Government Spending and the Economy – Again #nlpoli

A post last week offered a quick confirmation that, as finance minister Ross Wiseman said,  provincial government spending accounts for about 30% of the gross domestic product measured as spending.

A couple of people on Twitter took issue with that idea, apparently.  They also took issue, as it seems, with the contention around these parts that the situation Wiseman described was a matter of government policy as opposed to the random changes in the economy.

Let’s dig into this in more detail.  It really is quite important as the government has a very serious financial problem to deal with, what with the growing deficits and the weakening income. Wiseman mentioned the impact of government spending on the economy, incidentally, as a reason why he could not cut spending very much, if at all. 

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 -

Kremlinology 6: the curious last days of Paul Oram

On September 10, 2009, then health minister Paul Oram gave a version of the health care cuts decision that contradicted what his boss was saying.

On September 21, 2009, then health minister Paul Oram said that his own administration had boosted spending to levels that were unsustainable.

That was an amazing admission that the province’s finances were in such a horrendous state.  Until then virtually every cabinet minister had claimed the opposite.

Paul’s talk of cuts prompted your humble e-scribbler to remind the universe of a previously unsuccessful health minister whose daughter now works for the Premier and of the current Premier’s own phrase when talking about a previous administration.  But that was just fun.

On September 29, 2009, then justice minister Tom Marshall turned up on a local call-in show to discuss the province’s finances.

Marshall said a whole bunch of things that tended to affirm Oram’s statement, although Marshall – who had been finance minister for the highest of the high-spending years never actually said the word “unsustainable.”

But notice that it was Marshall delivering the message.

Not Jerome Kennedy, the guy actually holding down the title of  finance minister at the time.

But Tom Marshall, the former finance minister, calling from his ministerial office in Corner Brook.

This was the day Danny headed off for a gigantic swan hobnobbing with the international environmental hoi-polloi that ran from the 30th of September to October 2.

On October 1st – and despite his previous insistence that the cuts at Flower’s Cove and Lewisporte were carved in stone - Paul restored at least some of the previous cut in Flower’s Cove.

Danny got back on the weekend.

On Monday, Paul told Danny he was leaving.  That’s by Paul’s own version of  the timing.

Paul heads off to Buchans for an emergency town meeting, called very hastily by the provincial government Tuesday morning.

The next morning, Oram ends it all, politically, in front of the House of Assembly.

Of course, Oram has some cock and bull set of talking points about health issues and the pain his family suffered and the evils of the CBC none of which explained why he was not only bailing out of cabinet but hauling ass out of politics altogether.

Oram was slitting the wrists of his own political body and yet he was blaming someone else for wielding the blade.

One of the examples Oram cited as painful was having his wife’s name on the television news in connection with the family business.

Odd that Paul Oram backbencher had no trouble with his wife’s picture and name being in a Labrador newspaper when she and her husband travelled to Labrador west talking about opening a new personal care home in the area.  Anyone got a picture of that to share for posterity?

But that’s to get away from the real oddity here namely the appearance of the former finance minister a week or so before he got the job back again to tackle a finance issue when there was a perfectly serviceable finance minister more than capable of sorting out the whole issue.  And to really add to the oddity, the formerly serviceable finance minister has now become the health minister.

The timing and the comments all seem a little curious.

One of the Premier’s most loyal foot soldiers leaving politics so quickly is highly unusual in itself.

The context might make it more unusual.

And if that’s the case, then Paul’s reference to Danny Williams as having been a father figure to him? 

Well, that’s just likely to give a body the heebie jeebies. 

-srbp-

All they want is fairity #nlpoli

The people who run the province’s town and cites are looking to get a new financial arrangement from the provincial government.

Last week, the municipalities federation held an emergency meeting to discuss recent developments:

“What we’re asking government for today is very clear,” said Rogers. “Short-term help in this 2012 budget and a commitment to participation in the development of a long-term, strategic plan for the municipal sector.”

Sounds reasonable enough. 

