In two weeks from now the provincial government will roll out its budget for fiscal 2016-17. In what can only be described as a political and economic nightmare, the government is facing a budget deficit of about $2.4 billion from last year, and likely higher for this year. Key factors in calling the deficit higher this year are: a continuing decline in oil prices well below even the Liberals preliminary projections for the year just months ago; recessionary pressures caused by global economic slowdown and localized economic implosion; increasing unemployment; and curtailing of discretionary spending in the economy as a whole. Not a pretty picture.
So how to tackle the budgetary crisis? Well, the first step is realizing that it is not a spending problem or a revenue problem - it is both. That means the budget solutions need to come in both areas. In effect, the government needs to go into a defensive shell in order to preserve what financial integrity is left of the province. To show how difficult and painful that will be I've drawn up a rather draconian plan, illustrated the dollars saved, and hopefully give a sense of just how radically we must transform ourselves in a very short period of time - just to survive.
The plan goes like this:
NEW REVENUE:
1) Drivers Licences - renewed annually at a rate of $50 per year - $19,000,000.00
2) Gas Tax - 20% increase in gas taxes - $37,150,000.00
3) Tobacco Tax - 20% increase in taxes - $31,415,000.00
4) Alcohol Tax - 20% (new tax) $31,575,000.00
5) HST - 2% increase $200,000,000.00
CUTS IN SPENDING:
1) 4 day work week for all government employees $192,800,000.00
2) 10% cut across all government operations (incl health care) $826,000,000.00
3) 20% cut in all professional service contracts $96,375,000.00
4) 20% cut in all purchased goods $63,501,000.00
5) 20% cut in all MHAs salaries $1,000,000.00
6) Dissolving meaningless government offices/bureaus $60,000,000.00
7) Suspending the Muskrat Falls project $600,000,000.00
TOTAL REALIZED $2,160,191,000.00
PROJECTED DEFICIT $2,400,000,000.00
DEFICIT AFTER THESE MEASURES $239,809,000.00
So, there it is. A very draconian set of measures that would deal with both the deficit and the bloated size of our government's operations. One is an immediate tool for an immediate crisis, and one is a tool for surgically re-sizing our government for the future. A budget such as this is bound to create a deeper recession for the short term, but we are heading into one in any case - if we aren't there already. As painful as it is, in this type of plan everyone suffers. The 70% who don't pay any income tax at all are forced to share the burden with those that do. That's key, because there are far too many people in the province sitting back in the weeds, and surviving on black market jobs, etc. These people need to pay their fair share - especially now. It also forces business to take a hit by reducing professional service and supply contracts as well as sustaining the effects of an increased HST and diminishing disposable income.
Now everyone will argue they can't take the hit, but the reality is that everyone must take the hit. There is no longer a choice. But, and it's a huge but, the government can't even think of implementing an austerity budget without suspending the Muskrat Falls project. To ask the people to suffer in this way while allowing the completely irresponsible expenditure of funds on Muskrat Falls is beyond the pale, and would likely result in large scale social unrest - as if we don't have enough problems as it is.
Showing posts with label budget cuts. Show all posts
Showing posts with label budget cuts. Show all posts
Tuesday, March 29, 2016
Sunday, December 13, 2015
How bad is Newfoundland's Budget Crisis?
Newfoundland and Labrador is in the "mother of all" budgetary crisis. It is not a pretty picture. For those that don't quite get all the government lingo: a deficit is the annual loss caused by spending more than you bring in a fiscal year; the debt is the accumulation of all the money borrowed to finance those accumulated deficits over the years; operating budget is the base cost of running government operations in a year; capital budget is the cost of building facilities in a given year; and gross debt is the amount of all debt the government owes and must pay back. That's a bit of a simplification, but it does the trick.
Back when the 2015-2016 budget was crafted, the government projected $6,659,952 (billion) in operating expenses and $1,143,743 (billion) in capital expenses, for a total of roughly $7.8 billion in expenditures. To fund those expenditures the government projected oil revenue to be $1,157,671 billion based on a base price of $62 (US) a barrel for Brent Crude. With oil at that level, the government predicted a $1 billion deficit. As a result of the recent election defeat of the government, a new deficit figure of $1.8 billion was released. In other words, the new Liberal government is saying the province has lost approximately $700 million in revenue.
