Justice and the budget #nlpoli

The latest in a string of little budget dramas ended on Friday afternoon. A group of lawyers that included former Conservative party president John Babb launched a court case to try and force the provincial government to re-open the courthouse in Harbour Grace.  So Friday afternoon ,  justice minister Andrew Parsons announced that the government had decided to reverse the decision to close the court buildings in Wabush and Harbour Grace.

Parsons said the government had managed to find savings to offset the cost of opening the courts. He also said the government would keep the courthouses open to avoid running afoul of  a recent Supreme Court of Canada decision in  R.v. Jordan.  Babb made the same argument about the need for the courthouse in Harbour Grace.

Both Babb and Parsons know that the entire dispute here is over a building and a couple of jobs that go with it.  They also know that the particular building makes absolutely no difference to scheduling a trial.  And therefore, they both know that the SCC decision in Jordan had nothing to do - truthfully - with  Parsons' decision.  Why they said something other than the truth on Friday is another matter. 

Using his words #nlpoli

Politicians are usually very careful about the words they use.

That’s why it’s important to notice the words Premier Dwight Ball used this weekend in an interview with Tom Clark for Global’s current affairs show The West Block.

Ball said there was “no real sure fix” for the provincial government’s financial problems. But he did say that the government’s plan would involve revenue-generation, controlling expenses, efficient spending, and “what Ottawa can do to help initiatives around infrastructure.”  Ball also said that the provincial government would be applying for the same “sustainability” funding that Alberta was getting.

So what does that mean in concrete terms?

Welcome to the bottom of the rabbit hole #nlpoli

Putting a freeze on any discretionary spending is the very least that the provincial government could do in light of the dramatic – but entirely predictable – volatility in oil prices that have made the government’s huge budget deficit even larger.

The fact that Premier Paul Davis finally admitted on Thursday that oil prices are likely to remain low for the foreseeable future – something that has been clear for some time now – is a pathetically small sign that the provincial cabinet is finally starting to realise the depth of the problem the provincial government currently faces.

As small and as pathetic as it is, we do at last have a sign.

Taxing the Imagination #nlpoli

What is it about the provincial Conservatives and income tax?

Kathy Dunderdale rabbited on about it last fall and again in January.

Last week, the provincial Conservatives were at it again, with a private members resolution in the House that praised the government for cutting taxes and for not raising them now that they’ve fallen on hard times.

Rentierism at the national and sub-national level #nlpoli

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This is the third in a four part series on the current financial crisis the provincial government is facing.  The first instalment – “The origins of rentierism in Newfoundland and Labrador” – appeared on Tuesday and the second – “Other People’s Money”  - appeared on Wednesday.

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A rentier is a person who lives off the income from property and investments.  That distinguishes a rentier from a person who earns income through labour.

For the past 40 years or so some political scientists and economists have studied something called a rentier state.  In simplest terms, a rentier state is one that derives a significant portion of its national government income from the money they get from oil and other high-value, but volatile commodities.  [FN 1]

For our purposes, we’ll rely on a definition of “significant portion” as being 40% or more of  government income.  [FN 2] We’ll also focus the discussion on states that derive most of their income from oil.

What we are talking about here goes by several names including  the Dutch Disease or even the resource curse.   Jeffrey Frankel of the Kennedy School of Government put it this way:

It has been observed for some decades that the possession of oil, natural gas, or other valuable mineral deposits or natural resources does not necessarily confer economic success. Many African countries such as Angola, Nigeria, Sudan, and the Congo are rich in oil, diamonds, or other minerals, and yet their peoples continue to experience low per capita income and low quality of life. Meanwhile, the East Asian economies Japan, Korea, Taiwan, Singapore and Hong Kong have achieved western-level standards of living despite being rocky islands (or peninsulas) with virtually no exportable natural resources. Auty (1993, 2001) is apparently the one who coined the phrase “natural resource curse” to describe this puzzling phenomenon. …

Other People’s Money #nlpoli

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This is the second in a four part series that offers an interpretation of the current financial crisis the provincial government is facing.  The first instalment – “The origins of rentierism in Newfoundland and Labrador” – appeared on Tuesday.

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As much as people imagine a great difference between the Confederate and anti-Confederate forces during the National Convention, the two agreed on one thing:  someone else would have to pay for Newfoundland’s return to responsible government.

The London delegation asked the British government to provide the erstwhile country with money. The British balked, pleading their own financial hardship after a long and costly war.  That refusal is largely what prompted Peter Cashin to claim that the British were trying to sell the country the Canadians.  As many words that have been spilled and as many books sold trying to prove the conspiracy existed,  there’s never been a shred of proof that such a plot ever existed outside Cashin’s frustration.

The Ottawa delegation found wealthy Canada more receptive to the Newfoundlanders expectations and after a first referendum and a run-off vote, Newfoundlanders and Labradorians voted to become part of Canada.  For Labradorians the moment was especially sweet.  The National Convention and the referenda were the first time any residents of the mainland part of the country had ever been allowed to vote.

