From the current issue of Canadian Business comes this little ad that is not an April Fool’s joke from energy company currently running the provincial government:
People following the sorry recent history of energy development in the province will instantly recognize the vicious, cruel joke inherent in Nalcor promoting itself as a company interested in developing wind energy.
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April 1, 2013 marks the 64th anniversary of Newfoundland’s confederation with Canada.
Here are a few older posts on the subject that stand the test of time:
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Earlier this year, our government projected a deficit for 2013-14 of $1.6 billion.
We are now forecasting that the deficit has been significantly reduced to $563.8 million – a billion-dollar improvement to our bottom line.That’s the way finance minister Jerome Kennedy started the 2013 budget speech in the House of Assembly on Tuesday. He said the dramatic change to two factors: more money coming in and “deliberate actions” by government to “rein in spending.”
Just over $301 million of the billion-dollar boost over recent projections is attributed to government cuts. Another $696 million came from improved expected revenues for the coming year.Take away the money the Telegram tallied up and you get about $440 million. The CBC story said that came from “…royalties or corporate taxes from oil and mining.” Another news report added in a windfall in HST money from Ottawa.
[Note – see below]
The throne speech promised that the same Conservative financial management that produced the current financial mess would continue and they delivered in Tuesday’s budget.
The strategic problem remains unchanged
The Conservatives will continue to spend billions in one-time cash from oil and minerals. That’s the structural deficit people have been talking about and the Conservatives have done nothing to change that.
Tuesday’s budget gave us the year-end cash figures for 2012 and the forecast for 2013. Here’s the chart from Monday’s post on deficits and surpluses that shows spending and the non-oil revenue. We’ve updated it to include the cash figures for 2012 (actual) and 2013 forecast from the 2013 Estimates. Remember that the Estimates are presented on a cash basis.
Monday’s throne speech was so bad that people started making fun of it almost immediately. On Twitter a few of us tried changing lines from famous John Kennedy speeches and giving them a local twist
You could find a variation on the moon speech: we will go into debt, not because it is hard but because it is easy. Another tried German: “Ich bin ein Bauliner!”
Or this one from the inaugural:
The debt has been passed to new generation, born in oil riches, untempered by profligacy, undisciplined by debt.
None could top the corrupted Kennedyism an actual speech by the Old Man, Hisself in 2006:
I say to Newfoundlanders and Labradorians: "Ask not what we can do for our country, because we have done enough. Let's ask our country what they can do for us."
The Newfoundland and Labrador Federation of Labour hired the Canadian Centre for Policy Alternatives to issue a report on the upcoming provincial budget that basically says all the things that labour federation boss Lana Payne has been tweeting for weeks.
Here’s what the report’s author said in a news release from CCPA:
“The province’s economic fundamentals are strong. The task for the government is to ensure it doesn’t rock the boat and damage the province’s economy and social fabric with spending cuts.”
Things are looking pretty good, in other words. The government has to be very careful because any big cuts would damage the economy.
As much as some people might think this is a challenge to the governing Conservatives, that’s not really the case.
Continued from Part A
Terry Lynn Karl is the author of The paradox of plenty: oil booms and petro-states., one of the best known books on the resource curse or rentierism. Karl described the essence of rentierism in an article she originally wrote in 2007 and revised in 2009:
Oil wealth produces greater spending on patronage that, in turn, weakens existing pressures for representation and accountability. In effect, popular acquiescence is achieved through the political distribution of rents. Oil states can buy political consensus, and their access to rents facilitates the cooptation of potential opponents or dissident voices. With basic needs met by an often generous welfare state, with the absence of taxation, and with little more than demands for quiescence and loyalty in return, populations tend to be politically inactive, relatively obedient and loyal and levels of protest remain low -- at least as long as the oil state can deliver.
In the extreme, oil wealth can disconnect a state from its population. By the same token, oil can disconnect politicians from the population, transforming them from representatives who must satisfy voters in order to get re-elected to bosses controlling subordinates.
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This is the third in a four part series on the current financial crisis the provincial government is facing. The first instalment – “The origins of rentierism in Newfoundland and Labrador” – appeared on Tuesday and the second – “Other People’s Money” - appeared on Wednesday. The third instalment – “Rentierism at the national and sub-national level” - appeared on Thursday.