The problem is things are much worse economically then they were at budget time. Oil has hovered at roughly $40-45 a barrel for most of the fiscal year, and has been trending downward (at $37.70 now). Yet, despite the collapse of the province's largest single contributor to revenues, the government has done...nothing. Here is a very illuminating example:
2013/2013 - oil revenue $2.25 billion Total government spending - $7.6 billion
2015-2016 - oil revenue $1.2 billion Total government spending- $7.8 billion
If that set of numbers shocks, well, it should. Now, that figure for oil revenue above was based on $62 a barrel. Just shaving off approximately 30% from that number for oil's actual prices, and we are down approximately $360 million - which leaves oil revenue for this fiscal year closer to $800 million. You have to travel back to the year 2007 to find a time when oil revenue was this low in recent history. In that year, oil was budgeted to bring in $996.5 million. The kicker is this: total budgeted spending for that year, including operating and capital, was $5.2 billion - $2.6 billion less than what is being spent today.
All of this takes on a pretty ugly picture when you consider that debt servicing charges (interest,etc on our debt) was budgeted to be $652 million this year alone. Furthermore, our combined capital and operational gross debt is now $13.9 billion. That is only $1 billion less than the perilous period of 1997-98.
So what can be done? Or, what has to be done? Both nothing and everything. The nothing portion is capital expenditures. The province can no longer afford any capital expenditures. Sound radical? Consider that capital expenditures have been in the $1.1 billion range for a few years now. That's no longer doable. That means: no new hospital for Corner Brook (or anywhere else); no new Waterford mental health facility; no new penitentiary; etc. In other words, any election promises that were related to these projects are out - they were never honest in the first place.
Raising taxes of all kinds and types will be the feature of the next budget. Sin taxes. Income taxes, Taxes on your taxes. You get the idea. However, even taxing all these areas, the government can only pray to come up with maybe $150 million, and that would mean huge personal income tax increases. After all, Ball just vetoed increasing the HST by 2%, which could have meant about $150 million for the provincial coffers. Still, that would have been a drop in the bucket for what's necessary to keep this government where its at. Cutting civil service jobs has been ruled out by the Liberals. Salaries and benefits of provincial employees accounted for about $905 million in this year's budget. The salaries in the health sector and education sector are administered by the respective authorities. The word is they account for about 75% of the $4 billion that the province issues in grants to the authorities to run their health/education organizations.
It has to be a tempting, if not an absolute necessity, to review these employee expenses. The civil service is way too large for a province this size. The Liberals claim they will reduce it by attrition - which is a fancy way of saying once people retire they will eliminate those positions from the province's structure. Sounds great in the ideal world, but the budget crisis needs immediate heart surgery, not rehab. It can't wait that long.
Muskrat Falls is another one that must be looked at. The government has spent its part on the project already (not including over runs), so that $3 billion is gone from general revenues. However, Nalcor is holding $5 billion in investment accounts that it borrowed under the Federal Loan Guarantee. As far as I know that $5 billion hasn't been accessed yet. The province could cancel the Muskrat Falls project, work a deal with their new buddies in Ottawa to return the funds while avoiding default, and the gross debt of the province would shrink to about $8.8 billion. Such a move would dramatically improve the province's long term economic health, and perhaps forestall the otherwise inevitable credit downgrades coming our way. In addition, should Nalcor lose the current Quebec court case (now waiting for the Judge's decision as it was heard in October) Muskrat Falls annual revenue generation will drop by approximately 80% require a tripling of power bills to allow the project to break even year after year. All in all, Muskrat Falls needs to be the first victim of the financial sanity axe.
In summary, Dwight Ball is on the record as not wanting to harm the economy by instigating drastic tax hikes or mass layoffs. He's on the record as not wanting to shut down the Muskrat Falls project (he wants to "manage it better"). He's on the record for assisting iron ore companies to buy out other iron ore companies in Labrador. All these things are just pure fantasy. Complete non-sense. The truth is, bonding agencies will force the government to cut its spending - drastically. Banks will likely do the same. Newfoundland and Labrador was completely mismanaged during the years when oil revenues to the province numbered in the billions. Now, that luxury, as stupid as it was, is no longer available to politicians. Now the chickens have come home to roost. It's simple math. How bad is Newfoundland's budget crisis? It's systemic and it's catastrophic. That's how bad it is.