The Origins of Rentierism in Newfoundland and Labrador #nlpoli

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Over the next four days, SRBP will offer an interpretation of the political underpinnings of the current financial crisis.  This series goes beyond the immediate to place recent events in both historical and comparative, international perspective. 

The first two instalments briefly describe some characteristics of the political system and Newfoundland political history before 1934 and from 1949 to about 1990.  The third post will look at the concept of the rentier state and the relationship between dependence on primary resource extraction and politics at the subnational level (states and provinces).  The fourth post will place recent developments in Newfoundland and Labrador in the larger context. 

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Before 1949, the Newfoundland government’s main source of income was taxation of imports and exports.  The Amulree Commission reported, for example, that the government brought in around $8.0 million dollars in the fiscal year ending in 1933.  Of that, 71%  - $5.7 million  - came from customs and excise duties.  The next largest amount was $700,000 (about 9% of total) that came from income tax while the third largest source of income was postal and telegraph charges totalling slightly more than $587,000.

Newfoundland also had almost no experience of local government before the Commission Government in 1934.  St. John’s was the only incorporated municipality and the city council was quasi-independent of the national government. 

Beyond the capital city, the national government “managed a highly centralized system through the stipendiary magistrates stationed in each electoral district, “in the words of historian James Hiller in his recent note on the Trinity Bay controverted election trial in 1895(FN 1).  The central government also appointed the members of some local  boards to manage education and roads.  The money for all of it came from accounts controlled by St. John’s.

The members of the House of Assembly had enormous control over government and that public money.

Hobson’s Choice #nlpoli

The provincial Conservatives love to spend public money. 

That doesn’t sound very conservative and it isn’t.  Politically, the provincial Conservatives in Newfoundland and Labrador are more like Republicans than the Progressive Conservatives who used to run the province in the 1980s. American Republicans like to cut federal taxes and jack up federal spending and then blame the resulting financial meltdown on the Democrats.

Around these parts, the Reform-based Conservative Party, as the Old Man used to call them, blames everything on the Liberals.  That is the Liberals who, in case you missed it,  haven’t been in power in a decade.

The Wrong Tool #nlpoli

About two thirds of the people in the province who file tax returns earn less than $35,000 a year before taxes.

It’s the kind of detail that you cannot banish from your mind when you read about the politically popular economist Wade Locke.  The guy who directly and indirectly helped the provincial government create the current financial mess is on a leave from his university job to help with the new budget.

As the Telegram reported on Wednesday, Locke’s “contract with the government stipulates that he'll be paid $250 per hour for his consulting work to a maximum of $75,000.”  That would be on top of the 80% or more of his university salary that he is entitled to for being on what the faculty contract calls a “sabbatical” leave.

The Telegram also reported that Locke said he would only bill taxpayers one dollar at the end of his contract.  Let’s take him at his word.

Still, you have to wonder why he would sign a contract in the first place for more than twice what most people in the province make in a year.  Don’t misunderstand.  A consultant should get what he can earn and if Locke can get someone to pay $250 an hour for his services, then more power to him.  Given the context, though,  the contract is still rather distasteful.

Locke’s supporters will defend any amount of money because they value his advice. And that’s really where we can peel back the cover on this little can and see what is inside.

A Manufactured. Right. Here Mess #nlpoli

The Premier, the finance minister, and their favourite economist are talking about tax increases, layoffs, and spending cuts.

They are talking about cuts and layoffs at a time when the provincial government has more money coming into its accounts than any government in the history of Newfoundland and Labrador before 2003.

The provincial government finances are in a mess.

The deafening silence

Federal finance leprechaun Jim Flaherty has been signaling the need to cap the Equalization system this year.

"It's a federal program; we will put a limit on the growth of it," Mr. Flaherty said. "This is not something that is discretionary. We must do this, otherwise the integrity of the program will be under attack."

Flaherty says that in the face of a possible federal deficit for the first time in ages (i.e. the last time the Conservatives ran the place), it won't be possible to have a 15% annual increase in the funds allocated to the federal transfer.

Based on government data, federal transfers to other levels of government have surged 57% in the past five years, to $46.1-billion in the most recent fiscal year from $29.3-billion in 2003-04.

"In this time of fiscal uncertainty, we cannot sustain that rate of growth," Mr. Flaherty said this week.

Flaherty is likely to lay out the whole thing for his provincial counterparts at a meeting in Toronto on Monday. 

Newly minted provincial finance minister Jerome Kennedy will be at the meeting.

Okay.

For the past five years, the current Provincial Conservative administration has been hammering away at the need for increasing federal transfer payments to Newfoundland and Labrador.