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Finance minister Jerome Kennedy told the Telegram’s James McLeod on Wednesday that the provincial government had a structural deficit problem.
His proof was that government spent 60% or so of its total outlay each year on the social sector. That includes health, social services, justice, and education. If that’s what Jerome is worried about then he and his cabinet colleagues should know that in 2005, they spent 67% of their budget on the social sector. In 2003, the last year the Liberals ran the place, they spent about 64% of the budget on the social sector.
Before he goes all Grim Reaper, Jerome should know spending that kind of percentage on the social sector isn’t unusual for governments across Canada. That’s been pretty much the norm since the late 1960s when governments introduce publicly-funded health care. In Ontario in 2012, for example, all but about $30 billion of the government’s $126 billion budget went to social program spending.
That doesn’t mean the provincial government doesn’t have a huge financial problem. They do. It just means that Jerome is looking in the wrong place to find a sign of it.
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This is the third in a four part series on the current financial crisis the provincial government is facing. The first instalment – “The origins of rentierism in Newfoundland and Labrador” – appeared on Tuesday and the second – “Other People’s Money” - appeared on Wednesday.
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A rentier is a person who lives off the income from property and investments. That distinguishes a rentier from a person who earns income through labour.
For the past 40 years or so some political scientists and economists have studied something called a rentier state. In simplest terms, a rentier state is one that derives a significant portion of its national government income from the money they get from oil and other high-value, but volatile commodities. [FN 1]
For our purposes, we’ll rely on a definition of “significant portion” as being 40% or more of government income. [FN 2] We’ll also focus the discussion on states that derive most of their income from oil.
What we are talking about here goes by several names including the Dutch Disease or even the resource curse. Jeffrey Frankel of the Kennedy School of Government put it this way:
It has been observed for some decades that the possession of oil, natural gas, or other valuable mineral deposits or natural resources does not necessarily confer economic success. Many African countries such as Angola, Nigeria, Sudan, and the Congo are rich in oil, diamonds, or other minerals, and yet their peoples continue to experience low per capita income and low quality of life. Meanwhile, the East Asian economies Japan, Korea, Taiwan, Singapore and Hong Kong have achieved western-level standards of living despite being rocky islands (or peninsulas) with virtually no exportable natural resources. Auty (1993, 2001) is apparently the one who coined the phrase “natural resource curse” to describe this puzzling phenomenon. …
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This is the second in a four part series that offers an interpretation of the current financial crisis the provincial government is facing. The first instalment – “The origins of rentierism in Newfoundland and Labrador” – appeared on Tuesday.
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As much as people imagine a great difference between the Confederate and anti-Confederate forces during the National Convention, the two agreed on one thing: someone else would have to pay for Newfoundland’s return to responsible government.
The London delegation asked the British government to provide the erstwhile country with money. The British balked, pleading their own financial hardship after a long and costly war. That refusal is largely what prompted Peter Cashin to claim that the British were trying to sell the country the Canadians. As many words that have been spilled and as many books sold trying to prove the conspiracy existed, there’s never been a shred of proof that such a plot ever existed outside Cashin’s frustration.
The Ottawa delegation found wealthy Canada more receptive to the Newfoundlanders expectations and after a first referendum and a run-off vote, Newfoundlanders and Labradorians voted to become part of Canada. For Labradorians the moment was especially sweet. The National Convention and the referenda were the first time any residents of the mainland part of the country had ever been allowed to vote.
Is the government facing a structural or cyclical deficit?
Good question. Their economist says it is a structural problem but his comments to the Telegram on March 13 suggest he is approaching the problem as if it would sort itself out.
The whole structural versus cyclical question hinges in part on the question of government revenue when the economy is working at full output versus when it isn;t. Well, in Newfoundland and Labrador, that is a bit hard to figure, especially when the government claims that locally everything is great but that it doesn’t have any money.
People get confused.
Well, one way to start getting a handle on this is to look at the 2011 and 2012 budgets and the related income and spending.
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Over the next four days, SRBP will offer an interpretation of the political underpinnings of the current financial crisis. This series goes beyond the immediate to place recent events in both historical and comparative, international perspective.
