The Unsustainability Problem #nlpoli

The annual budget consultation farce started on Monday with a couple of sessions.

This year the provincial government has turned out a budget simulator that is supposed “to illustrate the tough budget choices” the provincial government is facing and “to promote a public dialogue on how we can set a sustainable fiscal course.”

The simulation can’t really do either of those things.  The information is relatively recent but the options to adjust income and spending don;t cover the full range of policy choices the government can make.  The ones it does offer are artificially limited to presented increases or decreases.  That’s a programming choice as much as anything else, but the reason for the artificial limitations is not important.  The fact is that the choices are deliberately limited.

The result is that people can’t really see what sorts of choices the provincial government might make to set a “sustainable fiscal course.” In that sense, the current “consultation” is as artificial as all the other ones the provincial government has run over the past decade or so.   People aren’t stupid.  They can handle the truth.

The politicians and bureaucrats can’t.

“We are an island economy” and other nonsense #nlpoli

CBC’s On Point  this weekend delivered up some all-too-familiar conversation on the budget and a political panel talking about Judy Manning but sometimes you have to look closely at things to appreciate the value in public comments by politicians and reporters.

In an interview with David Cochrane, finance minister Ross Wiseman confirmed that he cannot even think about trimming government spending because the economy is heavily dependent on it.  Wiseman put the figure at about 30%.

Regular readers of these e-scribbles have know this for years.  What’s news in this is that we have a finance minister admitting it publicly.

The Whizzo Quality Assortment #nlpoli

On the outside, the spring budget for 2014 looks like a delicious assortment of goodies for everyone.  You can tell it is delectable because everyone is shouting for joy and drooling over their good fortune.

There is not a single group who have had their hands out for government money that did not get something. And they are telling anyone who will listen just how happy they are. 

Once you bite into one of sweetmeats in the Conservative Quality Assortment budget,  though, the result might be a wee bit less tasteful.

How do they run things? Budget Lead-Up #nlpoli

Finance minister Charlene Johnson will read the new provincial budget speech on Thursday.

In keeping with the provincial Conservative tradition, though, they’ve been announcing bits and pieces of the budget already.  On Monday, for example, justice minister Darin King announced that the new budget would contain money for 20 new sheriff’s officer to provide court security and new lawyers and staff for the legal aid division. 

Both news releases specifically indicated that the money was from Budget 2014, that is, money that isn’t supposed to be announced until Thursday.  Reporters asked King if the finance minister would have money for these announcements.

The Vibrant Unsustainable Super Energy Debt Warehouse #nlpoli

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

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

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

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

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

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

The Politics of Oil and Budgets #nlpoli

When any country or province depends heavily on the money that comes from resource extraction, it affects politics there.

Political scientist Michael Ross is probably the most recent author on the subject. Terry Karl has also written extensively on the resource curse.  She wrote of the best known books on the subject:  The paradox of plenty:  oil booms and petro-states.  You can also find some of Karl’s further thoughts on the issue in an article she wrote in 2007  and revised in 2009.

These studies focus on the developing world, for the most part, but what academics observe about those countries can cause you to think again about politics in other places.

Like say, Newfoundland and Labrador.

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.

Marshall’s release doesn’t match DBRS public statements #nlpoli

Simply put, Tom Marshall’s most recent news release about the report by Dominion Bond Rating Service doesn’t match what the bond rating agency said in a news release about the provincial government’s finances.

You can see that pretty clearly if you read the whole release from DBRS.

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.

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-

Another call for an oil investment fund #nlpoli

In a column in the weekend Ottawa Citizen, Brian Lee Crowley of the Macdonald-Laurier Institute made a convincing argument for investing provincial government oil revenue in an investment fund:

Natural resource revenues, by contrast, gyrate wildly. The temptation, when prices are high, is to pretend those revenues will always exist, causing a cycle of booms and busts in public finances. Moreover if you acquire recurrent obligations on the basis of one-time asset sales, an inevitable day of reckoning comes. The natural resource is gone and you have a lot of public servants you can’t pay and a lot of people reliant on public services you can no longer afford.

This problem is resolved by using the money to pay off debt and then investing the rest and only spending the fund’s returns.

Ah yes, the temptation to spend irresponsibly – i.e. unsustainably - followed by the day of reckoning.

Sounds familiar.

-srbp-

The Bow-Wow Parliament lacks bark and bite #nlpoli

In the wake of the latest revelations of financial mismanagement in the provincial government, SRBP has been looking at some of the possible contributing developments over the past decade or more.

Last week, SRBP noted that it appears the provincial government broke up the treasury board secretariat around 2007.  They sent some of its bits off to one department and put the rump of its administration  – about the size it had been in 1968 -  under the finance department, as it had been before the 1973 reforms introduced by the Moores administration. 

