Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.

Steve Jobs
US computer engineer & industrialist (1955 - 2011)

Wednesday, June 8, 2011

From May3, 2010

In light of Wade Locke's pronouncement tonight on our province's financial situation, and reflecting on the announcement this week of the massive growth in the provincial government since 2006, I thought it would be fun to repost this piece I did 14 months ago.

Monday, May 3, 2010

Newfoundland's Debt Anchor

Who new Newfoundland had a debt of 11 billion dollars? I mean outside of Newfoundland that is. Other than being the best place to live in Canada, I would say discovering this debt was the second biggest secret in the country. Coming from Saskatchewan, where their debt of 6-14 billion(depending on who you speak to and what they include as debt) is a constant source of political bemoaning, it was interesting to note that Newfoundland's debt did not appear to be that big of a talking point. Considering Saskatchewan's population is roughly twice that of Newfoundland, and let's say the their debts are roughly equal, people here ought to be pretty concerned.

The cost of serving that debt was enormous and acted as an anchor on the development of Saskatchewan's economy. It was not until the 100-145 dollar per barrel oil that Saskatchewan's economy started to take off. That, and a large investment of Alberta dollars seeking to buy cheap properties up, and flip them for Alberta sized profits. Of course now that they have doubled the price of housing there, and the oil has dropped, Saskatchewan has leveled off economically. That being said, they did start paying down debt with the goal of eliminating the debt. They know that with the growing elderly population, their tax base to support this debt is declining rapidly, and dumping all that debt on the relatively small working population will only cause another exodus to Alberta or elsewhere.

Is there a lesson for us in all this? I say yes. Some of the biggest economic/demographic traits of Saskatchewan are: rural people leaving for the cities; many people working in Alberta; low prices in the farming sector combined with higher input costs (such as fuel); high taxes; inability to attract new people including such critical sectors as health; an over reliance on the provincial/federal government civil service for well paying jobs; and generally people fighting over what they can get their hands on.

Sound framiliar? As a new comer I can only speak from recent knowledge, but what I have seen so far is a very similar path for these two provinces. In Saskatchewan the labour (read government worker) movement is constantly at war with the "right wing" political parties (read anyone who doesn't support them getting on-going increases in pay and benefits). I like to say that when there are only crumbs left these two fight like dogs for their bit. I hope Newfoundland does not share this futile trait with Saskatchewan. If it does, the ability to reduce the provincial debt will be impaired - to say the least. As we can see with Greece, most recently, and the world in 2008/2009, debt is laying waste to our ability to grow. As they say in business, if you are not growing, you're dying. Newfoundland needs to seriously look at creating a debt payment fund and stick to it. Each year pay down what we can, especially when the Canadian dollar is so high. We likely incurred the debt when the dollar was .65 - .85 US. Now at par we can pay down 20% more debt with the same Canadian dollar.

One thing is certain, at 11 billion dollars, Newfoundland's debt will be an anchor around our neck. If we hope to break the cycle of below average wages, higher than average taxes, and a massive untaxed black market, then the debt has to be the number one priority. Some will say that the economy won't grow without the government (read us) dumping the dollars in. The truth of the matter is a real economy is a private enterprise driven organism. High debt equals high taxes equals less disposable income equals an unhealthy place for business to be.

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