The first two instalments briefly describe some characteristics of the political system and Newfoundland political history before 1934 and from 1949 to about 1990. The third post will look at the concept of the rentier state and the relationship between dependence on primary resource extraction and politics at the subnational level (states and provinces). The fourth post will place recent developments in Newfoundland and Labrador in the larger context.
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Before 1949, the Newfoundland government’s main source of income was taxation of imports and exports. The Amulree Commission reported, for example, that the government brought in around $8.0 million dollars in the fiscal year ending in 1933. Of that, 71% - $5.7 million - came from customs and excise duties. The next largest amount was $700,000 (about 9% of total) that came from income tax while the third largest source of income was postal and telegraph charges totalling slightly more than $587,000.
Newfoundland also had almost no experience of local government before the Commission Government in 1934. St. John’s was the only incorporated municipality and the city council was quasi-independent of the national government.
Beyond the capital city, the national government “managed a highly centralized system through the stipendiary magistrates stationed in each electoral district, “in the words of historian James Hiller in his recent note on the Trinity Bay controverted election trial in 1895(FN 1). The central government also appointed the members of some local boards to manage education and roads. The money for all of it came from accounts controlled by St. John’s.
The members of the House of Assembly had enormous control over government and that public money.
The provincial Conservatives love to spend public money.
That doesn’t sound very conservative and it isn’t. Politically, the provincial Conservatives in Newfoundland and Labrador are more like Republicans than the Progressive Conservatives who used to run the province in the 1980s. American Republicans like to cut federal taxes and jack up federal spending and then blame the resulting financial meltdown on the Democrats.
Around these parts, the Reform-based Conservative Party, as the Old Man used to call them, blames everything on the Liberals. That is the Liberals who, in case you missed it, haven’t been in power in a decade.
About two thirds of the people in the province who file tax returns earn less than $35,000 a year before taxes.
It’s the kind of detail that you cannot banish from your mind when you read about the politically popular economist Wade Locke. The guy who directly and indirectly helped the provincial government create the current financial mess is on a leave from his university job to help with the new budget.
As the Telegram reported on Wednesday, Locke’s “contract with the government stipulates that he'll be paid $250 per hour for his consulting work to a maximum of $75,000.” That would be on top of the 80% or more of his university salary that he is entitled to for being on what the faculty contract calls a “sabbatical” leave.
The Telegram also reported that Locke said he would only bill taxpayers one dollar at the end of his contract. Let’s take him at his word.
Still, you have to wonder why he would sign a contract in the first place for more than twice what most people in the province make in a year. Don’t misunderstand. A consultant should get what he can earn and if Locke can get someone to pay $250 an hour for his services, then more power to him. Given the context, though, the contract is still rather distasteful.
Locke’s supporters will defend any amount of money because they value his advice. And that’s really where we can peel back the cover on this little can and see what is inside.
Mr. Speaker, I again have to implore the members opposite to stop pretending that you do not understand the fiscal structure of the Province. The $600 million that was earmarked in the Department of Natural Resources was not contained in the current budget, Mr. Speaker. That was contained in investment. There is a difference between a capital budget, the investment budget, and the current budget.
Muskrat Falls has nothing to do with the deficit we are experiencing this year…Let’s break it down.
The provincial cabinet has been burning the midnight oil the past couple of nights.
Literally.
Late night sessions that ended God-knows-when, night after night.
Apparently, they are trying to figure out what to do in order to get out of the massive financial and political hole they have dug for themselves over the past decade.
As bizarre as that might seem to some people, the politicians who created the mess have no idea yet what they are going to do. All that Premier Kathy Dunderdale and finance minister Jerome Kennedy have been able to offer lately are lots of vague comments about when the budget might be or how many lay-offs there might be. Dunderdale put a number of 500 lay-offs out there a few days ago but frankly, that’s about as reliable as her forecasts from last year.
And when Jerome told David Cochrane that they were still working out the Sustainability Plan, he was not bullshitting. He meant it, even though he claimed they had already started implementing the plan last year.
If you are familiar with government budgets and how these things normally get sorted, then odds are you are reading this now that someone has been able to revive your unconscious form.
It seems like only yesterday that the young man from the Pearl was the mayor of the cozy city.
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