Back when the 2015-2016 budget was crafted, the government projected $6,659,952 (billion) in operating expenses and $1,143,743 (billion) in capital expenses, for a total of roughly $7.8 billion in expenditures. To fund those expenditures the government projected oil revenue to be $1,157,671 billion based on a base price of $62 (US) a barrel for Brent Crude. With oil at that level, the government predicted a $1 billion deficit. As a result of the recent election defeat of the government, a new deficit figure of $1.8 billion was released. In other words, the new Liberal government is saying the province has lost approximately $700 million in revenue.
The problem is things are much worse economically then they were at budget time. Oil has hovered at roughly $40-45 a barrel for most of the fiscal year, and has been trending downward (at $37.70 now). Yet, despite the collapse of the province's largest single contributor to revenues, the government has done...nothing. Here is a very illuminating example:
2013/2013 - oil revenue $2.25 billion Total government spending - $7.6 billion
2015-2016 - oil revenue $1.2 billion Total government spending- $7.8 billion
If that set of numbers shocks, well, it should. Now, that figure for oil revenue above was based on $62 a barrel. Just shaving off approximately 30% from that number for oil's actual prices, and we are down approximately $360 million - which leaves oil revenue for this fiscal year closer to $800 million. You have to travel back to the year 2007 to find a time when oil revenue was this low in recent history. In that year, oil was budgeted to bring in $996.5 million. The kicker is this: total budgeted spending for that year, including operating and capital, was $5.2 billion - $2.6 billion less than what is being spent today.
All of this takes on a pretty ugly picture when you consider that debt servicing charges (interest,etc on our debt) was budgeted to be $652 million this year alone. Furthermore, our combined capital and operational gross debt is now $13.9 billion. That is only $1 billion less than the perilous period of 1997-98.
So what can be done? Or, what has to be done? Both nothing and everything. The nothing portion is capital expenditures. The province can no longer afford any capital expenditures. Sound radical? Consider that capital expenditures have been in the $1.1 billion range for a few years now. That's no longer doable. That means: no new hospital for Corner Brook (or anywhere else); no new Waterford mental health facility; no new penitentiary; etc. In other words, any election promises that were related to these projects are out - they were never honest in the first place.
Raising taxes of all kinds and types will be the feature of the next budget. Sin taxes. Income taxes, Taxes on your taxes. You get the idea. However, even taxing all these areas, the government can only pray to come up with maybe $150 million, and that would mean huge personal income tax increases. After all, Ball just vetoed increasing the HST by 2%, which could have meant about $150 million for the provincial coffers. Still, that would have been a drop in the bucket for what's necessary to keep this government where its at. Cutting civil service jobs has been ruled out by the Liberals. Salaries and benefits of provincial employees accounted for about $905 million in this year's budget. The salaries in the health sector and education sector are administered by the respective authorities. The word is they account for about 75% of the $4 billion that the province issues in grants to the authorities to run their health/education organizations.
It has to be a tempting, if not an absolute necessity, to review these employee expenses. The civil service is way too large for a province this size. The Liberals claim they will reduce it by attrition - which is a fancy way of saying once people retire they will eliminate those positions from the province's structure. Sounds great in the ideal world, but the budget crisis needs immediate heart surgery, not rehab. It can't wait that long.
Muskrat Falls is another one that must be looked at. The government has spent its part on the project already (not including over runs), so that $3 billion is gone from general revenues. However, Nalcor is holding $5 billion in investment accounts that it borrowed under the Federal Loan Guarantee. As far as I know that $5 billion hasn't been accessed yet. The province could cancel the Muskrat Falls project, work a deal with their new buddies in Ottawa to return the funds while avoiding default, and the gross debt of the province would shrink to about $8.8 billion. Such a move would dramatically improve the province's long term economic health, and perhaps forestall the otherwise inevitable credit downgrades coming our way. In addition, should Nalcor lose the current Quebec court case (now waiting for the Judge's decision as it was heard in October) Muskrat Falls annual revenue generation will drop by approximately 80% require a tripling of power bills to allow the project to break even year after year. All in all, Muskrat Falls needs to be the first victim of the financial sanity axe.
