Fooled him, too, did they? #nlpoli

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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Slide a sheet of paper: the spend ‘em if ya got ‘em edition

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:

1. go in the bank and be held in the form of short-term investments that will only appear to lower the debt; or
2. cover the gigantic deficit Tommy  - or whoever is fin min - will face next year as a result of the Tories persistent unsound, unsustainable financial management.

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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The unsustainable lightness of Tom Marshall

Tom Marshall keeps a tight grip on the provincial government’s purse strings.

He has to do that.

The damn things won’t stay that wide open on their own.

In presenting the provincial government’s budget to the House of Assembly on Tuesday, Marshall announced that the Conservative administration of Kathy Dunderdale would continue the practice of unsustainable public spending set under Dunderdale’s predecessor, Danny Williams.

Overall government spending will grow by 4.9%;  that’s about twice the rate of inflation. 

A windfall in oil prices directly attributable to turmoil in the Middle East helped to erase a forecast cash deficit of $959 million and turn it into a modest cash surplus of $133 million. (Estimates 2011 p. iv)

For the past two years, Marshall claimed the government’s profligate spending came from the need to spend cash to fuel an economic recovery. 

Now he’s got a different excuse:  we can afford it.  Marshall told reporters that the provincial economy was “sizzling”. That’s nonsense, of course.  The economy is actually becoming increasingly fragile and public spending is sustained by cash coming from a volatile source, namely oil. Marshall seems to know that just like he knows the public debt is something he should be reducing.

Oddly, Marshall never seems to do anything about it. 

Marshall forecast that the province’s net debt will increase in 2011, largely the result of continued growth in unfunded pension and benefits liabilities in the public service.

And that’s despite repeated warnings from the province’s auditor general among others.  In 2009 a provincial cabinet minister resigned unexpectedly citing concerns about unsustainable public spending.  Earlier this year, Auditor General John Noseworthy repeated the same concerns;  interestingly enough he did it in a report on Fiscal Year 2009, the same year Paul Oram left cabinet.

Two years later, the provincial government is still on the same path.

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Related:

• Fragile Economy:  Staying the course
• Fragile Economy:  reductio ad argentum
• Fragile Economy:  …and two steps back
• Fragile Economy:  now three steps back and loving it
• Fragile Economy:  hard numbers
• Fragile Economy: The Public Sector

The Four Horsemen and government finances

Don’t be surprised if the provincial government issues a statement in the near future trumpeting an accrual surplus of several hundred millions.

Sure Tom Marshall isn’t ready to acknowledge what is going on, but it’s pretty hard to avoid making tons of money when those pre-Danny Williams oil royalty regimes meet Brent crude prices that are soaring to more than US$105 million based on Muammar Khaddafi’s willingness to slaughter thousands of Libyans in order to stay in power.

Oil prices and production levels are actually at the level where the Conservatives in Newfoundland and Labrador might produce a cash account surplus as well for the first time in a couple of years. That’s a good thing if only because it means the public debt won’t increase to record levels as it has under the Conservatives since 2003.

The question one must ask as we get closer to a provincial budget for the new fiscal year is how much longer the provincial Conservatives will continue to base public spending on windfalls due to war, famine, pestilence and death?

The Conservative banshees will likely start their usual screeching in the comments section at this point but the facts are plain in anyone’s face.  The Conservatives’ financial “miracle” has resulted not one teensy bit from anything they have done.  The enormous cash flow over the past five years resulted to one extent or another from political instability, economic crisis and all manner of calamities around the globe that drove oil prices to unprecedented heights.  Run those oil prices through the royalty regimes delivered before the Conservatives took power in 2003 and you have more money than the spendthrift Conservatives could actually spend.

Since 2003, the provincial Conservatives, led by first Danny Williams and now Kathy Dunderdale, have deliberately avoided sound fiscal policies.  Finance minister Tom Marshall and his colleagues have refused to create a sovereign wealth fund or to restrain public spending.  They have, in fact, willingly boosted spending to levels even they’ve acknowledged are unsustainable. 