Odds are they won’t get anything in the near term. Give a listen to what municipal affairs minister Kevin “Fairity” O’Brien said at the outset of an interview with On Point with David Cochrane this past weekend. O’Brien quickly started into a recitation of how much money the provincial government has spent since 2008 on municipal infrastructure and things like fire trucks. he finishes off with the warning that any new financial arrangement has to be sustainable for taxpayers.

Coming from a guy who has helped boost provincial government spending to irresponsible, unsustainable heights without a toss about such ideas, those words sound a bit like a lead bell.  

O’Brien is using coded language.

What he really was telling municipalities president Churence Rogers is a simple “f*ck off”.  No one should be surprised if Rogers has heard something along those lines over the past few weeks, perhaps even from O’Brien himself.  Maybe no one used the “f” word exactly, but language likely would have had the finger buried in it.

You see it all comes down to money, power and control.

Right now the provincial government has all of it.

And they will not give up any of it.

The provincial government isn’t interested in changing municipal funding at all.  Any change to funding would have to transfer some of the provincial cash or the ability to raise cash over to the towns and cities. 

If the province doesn’t have that cash, then it no longer has the power to control what goes on in the province.  Fairity O’Brien may not have deliberately mentioned infrastructure and fire trucks, but there’s no coincidence that he did.  That money and those items are part of the old pattern of politics in this province: patronage. 

And that’s the money, power and control we are talking about.

None of that has anything to do with the very serious problem in many towns and cities in the province but frankly provincial politicians like O’Brien don’t give a rat’s backside about that. 

Many parts of the province aren’t really doing all that well, despite the reports you may have heard.  They don’t have the municipal tax base to come up with the sort of cash of their own they need to put into road work, water and sewer projects and other infrastructure.

Problems in the fishery, the loss of paper mills have all taken their toll.  People may be working in Alberta and still living in Stephenville and Grand Falls-Windsor but it’s local companies that pay the taxes that help to keep the street lights on, quite literally.

What’s more, way too many of the towns on the island are full of retirees and not much else.  People on fixed incomes don’t have the ability to tax up the tax slack.  Those towns also have problems finding people to volunteer for municipal services like firefighting.

There’s a bit of a false impression of a boom in some places.  People in Grand Falls-Windsor thinks everything is smurfy.  Ditto Gander.  But in both these towns the major economic engine is the provincial government and a level of spending that we know is unsustainable. 

What’s more, the provincial government doesn’t pay taxes to municipalities.  They do – however – collect taxes on every municipal purchase through the harmonised sales tax (HST).  The effect is to claw back a portion of the money the province grants in the first place.  Until the fictitious oil royalty claw back, though, this one actually reduces the amount of money the towns and cities in the province have available to actually spend on services to residents.

And then when towns and cities go looking for cash, politicians like Kevin O’Brien start coming up with all sorts of excuses for why things must remain as they are.  The miserable, dark joke in all that shouldn’t be lost.  Towns and cities in the province are looking for a fair shake on provincial funding.  Kevin O’Brien is the guy who told us all that the province just wanted “fairity in the nation.”

David Cochrane exposed the fundamental bullshit of government’s position.  Cochrane asked why it was that O’Brien was talking about the impossibility of making commitments of funds for a few millions in the short term to towns and cities while government was prepared to forecast the price of oil for 55 years in order to justify Muskrat Falls.  All O’Brien had was talking points.

O’Brien also couldn’t explain or justify the four years that it has taken for O’Brien to start getting around to talking about a new financial arrangement for towns and cities.  Municipal leaders have asked for predictable funding.  All O’Brien has said is that he and his colleagues in government are willing to talk.

The real bottom line is that people like O’Brien who have politicized the purchase of bed pans and fire trucks simply want complete control over spending in the province for their own, pork-barrel, patronage reasons.

All municipal leaders want is fairity.

They aren’t going to get it from Kevin O’Brien.

- srbp -

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Fraser Institute, National Newswatch, and other fools #nlpoli

If the issue wasn't so serious, it would be funny.