In summary, Dwight Ball is on the record as not wanting to harm the economy by instigating drastic tax hikes or mass layoffs. He's on the record as not wanting to shut down the Muskrat Falls project (he wants to "manage it better"). He's on the record for assisting iron ore companies to buy out other iron ore companies in Labrador. All these things are just pure fantasy. Complete non-sense. The truth is, bonding agencies will force the government to cut its spending - drastically. Banks will likely do the same. Newfoundland and Labrador was completely mismanaged during the years when oil revenues to the province numbered in the billions. Now, that luxury, as stupid as it was, is no longer available to politicians. Now the chickens have come home to roost. It's simple math. How bad is Newfoundland's budget crisis? It's systemic and it's catastrophic. That's how bad it is.
Saturday, May 19, 2012
Dunderdale's Dithering
“The amount of influence we have is certainly now on the table for examination. There is no question about it.” Kathy Dunderdale, 17 May, 2012.
Those bewildering remarks came from Premier Dunderdale in response to the federal government's decision not to expand the role of the Goose Bay military installation that had been promised. She indignantly screeched at the cameras her utter dismay, her complete confusion, and her total contempt for the Minister of Defence Peter MacKay. She even put in a not so subtle threat to the Prime Minister:
"For me, at the moment, it’s a Minister MacKay problem.”
Dunderdale proclaimed, in an indignant rampage, that Newfoundland and Labrador had been let down once again by the dastardly federal government. She questioned what it would take to get the federal government to do her will:
"What is it that we have to do down here to get your attention?" she said. "We try to cooperate, it doesn't work. We vote for you, it doesn't work. We don't vote for you, it doesn't work. What is it?"
And in those remarks lies the mentality for all to see. The simple, fatal flaw that has befuddled Newfoundland and Labrador politicians since 1949. The truth of the matter is that the corrupt, disloyal, divisive feudal politics used by Newfoundland and Labrador's politicians doesn't wash in the greater Canadian political culture. Not because it is unique or cultural, but because it is the type of politics that most people in Canada want to see banished to the annals of history.
The Premier's attempt to manipulate a campaign promise some 6 years old to play the victim card illustrates the point well. Feeling political pressure on the Island she abandons her own, very public, alliance with the Prime Minister and in the process fans republican/separatist feelings in the province with the tried and true strategy of: "they screwed us again". Not over some life or death issue like say the Marine Search and Rescue Centre (I was at the protest in St. John's, but didn't see her..). That happened too close to her deal with Harper, and she didn't want to jeopardise the Muskrat Falls loan guarantee. Not over the feds agreement with Quebec which recognized their jurisdiction over Old Harry - one day before the last federal election. No, she picks a six year old campaign promise, and attacks Peter MacKay instead of the man who made the promise - Mr. Harper.
Instead of taking responsibility for a political arrangement that she freely entered into, Dunderdale blamed the federal government for failing on their end of the deal. In that way Dunderdale managed to live up to the most ancient political trend in politics - lack of accountability. She then fired a verbal assault on Peter MacKay that didn't even make the national news - and when has it happened that a premier attacking a federal minister hasn't made the headlines? And what does she have to leverage over the federal government's head if they don't listen? Absolutely nothing. She has no cards to throw on the table. She doesn't even know how to create cards to throw on the table. Her whole strategy is: "I'll huff, and I'll puff, and I'll blow your house down."
Course the feds are likely sitting back and having a good laugh. After all, a Premier with no cards that sets her own house on fire is hardly a going concern for the federal government. The feds are cutting across the board. They are applying their own brand and view of fiscal federalism - which they are entitled to do as a majority government (not an endorsement by the way). They are going to get grief from every provincial government. The key difference is most provincial governments aren't going to try and manipulate that in order to excite the provincial separatism that may exist in their jurisdiction. They aren't going to try and alienate their own people from their country. They aren't going to equate loyalty and citizenship to the dollar. They aren't going to commit the disloyal, some would say treasonous, act of taking flags down from government buildings.
