Pre-emptive rebuttal #nlpoli

This excerpt from Tuesday’s federal budget speech seems aimed at province's like Newfoundland and Labrador where the government promised the same day that they’d be piling up more debt on top of their current record debt levels until at least 2021:

Maintaining Fiscal Balance in the Federation

There is no fiscal imbalance between the federal government and the provinces. A fiscal imbalance could be created when federal transfers to provinces and territories are significantly cut and the federal tax burden is increased at the same time. The federal government has adopted the exact opposite approach. Since 2006, the Government has pursued a low-tax plan to support job creation and economic growth. As part of this plan, the Government has increased major transfers to provinces and territories, reduced taxes on individuals, families and businesses, and balanced the budget. Budgetary pressures faced by provinces and territories are due to their own spending plans.

Federal, provincial and territorial governments in Canada each have access to all of the tools necessary to deliver the public services under their respective areas of responsibility and manage their public finances responsibly. Each level of government is accountable to their residents for taxing and spending decisions.

All levels of government must be responsible stewards of taxpayer dollars and control public spending to achieve balanced budgets. Provincial and territorial governments have access to virtually all of the same sources of revenue as the federal government. In addition, provincial and territorial governments have other significant revenue streams such as royalties from natural resources and profits from lotteries and gaming that, with limited exceptions, do not generally benefit the federal government.

-srbp-

A Crisis. Or Not. #nlpoli

“Muskrat Falls is a project that will not impact net debt by a single dollar,” finance minister Tom Marshall said in a provincial government news release.

Unfortunately for taxpayers, they won’t pay the net debt.  That’s an accountant’s calculation of what the provincial government owes less any assets they could theoretically sell off if they had to clew up business in a hurry. 

What taxpayers will have to contend with is the total liabilities and Tom plans to make those liabilities get a whole lot bigger than they are today.  On the day that Tom Marshall predicted that his current budget will have a deficit three times what he forecast in the spring, Marshall also forecast billions more in borrowing to pay for Muskrat Falls and to pay for the government’s day-to-day expenses.

You’d think that a finance minister would understand that. 

Evidently, Tom Marshall doesn’t.

Either that or he thinks the rest of us are so stupid that they would accept his ridiculous comments as if they were true.

Not exactly, there, Tom, b’y #nlpoli

As part of the orchestrated campaign to attack the people making the comments instead of the comments themselves , finance minister Tom Marshall trotted out in front of the news media on Friday to lace into a group of five lawyers.

Marshall said comments by five lawyers opposed to Muskrat Falls were “nothing new” and had been addressed before. All true.

At the same time, though, Marshall quickly read through an obviously prepared diatribe in which he said that the “use of such inflammatory language in my view is irresponsible and borders on fear mongering.”

People should pay attention to Marshall’s comments, but not because of Tom’s laughable hypocrisy.

The Art of Budget Forecasting #nlpoli

The provincial government set its budget this year based on an oil price forecast of US$124 a barrel in 2012.

As we move up on the midway point in the fiscal year (it starts on April 1), oil is well below that.  The result is that the provincial government could wind up with a deficit of nearly three quarters of a billion dollars, according to the Premier.

Some people are amazed by this.

They shouldn’t be.

This fits a pattern.

There’s reality and … #nlpoli

Premier Kathy Dunderdale decided to talk about reality on Monday.

A reality check she called it:

“Everybody sees what’s happening with the price of oil, and I see every day what that’s doing to our budget,” the premier said.  [CBC online story]

Dunderdale warned that the provincial government’s deficit this year might reach $700 million. her forecast in the spring was $250 million.  Next year it could be a billion, she ventured.

Now that is on an accrual basis, of course.  On a cash basis, the current provincial government will face a deficit of more than $1.06 billion if oil actually manages to average US$124 a barrel.

Reality Check: drops and buckets version #nlpoli

Via labradore, a chart that plots Conservative unsustainable public spending since 2003 with recently announced controls on discretionary spending.

-srbp-

Born Again Fiscal Virgins #nlpoli #cdnpoli

Premier Kathy Dunderdale is singing the usual Tory song before contract negotiations and a provincial budget. 

Yes, folks, in a speech to the St. John’s Board of Trade the Premier was talking about the need to control spending.