Newfoundland and Labrador is up the financial creek, according to Charles Lammam, an analyst with the Fraser Institute,  in a new opinion piece with a couple of his colleagues..  The cause is excessive government spending.  "Had the government restricted program spending increases since 2004/05 to the combined rate of inflation and population growth, Newfoundland & Labrador would now have a small surplus, not a large deficit."

The fundamental problem with Newfoundland and Labrador’s approach to public finances over the last decade is that the government increased spending during the good times as though they would never end. When resource prices ultimately fell, the province found itself at an unsustainable spending level.

You certainly won't get any argument from this corner about those observations.

The problem is that over the last decade, Lammam and the rest of the folks at the Fraser Institute have consistently told us that Danny Williams and Kathy Dunderdale  were the finest financial managers in the country among the provincial premiers.  That's significant because they are the premiers during the period when Lammam now says the government was spending way too much.  The two ideas don't fit together.

It's not as though we suddenly learned things we didn't know at any point over the past decade.  Some of us have been criticising the excessive increase in spending by the provincial Conservatives since 2006.  By the time we got to 2009,  Williams had admitted government spending was unsustainable. Dunderdale admitted the same thing every year she was in office.  It's not like the folks at the Fraser Institute could have missed the repeated admissions of fiscal mismanagement.

Yet they did.

Which Fraser Insitute conclusion should be accept?

Neither.

The Fraser Institute has produced such laughable "analysis" of Newfoundland and Labrador over such a long period of time that we can only conclude their most recent observations are a fluke.   What we should do is be extremely wary of pronouncements from folks like Fraser who can look at the same data and come to diametrically opposed conclusions.  There's a fairly obvious problem with the way they do their analysis.

And anyone pretends to be a psychic forecaster who says "never saw that coming" is someone we should just laugh at.

-srbp-

This is a revised version.  The original incorrectly identified the National Post as the source of the Lammam opinion piece

Budget 2007: a quick look at the numbers

The Government of Newfoundland and Labrador forecast record spending for 2007, at more than $5.5 billion.

Some quick observations based on a simple breakdown into the good, the bad and the ugly of the budget:

The Good

Tax cuts and increased program spending.

All good in an election year and make no mistake: this is an election budget.

People will be happy and the provincial government is certainly counting on people's immediate sense of contentment to see the current administration re-elected with an overwhelming majority.

No region of the province is untouched by extra cash. No person will be left out of the tax breaks or other benefits.

The source of the cash: all the supposedly bad deals signed before 2003 by previous administrations, Liberal and Conservative.

Windfalls from high oil prices produced the supposed miracle of deficit slaying. Everything in this budget, indeed every budget increase since 2003 has been based on high oil prices.

Thank you Brian Mulroney and Brian Peckford. Thanks to the administrations that developed Voisey's Bay and the offshore oil fields at Hibernia, Terra Nova and White Rose.

The latter field is expected to hit payout in FY 2007. As a result, royalties will jump to 30% on the price of each barrel.

The Bad

This budget forecasts a spending increase 5.6% from Fiscal Year (FY) 2006. It also projects increased spending of 4.7% and 4.2% over the subsequent two fiscal years.

That's bad since it exceeds the rate of inflation by more than double in FY 2007. The Bank of Canada forecasts inflation to run at 2.2% in 2007 and at 2.7% for each of the two years after.

Prudent fiscal management would hold spending to at most the projected inflation rate. That doesn't mean program spending would need to be curtailed in important areas, nor does it mean the provincial couldn't afford tax cuts to bring provincial rates in line with Atlantic Canada. Rather it would simply require the provincial government to make some clear choices in what it considers important, rather than fix every problem by more spending.

Even in FY 2004 when the current administration proclaimed the province to be in a financial mess, it still introduced a budget that increased spending from the previous year. Spending has increased every year since. That's not going to be sustainable given the absence of a major new development at Hebron, which would have achieved first oil as production from at least two of the other fields slackened.