For the past two, the entire Family Feud between the Provincial Conservatives and the their federal cousins centred on an effort to get Equalization payments in addition to oil and gas revenues, even if, under ordinary circumstances, Newfoundland and Labrador wouldn't qualify for the Equalization top-up.  In fact, this idea of getting effectively 200% of oil revenues  (all the cash plus Equalization hand-outs) is the original demand Danny Williams made to Paul Martin. 

That's why it is so bizarre that the provincial government talked about anything but Flaherty's remarks over the past couple of days.

Trivia was the order of the day at the cabinet shuffle and what wasn't trivia was pretty much stock stuff. Take a look at the raw scrum tape - via CBC - and you'll see the lightweight routine.

There's a reference to being fine on the current budget, without understanding that means increasing public debt if the budget targets are met.

There's some slagging of the oil sands and a claim that there won't be any delay on Hebron. No one apparently noticed that the Hebron project hasn't been sanctioned yet.  How exactly can you forecast "no delay" in a project that has no timeline yet?

The ultimate superficial commentary came on the matter of representation.  In Ottawa, there's not a problem since it's like the local cabinet where everyone looks after everything everywhere. Later on, the Premier refers to Susan Sullivan and filling in the hole in the dough, giving proper cabinet representation for a region of the province not previously represented in the Conservative cabinet.  Sarah Palin couldn't have reasoned it anymore consistently, right down to insisting - in a manner of speaking - that a little fellow from up the shore could see Labrador from his house.

But nothing of the substantive issues facing the province, beyond a comment that there might theoretically be some difficulty in forecasting oil prices.

As for the consistent set of demands from the current cabinet for more cash hand-outs from Ottawa and Jim Flaherty's comments, there was nary a peep either from the cabinet or from reporters.

The silence was deafening.

Well, except for the CBC audio picking up messages coming to the Blackberries in the room.

The end result is that one wonders what, exactly will be the policy direction taken by cabinet "on a go forward basis".  Until now, the cabinet has been fairly consistent in its remands for reparations from Ottawa, in its insistence that it can go-it-alone provided Ottawa ponies up the cash. The same ministers sit in place today, with a very minor number of exceptions, as sat in place in October 2003.

Yet, there is an evident change in perspective.

It can't be driven by the prospect of going off the Equalization system.  That was forecast in 2004, even without the subsequent transfer deal with Paul Martin.

There's something else behind it.

You can tell by what isn't being said.

-srbp-

International roundup of financial crisis developments

1.  The United Kingdom will loan Iceland 100 million pounds sterling to assist its Landesbanki repay British creditors of the nationalised Icelandic bank.

This is not surprising given the number of local councils that did their banking through Icesave, the Landsbanki subsidiary:

But there was increasing concern about the amount of British public and charitable-sector money deposited in Iceland's stricken banks. As much as £1bn of local council money is thought to be at stake, with British charities estimating their exposure at around £60m. "There are more than 50 charities that have deposits there," said Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations.

2.  Meanwhile in Scotland, Scottish nationalists are putting a brave face on the financial crisis. According to some reports, the first minister has been ducking questions about whether an independent Scotland could have funded a 32 billion pound bailout of Scottish banks.  He's also been faced with questions about the so-called Arc of Prosperity which Scottish nationalists have used as proof that an independent Scotland could do well on its own.  Of the four countries in the arc,  Iceland is teetering on the verge of bankruptcy, Denmark and Ireland are in recession and Norway is experiencing its own difficulties.

As Gordon Brown and Alistair Darling stepped in to save Scotland's two biggest banks, the Scottish Government tried to avoid questions over how an independent Scotland would have coped with the international crisis. A spokesman for Alex Salmond, the First Minister, said he would "not speculate on a theoretical future event" and refused to say whether he believed an independent Scotland could have bailed out its banks to the tune of £32 billion.

However, he insisted the SNP would still try to push through a referendum bill in 2010, even though if people voted Yes to independence, Scotland's two main banks would be owned by a "foreign" UK government.

At the same time, the Scottish local government is looking at ways of avoiding a recession in Scotland.

3.  Dutch local governments are also affected by the Landsbanki problems.  Twelve local councils have a total of 59 million euros with Landsbanki while the province of Zeeland has five million euros in the bankrupt American firm Lehman Brothers.

4.  France, Germany and Russia have announced separate bailout plans worth almost $1.3 trillion.

5.  Ireland and Australia are guaranteeing bank deposits.  The Irish government guarantee applies only to Irish banks, not subsidiaries of foreign banks.

6.  Ireland is about to introduce a tough national budget that will raise hospital charges and cut tax relief.

All hospital charges are to increase significantly - by 10 per cent in many cases, including charges to be treated in accident and emergency, or to have a private bed in a public hospital.

Despite the fee rises, the Health Service Executive will be forced to make serious cuts in existing services to stay within budget - which will be €400 million more than last year, but still not enough to meet extra wage bills and other costs.

-srbp-