We’ve all been down this road before.  Of course, the same people who talk the talk don’t walk the walk.  They’ve been the ones who caused the current fiscal problems the Premier was talking about. 

In this corner, your humble e-scribbler has been warning about the Tory fiscal imprudence since 2006.  It’s one they’ve acknowledged being vaguely aware of since about 2008, at least.  That’s when the Auditor General  of the day warned about it. In 2009, the finance minister and the Premier of the day admitted their spending was unsustainable.

And yet they continued to crank up spending to record levels.

So basically there is nothing in Kathy Dunderdale’s speech on Tuesday that the Tories haven’t said before.  Kathy Dunderdale’s strategy to deal with the problems she and her colleagues created is the same one the Tories have talked about since 2003.  And that’s the one that created the problem she claims she wants to fix.

Think of it like make-work for politicians.  First, you create a problem. Second, announce that you plan to tackle the problem.  Third, tell everyone the strategy you will use is to follow all the policies that caused the problem in the first place.  Repeat annually as needed.

Anyway, just look at one part of the speech if you want to know how seriously out of touch with reality a politician can be:

What is the best fiscal policy response in the face of this reality? Some may suggest that a balanced budget is the best goal in order to avoid taking on debt. However, this would require a dramatic reduction of spending.

If they can’t balance the budget without a dramatic reduction in spending then they are already spending way more than they are bringing in.

D’uh!

So if you are spending beyond your means – and don’t stop -  you cannot really get spending under control, reduce public debt and all the others things that genuinely responsible governments do.

And if you reject balanced budgets because it would mean spending cuts, then obviously you just aren’t serious about all that talk of spending cuts, controls or that thing called fiscal prudence.

After eight years, the unions know all about the born again fiscal virgins.  They aren’t fooling anyone.

- srbp -

A come-to-Jesus moment #nlpoli #nlvotes

The always deadly labradore tackles comparative public spending increases in a post called simply “Three things”.

Scroll down through the post and read it out loud.

It’s worth the effort.

At the end, he invents a new phrase that will catch on.

Bet on it.

- srbp -

Dundernomics 101: the peril of Marshallism

A modest change in circumstances has made a dramatic change in the provincial government’s 2011 budget and a bigger change for 2012.

A decision by Terra Nova oil field owners to defer major renovations on the floating production platform means that the provincial government is now forecasting a surplus almost four times what they had before.

That’s right.

The extra production will boost the anticipated forecast surplus from about $59 million to $250 million. Finance minister Tom Marshall dropped that little gem on a board of trade audience a couple of weeks ago.

But wait;  there’s more.

Next year, Marshall expects a deficit of almost double the one previously forecast.

Surplus of $200 million will become a deficit of almost $500 million.

And Marshall says that will be applied to the net debt.

First of all let’s dispose of the completely slimy, disingenuous claim about applying any surplus to the net debt.

Net debt is not real debt.  It is merely a paper transaction that represents total liabilities less any assets.  A cash surplus gets counted as an asset, but as Marshall well knows it does absolutely nothing to reduce what the people of the provincial actually owe.

You bet that if Tom really posts a small surplus, he’ll be setting that money aside either to help keep the deficit in 2012 from ballooning or to fund cost over-runs on any of the mega-projects he and his mates have locked taxpayers onto.

So when the finance minister has to rely on deception you know the rest of it is bad as well.

What you have here is basically further evidence that the provincial government has put the public treasury in a dangerous state.

Take that forecast deficit for 2012 that is now set for $500 million.

That’s based on a rather optimistic forecast for oil prices.

Drop the price of oil and you can make it a much bigger number.

And we are not talking dropping oil by half its current price.  We are talking dropping it by 20%.
or even 10%.

That half a billion will quickly become $750 million or a billion.

At least.

And if the price of oil drops in 2011, there won’t be an extra $200 million to help pay for it.
As easily as the surplus grew this year, the deficit could grow next year.  Tiny changes in the local economy produce wildly different outcomes. This is not something a finance minister – as responsible finance minister – would brush off as cavalierly as Tom Marshall does. 

