Budget basics: debt #nlpoli

Board of trade president Sharon Horan wrote in her Telegram column last weekend that the unfunded pension liability will make up 85% of the provincial government’s debt not to long into the future.  That will be up from the 75% of the public debt it makes today.

There you have proof that even the president of the largest business organization in the province does not understand the first thing about the state of the provincial government’s finances.

Public debt is a really basic idea that you have to know if you want to understand public finance.  And you need to understand public finance if you want to have a useful say in how the government is running things.  That’s what the folks at the board of trade want to do, one would expect.

And yet Horan got it wrong. 

Not a mere technicality.

But dead wrong.

So if the board of trade can bugger up public debt, let’s see if we can walk everyone through the notion in a way that we can all understand.

Horsefeathers #nlpoli

While people have been agitated about comments on Twitter,  the Premier has been dazzling the politicians in the House with his explanation of the marvellous financial position of the provincial government under the Conservative Party.

On Monday, the former finance minister buggered up the amount of dividend that Nalcor will provide thanks to Muskrat Falls.

On Tuesday, he corrected himself and noted he meant all of Nalcor instead of just Muskrat Falls. That just made matters worse, though.  You see,  the Premier’s comments didn’t exactly jive with information one of his colleagues talked about in the House a year or so ago.  That’s not including the fact that much of the money the Premier attributed to Nalcor was actually coming from oil that the people of the province gifted Nalcor with for nothing.

On Wednesday, the Premier went for the hat-trick with a discussion of debt.

The Ongoing Net Debt Fallacy #nlpoli

In a post that starts out about Muskrat Falls, the Telegram’s James McLeod does a fine job of laying out some basic information about debt, deficit, current account, capital account and other bits of the provincial budget.

Read it.  Unless you have been living this sort of stuff up close for years, you will learn something.  If nothing else, you’ll get some insight into how some local politicians have been buggering up this sort of stuff because frankly it is complicated and they don’t understand it.

Regular readers of these scribbles will know that SRBP includes Kathy Dunderdale and Tom Marshall among the people who get confused.  You can add others from all parties.

One statement, three stories #nlpoli

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.

- srbp -