Gross public debt remains at historic levels and, if Marshall is to be believed, there is little willingness around the cabinet table to take the sort of measures any prudent government would be doing in the face of dwindling oil production.  In other words, there’ll be no investment fund of the type found in other, responsibly run places, at least, not until Tom takes a hike to enjoy his fat pension on a Bermuda beach somewhere.

Now none of this actually comes as a surprise to the Conservatives.  Premier Kathy Dunderdale is aware enough of declining oil production – and hence revenue – but that seems to be only when she is faced with a reporter’s question about spending public on something  - like municipal bus services – that she obviously isn’t keen on.

But on things she wants, like Muskrat Falls, there is evidently no limit to Dunderdale’s willingness to spend other people’s money by increasing public debt and doubling electricity rates in the province.

In a few weeks’ time, Newfoundlanders and Labradorians will find out what Kathy Dunderdale and her colleagues plan to do with public money for the foreseeable future. Let’s see if Kathy Dunderdale defines her premiership by changing the pattern of financial imprudence she and her colleagues have maintained until now.

Odds are against any change to fiscal responsibility by the provincial government.  For starters we are in a pre-election period. And when that is done, we will still have the unresolved Conservative leadership.  No one will be willing to take any steps to turn off the money spigots when votes are at stake.

Just think of political expediency in a patronage-riddled political culture as the fifth horseman.

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Imagine if they were fiscally responsible

Feast your eyes on labradore’s latest offering about public debt in Newfoundland and Labrador.

The only people left who think the current administration (since 2003) acted and are acting in a fiscally responsible manner are those who just refuse to see the obvious.

Labradore offers this projection of the provincial net debt if a quarter of oil revenues had gone to actually paying off debt over the past few years.  The light coloured bits are what would have disappeared.  The dark green are what would have remained. The two together are what the Conservatives actual record looks like from basically doing nothing except paying off what came due.

Never Read Stuff Late at Night Update and Correction:  The charts are based on the assumption of taking 25% of the windfall oil revenues for spending and 75% for debt reduction. That's what happens sometimes when you read things late at night.

It actually doesn't change the overall thrust of this post or labradore's original, though since the charts illustrate what an aggressive debt reduction approach could have achieved while at the same time fueling significant increases in public spending.

Consider this to be the complete opposite of the Williams and Marshall approach in which they basically did shag all to reduce the province's debt burden to any meaningful degree.

*original continues*



And the share of the public debt borne by each man, woman and child in the province?

In the cleverly colour-coded chart you can see the blue line – what the Tories did – and the red line representing what might have been, had the current administration done as labradore and a few other brave souls recommended.



Odds are pretty good that a government with the fiscal track record shown in this chart could actually raise the cash on its own to build a viable Lower Churchill project.  On its own, that is, which would be in contrast to going cap in hand to Uncle Ottawa looking for a gigantic multi-billion dollar handout. Like say both Danny Williams and his hand-picked successor have been doing.

There’s a provincial government that is genuine in its aspirations and one that can be legitimately proud of the efforts it has made to ensure Newfoundlanders and Labradorians live in a province that is strong and fiscally sound.

And then there are the people who talk about legitimate aspirations but who fail repeatedly to embody them, let alone achieve them.

Just for good measure, let’s give labradore the final words on this.  They are all too accurate:

There was, of course, nothing responsible or prudent about Danny Williams’ tenure as Premier, and nothing, other than name, that was conservative about it. He chose a different track. 

That is why a government that collected over $9-billion in oil revenues during its tenure still presides over a $9-billion net provincial debt. 

And that is why the provincial net debt per capita this fiscal year was over $17,000 and rising, when in the alternative universe it would have been $7,000 and falling, and falling fast.

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Finance minister cops to unsustainable spending

The provincial government hasn’t really been managing the public purse in a sustainable and fiscally responsible way.