A responsible finance minister would adjust spending to take account of these changes in revenues.
He or she would have a policy that said he will spend such and such a percentage of non-renewable revenues on this, another amount on the other other.  So much would go into the bank and so much would pay down debt.  Annual spending would rise by a predictable rate that was something around the rate of inflation.

As a result, people could know within reason what the world would look like five years out, regardless of whether oil prices went up or down.  In the times of phenomenal prices, they would sit comfortably knowing that the public debt was vanishing – for real  - or that they had a nest egg of public spending for roads and schools guaranteed to happen regardless of anything.

That sort of predictability is the kind of environment that promotes prosperity.

That sort of sound fiscal management attracts private investment from all over the world.

That sort of behaviour – safeguarding the public trust – helps build a sound economy.

How far is Newfoundland and Labrador away from that after a decade of  Marshallism?

The big story in Newfoundland and Labrador on the last weekend in May is a racket between Marshall’s old boss and his new boss over whether the new boss should give the old boss’ latest hockey venture a half million tax dollars.

They are fighting over whether a bunch of sweaty jock-straps are worth a permanent subsidy of a half million because it is an economic investment.

And to make it worse, we are not talking about a full-on professional franchise mind you, like they are in Winnipeg.

We are talking about the farm team.

Face it.

The big news story in this province six months before the next election is a demand from a multi-millionaire to hand over a half million bucks so he can play at being a hockey mogul.

Doesn’t seem quite so impressive when you put it that way.

Does it?

But that’s a more honest and accurate version than talking about applying a surplus to the net debt.
Think about it.

- srbp -

Unsound public finances: Tom Marshall’s travesty

 

"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."

That was finance minister Tom Marshall late last year when he released the provincial government’s financial update for Fiscal Year 2010. He made the comment to CBC’s Jeff Gilhooley during a live interview.

Auditor General John Noseworthy’s most recent report on the public accounts (for Fiscal Year 2009)  pretty much demolishes Marshall’s claims that he and his fellow Conservatives have been managing the province’s finances in a sound way.

The chart shows debt expenses by fiscal year over the past decade. Incidentally, just to make sure you don’t get screwed up in this and subsequent posts, notice that the Auditor General mislabels every fiscal year.  The period covered in this chart is from 1999 to 2009.  That’s the way your humble e-scribbler will refer to the dates.

This chart shows just exactly how much money the provincial government spends every year to service the public debt.  Very little of that is actually going to pay off a debt.  The overwhelming majority of that money goes just to pay the interest that comes due every year.

Take a good look at those numbers.

In 2009, the provincial government spent the better part of a billion dollars doing nothing but paying interest on outstanding debt.

Those figures also tell you that what the province’s finance minister and even the Auditor General call “net debt” isn’t really the measure of public debt that you should be fixed on. After all, if the provincial government really had reduced public debt by almost three or four billion dollars, we wouldn’t be back paying debt servicing costs the likes of which the government hasn’t seen since 2001.

The number you need to look at is gross debt, or, as the Auditor General labels it in the chart below:  “liabilities”

That shows the total amount owed now and in the future by the government and its corporations and agencies.  When it comes to figuring out interest payments and so on, that’s the figure the banks and other creditors look at.  Think about it for a second:  if you have a mortgage on your house, the bank doesn’t check every year to see how much cash you have in the bank or anything else to figure out the interest payments you need to make on the loan.  They just know how much you borrowed and what rate of interest they are going to apply.

So when you look at that line called “liabilities” you will see that the provincial government had $13.733 billion in 2004 – the first full year the Conservatives were in power – and owed $12.559 billion five years later.  Not surprisingly, the debt servicing costs in 2009 were not far off what they were way back before Tom Marshall, Jerome Kennedy and the rest of the provincial Conservatives worked their supposed financial miracles.

Take a look at these two charts and you’ll know why your humble e-scribbler has been harping on this point for pretty well the whole span of Bond Papers. Paul Oram’s resignation in the fall of 2009  - note the year! -just highlighted the issue.

Take a look at those numbers and you’ll understand why Tom Marshall simply has no credibility when he talks about his administration’s management of public finances.

And if you look at those figures you’ll understand that, even if the Muskrat Falls deal was brilliant – and it isn’t – the provincial government has far more pressing issues to deal with rather than build someone’s political legacy. That deal would take the gross debt from $12.5 billion to between $17 and $18 billion.