As it stands currently - and unless there are supersecret talks on Hebron no one is talking about - Hebron won't be producing oil for another decade or more. In the interim, the impact of demographic changes throughout the province will increase pressure on the provincial treasury at a time when the province's coffers will not be seeing significant new cash flowing in.

The current and forecast spending increases are based on optimistic projections for the price of oil in the medium term. Any downward trend in commodity prices (oil, minerals etc) will quickly make the consistent spending increases since 2003 unsustainable. Fiscal reality in those circumstances - taking less money in than is flowing out - would require program cuts, job losses and/or tax increases to correct.

Our plan is to continue this responsible approach in the years that follow to ensure we are increasingly strong, less reliant on the whims of others and more reliant on
ourselves.

The whims referred to are likely those supposed whims of the Government of Canada. This budget - like all recent budgets - builds itself on the whims of international commodities markets. Which one is less reliable?

More bad. Per capita spending will be $10, 871 per person in the province, assuming a population of 512, 000. It will jump to $11, 878 per person in FY 2008 putting Newfoundland and Labrador on par with Alberta for per capita provincial government spending. Drop the population below 500,000 and Newfoundland and Labrador will be outspending Alberta, the richest province in the country.

The difference is that Alberta isn't carrying around the per capita debt Newfoundland and Labrador shoulders, which, as noted below using the finance minister's own words, limits the provincial government's options in dealing with any financial setbacks.

That level of per capita spending is unsustainable in the long run. As a recent Atlantic Institute for Market Studies assessment concluded:

If the province fails to reign in its whopping per capita government spending (about $8800/person [in FY 2006]) and super-size me civil service (96 provincial government employees /1000 people) it will quickly erode any gains from increased energy revenues.

The Ugly

As much as the provincial government talks about the large public sector debt, so far it hasn't done anything to deal with it.

Finance minister Tom Marshall described the issue accurately in the budget speech, saying:

The most significant fiscal challenge facing Newfoundland and Labrador is the burden of debt we inherited, the highest per capita net debt in Canada, more than double the national average. High debt loads mean high interest payments, whether for a family or for a government. Reducing debt frees up money to spend on programs and other priorities.

All government has done is produce a net reduction in the debt by a mere $70 million in FY 2006 and forecast a further reduction of $66 million in FY 2007. At that rate - i.e. $70 million per year - the province will be debt free in 2178.

If there is a budget surplus in FY 2007, as currently forecast, most if not all should be committed to reducing the public debt. Anything else is whistling past the graveyard.

Government's reported success in reducing the debt to GDP ratio has come not from strong fiscal management by government but in growth in GDP driven primarily by commodity prices. Lower the GDP - as in a drop in commodity prices - and those apparent gains will vanish.

There's another ugly element in the budget reporting and that is in the misleading presentation of revenue from the 2005 agreement with the Government of Canada. It will not produce additional cash for the treasury in FY 2007 despite the claim by the finance minister that "[w]ithout the 2005 Accord negotiated by our Premier, we would be receiving $305.7 million less than we are getting this year."

In reality, that cash has already been received and spent on shoring up the teachers' pension plan. That was sound financial decision, but the provincial finance minister cannot claim double credit for the money.

Statement I in the FY 2007 Estimates shows the reality. A modest $49 million surplus on current and capital account forecast for FY 2007 becomes a $255 million shortfall once the $305 million from the 2005 cash advance is deducted.

-30-

Garnishee Tom’s pension first #nlpoli

Spendthrift finance minister Tom Marshall is willing to spend your money and mine to keep the Corner Brook paper mill afloat. As CBC tells us, Tom is keeping the options open:

"It can be a loan, it could be cash, it could guarantees but you know that we've made it clear we are not going to fund operational losses."

Well, you’ve got to admire a guy who is willing to spend public money to help out a bunch of people going through a hard time.

Brent Price Comparisons

For those who have been following along with the discussion of oil prices and provincial government revenue, it’s interesting to compare the price of crude oil at comparable parts of the fiscal year.

On Monday, as you may recall, we took a look at production.  As the chart showed, offshore oil production in 2009 is well below production last.  It’s so far down in fact that the provincial finance department’s predictions for 2009 might prove to be as accurate as the work of some late-night television psychic.