Your humble e-scribbler has been saying that since 2006.  There have been plenty of charts and graphs to drive the point home.

In 2009, Paul Oram said that government spending is unsustainable, but unfortunately he said it on the way out the door as he left politics. 

But you don’t have to just accept that just because you read it here.

Now you know that government spending is unsustainable because no less an authority than Tom Marshall – the province’s finance minister – is saying that in every single one of his pre-budget consultations.

Take a look at the slide deck for his presentation.  You’ve seen similar slides here and in some of the conventional media maybe.  You’ll find the information is a wee bit familiar and that’s because the figures your humble e-scribbler uses and the ones Tom is using come from the same place:  the provincial finance department.

But Tom’s slides are better because they are accurate and up-to-date. Now Tom doesn’t give you all the information you’d but what is there is enough to scare the bee-jeebers out of any doubters out there.

Before we get into the details, let’s just say that True Tory Believers should turn away and go play Free Cell or something.  They really should not read on.  Fan Clubbers should really not read beyond this point.  They are putting their heads in jeopardy.  Their whole world only keeps making sense because they have convinced themselves that nothing at BP is real, that it is all wrong and just some sort of partisan plot. 

So if they keep reading to the end, your humble e-scribbler cannot be held liable for the resulting carnage as their skulls collapse.  After all, if your faithful servant says these things only because he is a Liberal and then Tom Marshall says the same things then either Tom is telling whoppers or I am a Tory or…

You can see how easily they could wind up in the Waterford trying to make those two things fit into the same twisted mental space.

Anyway, here goes.

This slide from near the end of Marshall’s presentation shows the net program expenses – everything except debt servicing and capital costs – compared with the consumer price index and the growth in the economy. This is a really good comparison because it shows the changes in the core government spending without things like the “stimulus” capital spending.

This is the sort of spending that would be very hard to cut if revenue dropped drastically.  And you can really see the point if you recall that so much of the economy – 30% or so of the labour force – is paid out of net program expenses. This is your health care spending as well.

Now just because Tom Marshall used it, let’s look at the slide showing the comparison between the growth in gross health care spending – with capital works tossed in – and the consumer price index.  This slide together with the one above illustrates the astronomic growth in spending over the past four years.

 

This slide also shows you a comparison which pretty much destroys any argument that the rate of gro9wth was the only thing Tom and his friends could have done.  You’ve heard all the excuses about catch-up and making up for previous neglect or that costs are just going up because things are booming.

Don’t look at 2009-2010 because that’s the recession year when the costs of goods and services didn’t grow very much at all.  Look at the two years before that.  The provincial government could have boosted spending by double the rate of inflation and they still would have boosted spending by a huge amount.  Instead, they went for triple or more.  in 2007, the year of the last election, they boosted spending by what looks like six or seven times the rate of inflation.

And all that spending was built on what Tom Marshall acknowledges are windfalls from the price of oil.  They are windfalls driven by price and by production of a non-renewable resource.  All wonderful to spend and spend more as long as the cash is rolling in.  But when the prices don’t keep skyrocketing and the money isn;t flowing in, you have a hard time driving spending up at the rate people want.

That’s the definition of unsustainable spending.

Not surprisingly, you can see all the problems in the final slide Marshall used in which he laid out his “challenges”.

That second bullet, the one about high dependence on resource revenues is the bit about price and production.  Great going up but prices do go down.

Skip down a bit and you’ll see the other point:  there’s pressure to continue spending increases and people are used to seeing growth of nine percent on average over the past seven years.  Inflation averaged around two percent each year or thereabouts over the same period.

All the stuff that comes before this points to that bullet about the “Need to control expenditure growth”.  Problem is that expectations are there for continued growth and those expectations are on top of the real need that comes from having an aging population and that is on top of the commitments to boost public spending on megaprojects like “equity” stakes. 

If that weren’t bad enough the combination of election year plus the unsettled Conservative leadership combine to make it very difficult for politicians to make the tough choices and actually control spending.