At around the same time, the provincial cabinet started a series of massive annual increases in public spending that Premier Kathy Dunderdale admits is unsustainable.

And the same cabinet also ballooned the size of the provincial public service. Again, it’s something that Kathy Dunderdale admitted was something she and her colleagues now had to sort out.

These three things are connected. 

Even if the government loosened the constraints of its internal financial controls, there are other agencies that have a role to play in keeping an eye on the public treasury.

The Root of the Problem #nlpoli

Mr. Speaker, if the members opposite think that the level of scrutiny that we do over a $3 billion expenditure in health care is to take every single health authority and work down line by line by line through every piece of that, I do not know what they are thinking over there.

Health and community services minister Susan Sullivan, House of Assembly, May 30, 2012

Let’s hope that health minister Susan Sullivan doesn’t sit on the treasury board. 

That’s a committee of cabinet created under the Financial Administration Act.  Passed by the House of Assembly in 1973,  the Financial Administration Act was one of several great reforms of public administration in the province introduced by the Conservatives after they defeated Joe Smallwood and the Liberals in the 1972 general election.

Every provincial government and the federal government has a treasury board.  It is typically the most important or one of the most important cabinet committee by virtue of its control over money and people within government. Treasury board is also the only cabinet committee whose existence is set down by law.

The treasury board’s main job is to oversee how the provincial government and its agencies spend public money. 

The Hard Road Ahead #nlpoli

If the provincial government can actually get control on its spending and head down the road to management reform along the lines that Eastern Health’s Vicki Kaminski talked about on Tuesday, then they are headed down the right road.

More pork for the buck #nlpoli

The CBC’s John Gushue has a tidy analysis of Premier Kathy Dunderdale’s recent suggestion that government employees could work from home in the future as a way of cutting down on government real estate costs.

Gushue notes that people have been talking about “telework” for a couple of decades.  But where it was once an idea, today it is commonplace.

Unlike other employers that have looked to telework to improve productivity and employee lifestyle, Dunderdale’s interest in the concept is pretty simple and – for politicians in this province – typical and old-fashioned.  As Gushue notes:

She suggested reducing the cost of the public service ... not by dwindling its numbers, but by shrinking the footprint of its office space.

The reason the provincial government in Newfoundland and Labrador  costs more per capita than elsewhere in Canada is because provincial politicians use it for political purposes rather than just delivering government service to the people who pay the bills for the service.  It’s patronage.

Since taking office in 2003, the provincial Conservatives have done what the Liberals immediately before them have done.  Just as the Liberals transferred provincial paycheques to communities outside St. John’s, the Tories did the same thing in Grand Falls-Windsor and Stephenville when the local paper mill shut down. Overall, they swelled the provincial public service until it had become 25% of the provincial labour force.

Not surprisingly, the province’s public sector unions don’t like the idea of cuts to the number of people they represent.  In an interview last week, the head of the province’s largest public sector union claimed that the current size of the public service was the result of “rebuilding” after a period of cuts.  NAPE’s Carol Furlong said that “we really need to ensure that the people of this province have the services they need…”.

Of course, Furlong is full of crap.  The number of people represented by public sector unions has nothing to do with delivering the services the public needs.  There are plenty of ways to improve service delivery at a lower cost to taxpayers and with fewer members in Furlong’s union.

But, as you will see by looking at the Dunderdale and Furlong interviews, the politicians and the union leaders are in complete agreement on the question of the size of the provincial public service.  Neither of them wants to see it any smaller.

-srbp-

There’s no greater fraud… “unsustainable” version #nlpoli

The provincial Conservatives promised on Tuesday that they had a 10 year plan to reduce the provincial debt.

They have been in office since 2003.  in that time they boosted public sector spending by more than 60%.  Since 2009, the Conservatives have acknowledged their spending practices are unsustainable.

To date they have done nothing to change their ways.

Here’s some of what they promised in 2003:

• Keeping real program spending constant by limiting the annual growth in spending to the anticipated growth in inflation. New needs that arise will be accommodated within this budget constraint.
• Ensuring value for money by eliminating ineffective and inefficient programs, and by setting objectives for program spending and tracking results.

…

• Reviewing financing arrangements. In 2001-02, the province spent $700 million to service its debt. We will immediately review all financing arrangements in all government departments and crown agencies to reduce interest costs. Such a review will include all debt, investments and cash management practices. We will also review the $1 billion sinking fund to determine if a portion should be used to reduce the Province's debt and reduce interest costs.
• Approximately 40% of all government expenditures goes towards salaries and employee benefits. Over the next five years, approximately 25% of the public service will be eligible for retirement. A Progressive Conservative government will use this five-year period to reduce the size of the public sector through attrition.