Tom Marshall’s already given us a judgment of his own performance as finance minister:  a travesty. They haven’t reduced the public debt to any appreciable degree.

So what would it be if the same guy and his cabinet colleagues then increased the public debt by another 50%?

- srbp -

Danny Williams and the National Post: Fact Check

No surprise Danny’s miffed at the National Post. 

Nor is it any surprise that the most thin-skinned person on the planet  - short of someone actually without an epidermis at all - claims that it isn’t about him.

And it’s really absolutely not the least bit of a shock that between the two of them -Danny Williams and the National Post -  readers will wind up being about as in  touch with reality in Newfoundland and Labrador as people who get everything they know about the universe from Glenn Beck.

Rather than go through the errors and nose-pullers in detail let’s just take the biggest whopper for each of them:

For the Old Man, it would be the contention that “Abitibi operated in our province for 100 years”.

Sure 65% of the province’s population may have trouble with numbers, math, logic and reasoning but few likely would have listed the province’s best-known Rhodes scholar among the innumerate.

Those that did can go to the head of the line.

The Anglo-Newfoundland Development Company opened the Grand Falls paper mill in 1909.  Abitibi started operations in 1912 but not in Newfoundland and Labrador.

This is 2010.

Right off the bat, anyone with that information would know that it is absolutely utterly and totally impossible for a company that is 98 years old to have been in operation more than two years before it existed.

I am my own grandpa indeed.

But then you have to consider that Abitibi didn’t arrive in Newfoundland and Labrador until 1969, a fact noted in some of the AbitibiBowater bankruptcy proceedings and a point that has curiously escaped every single reporter in this province for the 18 months or so the Premier has been saying this complete bit of nonsense.

Even a Rhodes scholar ought to know that 100 is not 41.

As a result of his repeated numerical blunder, one must wonder if Danny actually reads anything laid in front of him, whether his high-priced help are really that incompetent, whether he cares about facts at all, or if what we see here is some combination of all three.

Now for the Post stuff:

Well, the name of the province is Newfoundland and Labrador but that’s really the smallest part of the problem with the Post editorial.

The rest of it is a litany of things that never happened, as Williams easily pointed out.  Most of his comments in reply were just the usual self-serving blather but there’s no denying that the  magnitude of the factual errors in the editorial would stun a herd of the hardest-headed mountain goats in British Columbia.

The easiest thing to do is take the biggest error:  “… time and again, Ottawa graciously bails Mr. Williams out from his blundering anyway.”

The idea that Canadians have paid for all Williams’ blunders is just foolish.

Sure he managed to score a couple of billion extra from the feds in 2005 but for the most part, the major blunders of his administration haven’t cost all taxpayers in the country a penny.

Only provincial taxpayers will bear the load – way more than $130 million – from the expropriation fiasco.  They’ll also be taking their proportionate chunk of the NAFTA settlement as well.

Only the taxpayers in Newfoundland and Labrador will be coping with the huge cash deficits Williams’ administration is racking up.  They’ll be the only ones dealing with the fall-out from a record of wild public spending even his own cabinet ministers agree is unsustainable.

His huge gift to Big Oil  - section 5.1 of the Hebron financial agreement - won’t affect Ottawa a tiny bit even if it makes the provincial government nothing more than a vassal of the oil companies on some issues.

In the end, though, the Post is still the Post.

But word is Danny is looking for a post-politics gig.

Maybe Kory should give him a call.

If the guy can handle a piece of chalk, there’s the makings of a new star in the Reform-based Conservative Party news heavens.

- srbp -

The absence of a strategy is not a strategy

Budgetting to spend every nickel that comes in, while putting token amounts toward reducing the highest per capita debt in the country isn't a fiscal plan, it's a political plan.

Spending public money may bring political success, but financially, it's likely to be a disaster.

The provincial government's current "strategy" is to boost public spending at twice the rate of inflation or more.

-srbp-

Spend 'em if ya got 'em

At a time when the provincial government is screaming that it needs federal handouts to deal with a huge public debt, finance minister Tom Marshall defends fiscally irresponsible budgeting.

The Offal News take.