Well, prices are not doing much better.

Here’s a rough look at daily spot prices for Brent crude for the period 01 April to 30 June in both 2008 (blue) and 2009 (red).

Basically prices in the first three months of 2009 were running about 50% below the same period in 2008.

So prices were down by something on the order of 40 to about 50% and production was down by 14% in April, 39% in May, and 18% in June.  That pretty much guarantees that revenues would be off as well compared to the previous year. 

Sure enough,  figures obtained from Natural Resources Canada confirm that. Figures for September confirmed the general pattern for the first half of the fiscal year. Oil revenues are running about 15% below the provincial government’s budget forecast.

Not 15% below the December fiscal update that talked about bringing in something like $1.8 billion in oil royalties but 15% below the budget forecast of $1.26 billion.

Provincial government oil royalties are a function of  production, the royalty formula and the exchange rate for the Canadian dollar.  In the front end of the fiscal year there was a bit of a premium for a cheap Canadian dollar.  But as the Canadian dollar has climbed against the American greenback during the past six months, any premium that resulted from selling oil in U.S. funds and then converting to Canadian dollars vanished. 

And if you look at the actual royalty figures it’s pretty clear that the improved royalty rate coming from Hibernia in payout couldn’t offset the drop in production, the drop in price and the shifting exchange rate.  That’s a clue to the magnitude of the change in oil revenues.  Even with all three fields in the optimum royalty condition, royalties are well down in 2009.

Just to keep close track of all this, your humble e-scribbler will have to go looking for the October and November royalty figures later this month  That way it will be much more clear if the trends established in the front end of the year are continuing. Odds are they have carried on, despite the claims from the finance department in December.

As a last point, consider that a forecast by the Canadian Association of Petroleum Producers in 2009 showed offshore oil production declining in Newfoundland and Labrador over the next five to seven years.  There’s a bit of a peak close to 2020 and then things trail off again as some of the older fields dry up.

 

That’s the sort of information that should be guiding provincial government budgeting. Revenues aren’t going to be climbing ever higher.  Demands for essentially services will, however, and the costs associated with that will rapidly escalate. This is an old refrain around these parts as regular readers well know.

That doesn’t mean there have to be spending cuts;  it just means there has to be greater fiscal discipline, consistent and prudent planning and some serious attention paid to reducing the province’s debt load. In other words, the provincial government needs to be doing exactly the opposite of what it has been doing for the past three years.

There is hope.

Until last fall, you’d never have heard a cabinet minister admit what your humble e-scribbler and others have been saying for years.

But first Paul Oram and then others admitted the provincial government’s fiscal plan  is unsustainable.

Acknowledging there is a problem is the first step toward doing something about it.

Let’s see what happens.

-srbp-

The 2013 Harbour Grace Affray #nlpoli

Kathy Dunderdale told reporters on Tuesday, while the polls were still open mind you, that the by-election results would be no big thing.

Life would go on. 

The world would turn.

And the Conservatives had two years left in their mandate.

That’s when everyone in the province understood that the provincial Conservatives had already conceded defeat in the Carbonear-Harbour Grace by-election.

Unfortunately for Dunderdale, though, the election result means something.  Here’s what.

More on the 2009 Rift #nlpoli

The Kremlinology post on Trevor Taylor, Paul Oram and the apparent policy disagreement in cabinet in 2008/09 generated two contacts (a tweet and an e-mail) that are worth discussing.

Let’s take them one at a time.

A distinction that makes a difference #nlpoli

As part of the commemoration events for the War of 1812, the part of the Department of National Defence responsible for ceremony has decided to give seven Canadian Army units including the Royal Newfoundland Regiment the right to carry the battle honour DETROIT.

A battle honour marks a significant event in the regiment’s history. Infantry regiments display their battle honours on the regimental colours.

The picture at right is of the regimental colours of the 1st battalion, the Royal Newfoundland Regiment.  Its honours until now all dated from the First World War.