Remember 2007?

If you’ve forgotten already, scroll back up and look.

A very popular leader with a reputation for toughness and they still couldn’t spend in a responsible, prudent manner.

And if all that weren’t enough to make you cringe, take a look at that last point.  There you have the provincial government’s great plan to reduce public debt:  they will pay it off as it comes due.  That means about $200 to $300 million a year.

Divide that into the $12 billion gross debt and you can figure out how many decades will take  - theoretically - to get to zero at that rate.  Yeah don’t bother.  Let’s just sum it up by saying the current administration does not have a debt reduction plan at all.  Not really.  They don’t.  If things get really bad, they can just roll debt over and that’s what governments have done over the past couple of decades. They could pay off some debt as it came due;  otherwise they just spent as they needed and ran up the debt bill.

We aren’t done yet, though.

That middle bullet about a “requirement” to borrow to pay for the Lower Churchill.

It is only a requirement because the provincial government already made the decision to add another $4.0 to $6.0 billion to the public debt.  They don’t absolutely have to do it and, frankly, the deal as laid out currently is one that doesn’t make any sense.  It would be a huge risk for any government or private sector company that had a healthy balance sheet.  Even with a federal loan guarantee, it is sheer foolishness for the province with the biggest per capita debt load in the country.

Upside:  admitting there’s a problem could mean that Tom Marshall and his colleagues will start sorting out the mess they’ve made.

Downside:  Tom’s admitted to some or all of this in the past in the pre-budget consultations only to bring down a budget each time that did exactly the opposite of what was needed to fix the problems. Only Danny’s gone:  the rest of the people responsible for seven years of unsustainable public spending and unsound management of the public purse are still in charge.

We can hope for the best but experience tells us all to expect the worst.

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Irresponsible Government League: free-wheeling in Dunderdale’s department

From the Auditor General’s most recent report on the provincial government’s handling of public funds, released on Wednesday:

As at 19 March 2010, the EMS identified that 56 (12.0%) of the 465 recreational vehicles were missing.  We also found that 49 of the 56 missing recreational vehicles were assigned to the Department of Natural Resources.  

We note that the 2006 Report referred to 80 missing recreational vehicles and indicated that "To have this number of machines unaccounted [for] is unacceptable and increased monitoring of both ATVs and snow machines is strongly recommended.” The Report noted that 67 of the 80 missing recreational vehicles were assigned to the Department of Natural  Resources and the Department of Fisheries and Aquaculture.

Yes folks, Premier Kathy Dunderdale’s former department lost 49 snowmobiles and all-terrain vehicles and that accounted for 87.5% of the government’s inventory of missing ATVs.

How do you lose a snowmobile or a quad?

Well, sez the purist, the vehicles aren’t really lost. It’s just that the department officials don’t know where they are.

For those of us paying the bills, that lousy record keeping and the poor management practices that go with it still pay for all that waste in government.

Meanwhile, 49 somebodies may well have sweet rides courtesy of your tax dollars.

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Unsound public finances: pork-barrelling on steroids

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:

1. Remember the fiscal year numbering thing – The AG misreports the year. To find the actual fiscal year, knock one off.  In other words what the AG calls 2010 is actually 2009.
2. These are accrual or accounting surpluses.  If you look at the actual cash performance, there are some chunky deficits in these years.  Like 2009 for example when the provincial government had to take about half a billion from its cash reserves to cover that whopper of a deficit. Ye olde e-scribe wrote about this before  - in 2008 - along with a couple of lovely pictures to illustrate the point.
3. Those gigantic surpluses in the chart weren’t planned.  In fact, if they planned anything,  the current provincial government crowd planned on going in the hole.  They came out in the black because oil went to insane prices. Look at the budgets for those years and you will see that Tom Marshall and his colleagues planned gigantic spending deficits.

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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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%?

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NL Auditor General notes poor fin mgt practice

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.