They realize that they are stronger as one, despite the ideological differences. They understand budgetary decisions as they make them as well. To commit the despicable act of lowering flags, and alienating people from their own country only serves to isolate the province. It does not create allies in the rest of the country - unless you count Quebec separatists. It makes you look small, petulant, and childish. It makes you look untrustworthy. Without trust you can count on repeating this little diddy over and over again:
“The amount of influence we have is certainly now on the table for examination."
Those bewildering remarks came from Premier Dunderdale in response to the federal government's decision not to expand the role of the Goose Bay military installation that had been promised. She indignantly screeched at the cameras her utter dismay, her complete confusion, and her total contempt for the Minister of Defence Peter MacKay. She even put in a not so subtle threat to the Prime Minister:
"For me, at the moment, it’s a Minister MacKay problem.”
Dunderdale proclaimed, in an indignant rampage, that Newfoundland and Labrador had been let down once again by the dastardly federal government. She questioned what it would take to get the federal government to do her will:
"What is it that we have to do down here to get your attention?" she said. "We try to cooperate, it doesn't work. We vote for you, it doesn't work. We don't vote for you, it doesn't work. What is it?"
And in those remarks lies the mentality for all to see. The simple, fatal flaw that has befuddled Newfoundland and Labrador politicians since 1949. The truth of the matter is that the corrupt, disloyal, divisive feudal politics used by Newfoundland and Labrador's politicians doesn't wash in the greater Canadian political culture. Not because it is unique or cultural, but because it is the type of politics that most people in Canada want to see banished to the annals of history.
The Premier's attempt to manipulate a campaign promise some 6 years old to play the victim card illustrates the point well. Feeling political pressure on the Island she abandons her own, very public, alliance with the Prime Minister and in the process fans republican/separatist feelings in the province with the tried and true strategy of: "they screwed us again". Not over some life or death issue like say the Marine Search and Rescue Centre (I was at the protest in St. John's, but didn't see her..). That happened too close to her deal with Harper, and she didn't want to jeopardise the Muskrat Falls loan guarantee. Not over the feds agreement with Quebec which recognized their jurisdiction over Old Harry - one day before the last federal election. No, she picks a six year old campaign promise, and attacks Peter MacKay instead of the man who made the promise - Mr. Harper.
Instead of taking responsibility for a political arrangement that she freely entered into, Dunderdale blamed the federal government for failing on their end of the deal. In that way Dunderdale managed to live up to the most ancient political trend in politics - lack of accountability. She then fired a verbal assault on Peter MacKay that didn't even make the national news - and when has it happened that a premier attacking a federal minister hasn't made the headlines? And what does she have to leverage over the federal government's head if they don't listen? Absolutely nothing. She has no cards to throw on the table. She doesn't even know how to create cards to throw on the table. Her whole strategy is: "I'll huff, and I'll puff, and I'll blow your house down."
Course the feds are likely sitting back and having a good laugh. After all, a Premier with no cards that sets her own house on fire is hardly a going concern for the federal government. The feds are cutting across the board. They are applying their own brand and view of fiscal federalism - which they are entitled to do as a majority government (not an endorsement by the way). They are going to get grief from every provincial government. The key difference is most provincial governments aren't going to try and manipulate that in order to excite the provincial separatism that may exist in their jurisdiction. They aren't going to try and alienate their own people from their country. They aren't going to equate loyalty and citizenship to the dollar. They aren't going to commit the disloyal, some would say treasonous, act of taking flags down from government buildings.
They realize that they are stronger as one, despite the ideological differences. They understand budgetary decisions as they make them as well. To commit the despicable act of lowering flags, and alienating people from their own country only serves to isolate the province. It does not create allies in the rest of the country - unless you count Quebec separatists. It makes you look small, petulant, and childish. It makes you look untrustworthy. Without trust you can count on repeating this little diddy over and over again:
“The amount of influence we have is certainly now on the table for examination."
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