This is an important announcement and the members of the regiment should be very proud.

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.

Edging #nlpoli

Over at cbc.ca/nl, John Gushue has an excellent column on the recent prosperity, in particular the apparent contradiction between a supposedly booming economy and the government cuts or the sense some people have that they aren’t part of the boom.

Take some time and go read John’s observations, if you haven’t already.  You will always be rewarded by John’s accessible style that reveals some very sharp insights.

For all that, though, there’s a sense that there’s something missing from Gushue’s column.  The piece gets right up to the edge and then just doesn’t bring the thing to a satisfying conclusion.

Never fear.

The relentless labradore fills in the bit John missed.

The Multiple Muskrat Falsehoods #nlpoli

Zack: Check it out, all about planets this month.

Leonard: That’s an atom.

Zack: Agree to disagree. That’s what I love about science, there’s no one right answer.

Ya gotta love Tory MHA Keith Russell.

Well, not really, love him unless you enjoy a politician who just keeps putting his foot in his mouth all the way up to the hip.

Russell called VOCM’s Back Talk last week to correct supposedly false statements by others.  But in the process, Russell spouted not one, not true but a raft of completely false statements about Muskrat Falls.

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.

- srbp -

The Perpetual Talking Point Disaster #nlpoli

Premier Kathy Dunderdale’s year-end talking points for 2012 were pretty grim. 

As she told CBC’s David Cochrane, the provincial government is facing an enormous deficit.  The deficit is the result not of government spending but of the up-and-down nature of the commodities on which government revenues depend. 

The result is that government will have to raise taxes or cut jobs or some combination of both in order to cope with the deficit next year.

This should sound awfully familiar to people.

Just bear in mind…

the guy who is trying to explain health care decisions is the same guy who is clued out about a bunch of other things.

He’s also gotten himself in hot water over conflict of interest and briefing books and he even briefly turned up with one of the infamous rings from the House of Assembly scandal.

Last summer, as markets were tanking, then-business minister Paul Oram talked about a booming local economy.  In January, he was talking about bright the future will be but with no talk of any big financial problems at home.  Thankfully, the guy has finally wised up, or so it seems when it comes to the unsound state of the provincial government finances.

All that coupled with the inherent contradictions between what Paul Oram has been saying, what the Premier has said publicly,  and what the record shows might just make this health care crisis bleed all over the local political landscape well into the fall.

That Oram-fuelled health issue is on top of the other problems on both the Northern Peninsula and in central Newfoundland related to forestry that just won’t go away no matter how much money the provincial government has been willing to toss at the two areas.

Of course, now Oram and the talk of unsustainable spending built on oil makes it look like it is money government doesn’t have.

It may ell be one of the most interesting fall seasons in a long while in this province’s politics.

-srbp-

The reality of her world #nlpoli

Some people are trying to make a controversy out of Premier Kathy Dunderdale’s recent comments that public sector unions should “expect a more modest increase” than the salary rises they’ve been used to from the Conservatives since 2003.

Look at “the reality of the world”, Dunderdale admonishes everyone.

Well, a look at the world she lives in  - as opposed to the one people imagine exists - reveals a great deal.

Revelation One:  As labradore has noted repeatedly, the provincial Conservatives are responsible for expanding the public service both in absolute numbers and as a share of the provincial labour force.

In his most recent version, labradore notes both the size of the public sector: 25% of the provincial labour force.  Then he adds Revelation 2: the growth in the total value of the pay packet.  Since 2006, the total public sector pay cost has gone from about $1.9 billion to about $2.65 billion by January 2011.

Revelation 3 really puts it in perspective. Scan down through David Campbell’s commentary in the Globe on December 28 and you’ll find plenty to knock your eyeballs out about the growth of the provincial economy. Take the bits rom labradore and put it together with this on the relative position od the public sector pay envelope compared to the national average:

In 1998, the average weekly wage in the public administration sector in Newfoundland and Labrador was more than 22 per cent below the national average. Now it is 3.3 per cent above. That is a monumental shift in wages over a short 11 year period. A similar, but less pronounced story is found in both the health care and education sectors.