Fin minister Tom Marshall talks debt reduction - audience pees in pants with stifled giggles

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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The finance minister who loved deficits

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:

• price
• production, and
• the relative value of the dollar. 

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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Why he’s heading south…

People are wondering why Danny Williams is heading south so quickly.

Well take a gander at finance minister Tom Marshall’s budget update and you can get a good idea of one possible cause.

Last spring’s budget forecast a cash deficit of slightly under $1.0 billion.  If you look at the forecast increase in net debt of close to $500 million, you can ballpark the cash shortfall to be at least that much. That’s about where things came in last year.

Marshall is claiming a surplus for his last budget, but people have to remember he isn’t talking about cash flow.  Under cash accounting, revenue and expenses are recorded when they are received or paid.  You can wind up showing an accrual surplus but have to head out and borrow money to cover the cash payments needed in a given period of time.

For those who keep track of these things, by the way, the provincial government now reports its finances on both a cash and an accrual basis. In 2007 they switched back to showing the annual estimates on a cash basis, but they left the budget speech projections under the accrual method of accounting.

Media reports are likely to focus on the rosier number coupled with Marshall’s claim that last year will look better than originally forecast.  But conventional media won’t wade into the deeper picture. For one thing, it’s much harder to understand. They are likely to stick with the same sort of bumpf they’ve been feeding people for the past week or so about a deal on the Lower Churchill.

There are some modest increases in revenue:

• provincial income tax is $31 million above estimate;
• corporate income tax is about $165 million above estimate;
• oil royalties are $65 million over estimate (they were a wee bit optimistic on price);

Spending is expected to increase by about $76.4 million although the news release pegs it closer to $100 million.

As for that diversified economy thing Marshall mentions in the news release, let’s just quote a famous politician and say that nothing could be further from the truth.

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NL population drops in Q2 #cdnpoli

Newfoundland and Labrador was the only province to experience a population loss in the second quarter of 2010, according to figures released Wednesday by Statistics Canada. The cause is primarily net interprovincial outflows, in other words outmigration. That’s also the first drop since 2008.

While the provincial government issued a news released last quarter trumpeting the gain of a mere 96 people, you are unlikely to see a release like it this month talking about a drop three times the size.

Here’s what the past five years looks like, by quarter.

Now it could be nothing at all but a blip.  Then again, it could be a sign of things to come.  Note that for the last three quarters the rate of growth has dropped dramatically.  That suggests the steam was going out of things and that the Q1 results were the peak of the curve.

You can see that more clearly if you look at this chart:

In less than a year, the province went from gaining 130 people in a quarter to losing 300.

And actually, this could also mean that the North American economy is on solid footing.  The change in migration patterns for Newfoundland and Labrador in Q3 2007 actually heralded the onset of the recession.  A long-term analysis of provincial population suggests that the population grows shortly before major recession.  Those are all people working elsewhere with relatively weak ties to the community who opt to come back to the province to weather the economic storm.  When things pick up, they head off again.

And as much as the province’s finance minister may like to believe otherwise, odds are that is what’s going on again.

Great news, wot?

Well, not really. The longer term demographic problems that come with that aren’t ones the current administration and its unsound financial and economic management are not ready to cope with.   Not by a long shot.

Don’t forget that in this pre-election and pre-leadership period, you can bet the government won’t be willing or able to do much to start adjusting to cope with the harsh reality of the economy and demographics.  In fact, the next 18 months are basically a write-off for serious government decisions to deal with the problem. 

On top of that you can forget the period between the election and whenever the new Premier arrives to replace the Old Man. And if that doesn’t wind up happening happen until a couple of years before the 2015 election you can almost write off dramatic policy shifts until that election is history as well.

Wow.

Not to worry sez you.  There’s oil.

Sure there is.

Unfortunately, production and royalties won’t be able to cope with the demand for added revenue.  There’s not much else going on to take up the slack and for good measure, the current administration plans to use oil money to fuel increases for education and health care and use exactly the same money to build the $14 billion Lower Churchill project.

