
The budget figures don’t appear to include the higher royalty rates. factor those in and even the lower production total of 93 million barrels would produce provincial royalties of at least $1.9 billion. When your humble e-scribbler ran the numbers in August - estimating the revenues from each project - the figure came out about the same as last year’s oil royalty.
What all this means is that even allowing for some variation in other revenues and in overall spending, the books will likely be balanced this year on an accrual basis even at the low-end estimate. On a cash basis there would a shortfall; the budget forecast $1.3 billion.
On the upper end, the forecast accrual deficit would turn into a surplus of something on the order of $500 million. On a cash basis, the books would be balanced.
All in all, though, one must wonder why there is some much confusion coming from the current and former finance minister(s). They could be letting the rest of is on their own projections since, the only negotiations going on right now are with voters.
Voters have a right to know how their own finances are looking, don’t they?
Oh yes.
And let’s not forget in all this that the budget last year included $1.8 billion in temporary investments that no one wanted to draw any attention to.
Makes you wonder why Tom and Jerome and Danny have been putting on the poor mouth again, even if just for a minute now and then.
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