Most of that increase came since 2006.

So for anyone who is still harbouring any misapprehensions, understand that the provincial public sector has been driving the provincial economy for the past decade.  Thousands of more employees making – collectively – hundreds of millions more year over year and you have the growth since 2006 focused on the northeast Avalon. 

Now add to that the sources of provincial government revenue, as laid out in the annual provincial budget Estimates. You start to see the role that taxes on individual incomes and consumption play in fuelling the explosion in government spending since 2006.

Mining taxes and royalties produced about $167.5 million in revenue in 2010.  Personal income taxes brought in $888 million and sales taxes brought in another $791 million. Even gasoline taxes brought in more than mining royalties ($168.45 million) in 2010.

The forecast for 2011 did include an increase in mining royalties and taxes to $343 million. But even with that, two of those three taxes will still produce well over double the amount for the treasury than will come from rent companies pay for the privilege of exploiting the province’s non-renewable mineral resources.

When you look at the reality of things, Kathy Dunderdale and the Conservatives can’t afford to chop into provincial spending without putting a gigantic chill in the local economy.  As much as Dunderdale likes to admit that she and her colleagues have been irresponsible in boosting public sector spending to unsustainable levels, they haven’t left themselves any real manoeuvring room politically.

Now this might seem a bit harsh to Kathy’s delicate sensibilities, but the reality is that Dunderdale can’t do anything but provide the public sector with some lovely increases in their coming contract negotiations. 

When Kathy Dunderdale says public sector unions should expect more modest increases, we should understand she is probably speaking relatively.  Compared to their last contract when they got an eight percent jump followed by three successive years of four percent, public sector employees should probably look for something like four years of four percent. or four percent followed by three over the subsequent years.

But any serious confrontation?

Don’t count on it.

The Tories don’t have the nuts for it, pea or otherwise.

- srbp -

Budget Basics: Unfunded Pension and Benefits Liabilities #nlpoli

While the provincial budget for 2014 was all about spending government money, the budget speech did raise one issue that the provincial government appears intent on cutting dramatically.

A key component of the province’s net debt relates to unfunded pension and other post-retirement liabilities. Despite an investment of more than $3.6 billion, the liabilities have continued to grow. As of March 31, 2013, they accounted for 67 per cent of net debt. By 2016-17, they will account for 85 per cent of net debt – almost $9 billion.

The provincial government has been talking about the unfunded pension and benefits liabilities for a couple of years now.  It’s a hot issue among business groups like the employers’ council or the Canadian Federation of Independent Business. 

As regular readers know, the board of trade is keen to deal with the unfunded liability, too, even if the president or whoever wrote her column in last week’s Saturday Telegram don’t appear to understand what it is all about.

For whatever reason, business groups get quite agitated about public sector workers and their pensions.  Other public debt doesn’t get them quite as worked up and, as the board of trade demonstrated quite clearly, there’s a fair bit of misinformation about the unfunded pension liability.

In this second post in the Budget Basic series, let’s take a look at public sector pensions and put them in a wider context.  Misinformation never leads to good public policy but right now, pretty well all the anti-pension commentary is based on some amount of misinformation.

Conservative Misinformation and the Public Sector Debt Problem #nlpoli

There is no limit to how selectively provincial Conservatives will read a document in order to find some microscopic filament that might possibly confirm that they have really been running the most magnificent administration in the history of the galaxy.

They still insist, for example,  that they are the tops in leadership and accountability even though the most recent poll shows that 77% of the people in the province don’t think so.

Conservatives also insist they have done financial miracles.  No less a personage than the party’s vice president took to the Twitter on Monday to tell everyone that:

According to Fraser Institute, SK and NL are the only provinces that reduced their public debt since 2007.

Well,  they said a lot more than that,  but evidently Mark Whiffen and didn’t need to read anything but that. Since the rest of us are not obliged or inclined to such delusions,  let’s see what the gang at the Fraser Institute actually said.