Here’s lookin’ at you, kid…

…as you leave the province again.

At least we’ll always have Ottawa.

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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.

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The politics of financing post-secondary education in Newfoundland and Labrador

Nottawa lays it out very neatly:

It's a political masterstroke. Having already taken all the political credit for the revenue generated by his predecessors, Williams is now doing the same with expenditures of his successors. It's brilliant. Whether or not it's sustainable is another thing.

That would pretty much put post-secondary education financing in line with the rest of the current administration’s management of public money:  unsustainable.

Then again, nottawa sets out that sort of thing as well when he notes the costs in the policy re-announced today by the province’s education minister:

What is the point is that this announcement, at the time of its making, and on its one year anniversary is really not an "investment" of the "Williams Government" in any way shape or form. It's a commitment made on behalf of Williams' successor, the person who'll one day have to account for the cost of borrowing money at 4, 7, 8 or even 10% in order to lend it out to post-secondary students interest-free.

Evidently financial management and economics were not included in the curriculum at Darin King’s alma mater.

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That’s gotta hurt, too: oil prices edition

The provincial government’s 2010 budget – due to pass the House of Assembly by next Monday – is based, in part, on crude oil average about US$83 a barrel for the entire year.

Just to make sure everyone is keeping a sharp eye on the unsustainable Tory financial ball, the budget forecasts a cash deficit of about $1.0 billion. That would eat up just about all the surplus cash on hand.  As a result, the net debt, which was hidden from prying eyes by all the surplus cash would spring back into full view in all its $10 to $12 billion splendour.

And if the following year’s budget needed some propping up, the provincial government would be back in the markets looking for some bank will to see the public debt balloon even larger.

But oil is trading this past week down in the neighbourhood of US$70 an the dollar is still pretty close to par.  Production is slightly below last year’s so there doesn’t seem to be much hope extra production would generate extra cash.

Oil is now the major source of provincial government income by quite a margin.  It’s about twice the amount the government gets from federal transfers which  - when piled together is the next biggest source of income at about $1.2 billion.  Oil royalties, forecast at $2.1 billion is about two and a half what personal income tax, the next largest provincial government’s own revenue source, brings in.

There are a couple of things to take away from all this.

First of all, when Danny Williams talks about putting the province’s finances in order such that there is less dependence on Ottawa, he’s pretty much jerking everyone in the province around. 

Nothing – and let’s say that again for good measure – n-o-t-h-i-n-g, not a single, solitary, flipping thing Danny Williams and his cabinet have done in provincial government spending since 2003 has put the provincial government on a secure financial footing.  To the contrary, they have put the provincial government in an incredibly precarious financial position even compared to when they took office.

The facts on this speak eloquently for themselves in both the fragility of the economy and unsustainable level of public spending. When he announced in early March that balanced budgets were no longer a target for his administration he pretty much confirmed that none of his claims about sound fiscal management were close to being accurate.

Second of all, bear in mind if oil stays at current prices, the cash deficit is more likely than not going to be about $1.0 billion and we are yet again staring at the prospect of one of the largest if not the largest cash deficits in provincial history.

Put all the faith you want in people who forecast triple digit oil prices as the way of the future.   Oil is not going to be the saviour of this province if its government keeps spending the way it has been spending.

It’s that simple.

So as all things out there go sour for the current administration, as it faces the prospect of hundreds of millions of dollars in costs from the Abitibi expropriation fiasco, as investment interest in the province dries up, the parlous dependence of the provincial budget on oil prices just adds to the pressure.

Imagine what things will be like a year and a bit from now when voters troop to the polls.

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Strategic Social Plan (1995) - Forward

This Strategic Social Plan Consultation Paper initiates the final phase of an intensive Provincial planning process which began more than six years ago. When this Government took office in 1989, we made a commitment to the people of Newfoundland and Labrador to review all economic and social programs and mandates and to develop strategic plans to carry the Province through the turbulent changes of the 1990s into a stronger future in the 21st century.