There really is a greater fraud than an unkept promise.  It’s making promises on top of the unkept ones.

- srbp -

Significant budget digits #nlpoli

As you try and contain your excitement on provincial budget day, here are a few numbers you might want to keep in mind:

Dozens:  What CBC reported on Friday as the number of layoffs in the budget.

Fewer than 150:  What CBC reported on Monday as the likely number of layoffs in the budget.

$5.0 billion:  The amount of cash Tom Marshall had in the bank last year after the finance minister paid all the provincial government bills a year ago.  Don’t believe it?  Check Volume 1 of last year’s Public Accounts.  Windfall oil prices have delivered every penny of it.

$5.1 billion:  Total spending in the Tories’ first budget in 2003.

$13 billion:  The public debt, i.e. gross liabilities. Roughly $26,000 for every person living in the province. 

Don’t believe it?  Check the Public Accounts.

- srbp -

If Danny didn’t have the balls for it… #nlpoli

Job cuts in the public service.  One of the more spectacular communications frig ups by the Premier lately.

Here’s what your humble e-scribbler said on March 6:

So if Danny Williams couldn’t cut anything even after saying it in plain language, what makes anyone think that Kathy Dunderdale and the rest of her crew are even saying “cuts” let alone thinking about doing them?

Then the Friday before the provincial budget is scheduled to appear, CBC reports that “sources say the job cuts will number in the dozens, instead of the hundreds.”

Surprise!

Of course, public sector spending is still unsustainable.  The provincial government has been saying it since 2009.  It’s like debt reduction.  They talk about that too.  They just never do anything about it.

-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 -

Unsound financial management – the Dunderdale acknowledgement #nlpoli

It’s not hard to find the toad of truth in the swamp otherwise known as the ruling Conservatives’ record on public spending since they took office in 2003.

You can find it because since 2009 they like to admit every now and then that their spending habits are “unsustainable."

As nottawa reminds everyone, Premier Kathy Dunderdale has now acknowledged that:

“[o]ur spending at the rate that we've been doing over the last eight years — and it has been very necessary for a number of very good reasons to do that — is not sustainable in the long run.” [CBC online story]

But when Mark claims that “[u]p to now, Tories (and others) have disagreed with that assessment” he is not exactly right.

In 2009, Paul Oram was the first Tory cabinet minister to acknowledge publicly that “unsustainable” thing.

As your humble e-scribbler noted at the time, those words must have received the blessing of the Premier’s Office since cabinet ministers under Danny Williams couldn’t break wind without permission from Hisself’s posse.

Fnance minister Tom Marshall.chimed in with an unsustainability admission.*

And then they just kept up the same old habits.

It’s not surprising therefore that the public sector unions just won’t react to Kathy Dunderdale’s comments that the unions must not expect big wage increases in the upcoming round of negotiations.  Local CBC has been pounding away for a couple of days trying to make a story out of this but so far they’ve come up with zip.

The unions know the sad Tory record of saying one thing and doing another.  They also know that the Tories are still in a pre-leadership phase.  Danny’s gone.  Kathy’s a fill-in. 

If they thought about it for a moment, they’d also know that the local economic boom the Tories like to praise themselves for is actually a function of public sector spending.

That’s right.

It isn’t oil.

It’s a massive increase in the number of public servants since 2003,  fantastic wage increases, and unprecedented increases in  public spending. Roads and buildings are just part of it.

That unsustainable public spending is what has been sustaining the provincial economy. Under the Tories, the provincial economy is considerably more fragile than it’s ever been before. 

Any effort by the Tories to get their spending under control – to get it to sustainable levels - will put a chill through the place.  That will inevitably lead to a chill in the local economy.  The chill won’t just hit St. John’s where most of the public servants and the construction industry lives.  The chill will be felt everywhere and that will put a chill on the Tories’ political standing.

All that is the answer to Doug Letto’s questions in his essay on the “massive obstacles” Kathy Dunderdale is facing:

Can she and the government say no? Consistently?

No.

And no.

And everyone knows it, including Kathy.

Muskrat Falls, incidentally, is nothing more than the best example of a party addicted to unsustainable public spending.  The project will increase the public debt to new record levels but that is irrelevant to the province’s Tories.  They want all those jobs to keep the economy humming.

You can easily find the toad of fiscal truth in the swamp of Tory financial mismanagement since 2003. The truth is – as Kathy admitted herself – their spending is unsustainable.

The part Kathy didn’t say is that she won’t be able to do anything but keep it up.

- srbp -

* Changed wording to clear up sentence meaning in the context of the post.  Original post had wording left over from earlier draft.