In the fall of 1990, Government began the first phase of this planning process through a review of economy's strengths and weaknesses, examination of the activities and policies of economic departments and agencies, and the subsequent development of a public consultation paper to provide an opportunity for the people of the Province to have direct input into the vision, guiding principles, and actions that eventually became the Strategic Economic Plan (SEP).

When the SEP was released in June 1992, however, we stressed that it was only half of the planning cess. Economic issues cannot be examined or addressed in isolation from social issues and realities, and it was imperative to move on to the second phase of our strategic planning: the development of a Strategic Social Plan. A Social Planning Group (SPG) of senior officials was established, and on March 4, 1993, the Throne Speech in the House of Assembly reaffirmed Government's commitment to the development of a Strategic Social Plan as the essential and equal partner to the SEP.

During the past three years, the SPG faced many challenges in their task of researching global trends reviewing programs and policies. Unlike economic planning activity, strategic social planning models were virtually unknown, and the Group were for the most part breaking new ground. In addition, they were caught in a maelstrom of social change and reform at both the Provincial and Federal levels, and were obliged to constantly revise data and projections to keep pace with national social reforms and in funding.

Nevertheless, the work of the SPG progressed to the point where relatively stable data could be provided to Cabinet and a consultation paper could be developed. This document is not a final Strategic Social Plan but it is a clear statement of the direction in which Government intends to proceed in terms of providing essential services for the social well-being of our citizens in as effective and efficient as possible. We now invite comment and suggestions from the people of Newfoundland and through the extensive public consultation process which will precede the development of the Strategic Social Plan.

I encourage all citizens, and especially organizations concerned with various social issues, to examine this paper thoroughly and to give serious consideration to the social challenges that are outlined and to the strategies and actions that are proposed. I look forward to receiving the thoughtful views of people throughout the Province as we continue the process of planning our social order for generations to come.

[original signed by]

Clyde K. Wells

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To come:  “Introduction and Background”

• Introduction
• Social profile
• Demographic Change and Challenge
• Living in a Different World
• Realities
• Principles
• Vision

Explanatory Note:  The 159 page Strategic Social Plan [SSP] consultation paper is being presented in a series of instalments.  A companion to the 1992 Strategic Economic Plan, it lays out both a clear statement of where the province was in 1995,  the challenges to be faced in the future and policies to deal with those challenges successfully.

Approved by cabinet for release in December 1995, the 1,000 copies of the consultation document were ordered destroyed by the Tobin administration in 1996.  Only a handful of copies survived.

The planned consultation never took place.  Instead, and while something subsequently emerged which was labelled a Strategic Social Plan, the new Tobin administration went down an entirely different road from the one envisaged in the 1995 consultation paper.

Some specific initiatives from the 1995 document did make it into action.  Others did not. Unfortunately, the fundamental approach – the integrated concept – that underpinned the strategy went out the window with the change of administration in January 1996. 

It never returned.

The current state of the provincial government – unsustainable levels of public spending in an increasingly fragile economy – are a direct result. 

In a province facing an uncertain future, where political leaders are devoid of ideas, let alone sustainable or new ones, the 1995 Strategic Social Plan remains relevant.

The Fragile Economy: staying the course

“Obviously, I don't like to run deficits, but if I've got to fight a recession ... if we've got to get the economy booming again, then I'm not afraid to spend money and we're not afraid to lower taxes to stimulate the economy - that's good public policy.”

Finance minister Tom Marshall often speaks about one thing and does another.  He’s famous for trotting out a debt clock during one budget consultation farce only to deliver a budget that did nothing to reduce debt.

This year Marshall has been trying to pass off deficit spending as if it was something new for this administration.  It isn’t. They’ve run cash deficits in all but two years since 2004.  If their current forecast holds, they will be adding a considerable amount of debt for the foreseeable future.

Adding debt is just staying the course for the Williams administration.

Premier Danny Williams himself has dismissed balanced budgets as meaningless. Marshall explicitly rejected any action like balanced budget legislation or having a debt reduction policy.

Marshall’s predecessor as finance minister - Loyola Sullivan  - talked about balancing the books on a cash basis – he only did it once – and possibly not balancing the accrual books for a number of years.  That was back in the early days of the administration when it looked like they were actually going to deal with some of the provincial government’s financial woes. But even for all that notice debt got within the first couple of years after Williams and the Tories took office,  they were willing to rack up additional public debt.

Since we are discussing debt, let’s dispose of one of the finance minister’s more laughable claims from budget day:

“But we have cash to pay for that deficit. We will not increase our borrowing. Our debt will go up, but we don't have to borrow for that.”

On the face of it people may well wonder how you can increase public debt while not borrowing money.

The answer is pretty simple and it goes to the heart of the public debt charade Marshall and his colleagues have been foisting for the past few years.

Marshall covered the half billion shortfall in 2009 from temporary investments – extra cash – the provincial government had on hand.  He didn’t have to go to the banks and negotiate a loan but he sure as heck borrowed the money:  he borrowed it from taxpayers.

As for the debt, what he is referring to is net debt.  Now for those who may not know, net debt is a calculation of what is owed compared to assets – cash, property and so on – that could theoretically be sold off to pay down the money that is owed.

Those temporary investments that the provincial government racked up over the past couple of years helped to make it look like the public debt had been paid down. That’s because they are exactly the sort of assets that would have bee used to figure out the net debt:  liabilities less assets.

So when Tom took the cash and spent it, the net debt could only go back up.  The net debt will go up again next year and the year after and any other year Tom winds up having to cover off over-spending.

Just remember, though, that the total liabilities haven’t changed much in the past few years. You can see that from a post last December on net debt and liabilities and in another post on net borrowings.

This is not a subject the Fan Clubbers like to talk about but it is real. it also just happens to be one of the major financial problems facing the province that isn’t being addressed by the current administration.

Just to give you a sense of how much the past two budgets have followed what we could call the Williams administration debt addition policy, take a look at just the current account spending since 2003.  That’s the money that pays the heat and light and delivers the services and salaries every day of every year. 

And just to really keep it in perspective think of it this way.  You can have a great net debt because you have a nice house, an expensive car and some jewels that could possibly be sold off if the bank called all your loans. 

But since the house and the jewels don’t generate any cash each year they don’t help you pay the bills today.  If you can’t afford food without whipping out the credit card you could be in a situation of being cash poor. Lots of nouveau riche business types are leveraged to the max.  They drive flashy cars but they don’t really have a copper to their name. So without considering the cash deficit, the net debt could be a very misleading figure.

Anyway, take a gander at this table.  It shows the percentage increase in current account spending every year from 2003 to the current budget.

Fiscal Year	Percent increase from previous year
2004	Zero
2005	5.3
2006	4.6
2007	8
2008	7.8
2009	10
2010 (forecast)	7

That’s right.

Except for that first year, there’s never been a time when current account spending didn’t go up by at least twice the national rate of inflation.  In some years spending shot up three and four times the rate of inflation.

This sort of spending is unsustainable.

This sort of financial state – all that spending coupled with all that untended debt – is unsustainable.

There are other consequences to the Williams administration economic policy, consequences that will become more obvious as this new series – The Fragile Economy – rolls out in the days ahead.

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Williams to continue unsustainable spending

In his first public statement since coming back to the province after heart surgery, Premier Danny Williams confirmed the provincial government will continue spending public money at a level his finance minister has described as unsustainable.

According to Williams, a balanced budget is no longer a target for his administration.

Williams said it was important to keep “momentum” going in the province. 

Take-away:

1. We are in a pre-election - if not a pre-leadership -  period in which any sound fiscal management goes out the window.
2. Williams correctly identifies provincial government spending as the source of economic activity on the northeast Avalon.  As BP readers know, oil hasn’t been driving things in the metro area, contrary to public belief.

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