NL Budget 2015 - Practiced at the Art of Deception

There are two words that come to mind after reading budgetary estimates for 2015 in this province: election; and deception. Actually there is a third - tragic. For starters, the biggest bomb of all is that our actual budget deficit for 2015 is $2,092,867 billion. Not the $900 plus million that's being thrown about in the media. Here's how it breaks down:

Total revenue for 2015 is projected to be:                      $ 5,757,328 billion

Current Account Expenditures for 2015:                    -  $ 6,659,952 billion
Capital Account Expenditures for 2015:                     -  $ 1,143,743 billion

Need to borrow for 2015:                                               $ 2,092,867 billion

Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.

The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of  $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.

Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.

It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose.  Still, you can expect a credit downgrade imminently at this rate.

Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?

2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron -  the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.

Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.

The Loan Guarantee: "WE GOT IT!"

Last week, in response to the Commissioners of the PUB refusing to endorse his Muskrat Falls project, Danny Williams released a statement. It was a rambling document that appeared to be crafted as a story as opposed to a straight forward personal statement. In case you missed it, here it is:

"News Release
April 3,2012

Williams disappointed by indecisive PUB report on Muskrat Falls development
Former Premier Danny Williams said today that he is both disappointed in and disturbed by the recently released Public Utilities Board (PUB) Report on the Muskrat Falls development. Williams said the inability of the PUB to reach a recommendation after 9 months and millions of dollars is unacceptable; and that past statements had already shown a bias against the project.
'When I read the report brought down by the PUB, I was deeply disappointed in the indecisive nature of the report; and more so I was troubled by the conclusions put forward by the board largely based on opinions of private citizens as opposed to the experts at Nalcor and Manitoba Hydro,' said Mr. Williams. 'Unfortunately, if you look back at the comments made by Board early in this process it became clear that opinions had already been formed. I have never before seen a quasi-judicial body make such negative and prejudicial statements in the middle of a review. It concerned me greatly at the time, but I had hoped those careless comments would not have carried over into the final report. Clearly, those opinions formed the basis of the final document as the board had backed itself into a corner several months ago with such strong statements.'
Williams went onto say that he still fully supports the Muskrat Falls development, and is troubled by some of the irresponsible commentary that has been put forward in the public domain - much of which appears to be held in high regard by the PUB in their review. While legitimate concerns and questions serve to bring about the best project possible, inaccuracies and fear mongering serve only to inhibit progress and future prosperity for the province.
'I have a serious concern that the PUB quotes extensively the personal opinions of former bureaucrats and academia, while ignoring the world-class experts at Nalcor,' added Williams. 'They even ignored their own hired experts at Manitoba Hydro. The team at Manitoba Hydro asked some responsible and appropriate questions in their review of the project, but ultimately confirmed the fact that Muskrat Falls is the least cost option. It makes absolutely no sense to me for the PUB to ignore the people at Nalcor who have the experience, the knowledge, and the education to make the right decisions. These professionals have absolutely nothing to gain by moving forward with a project that is not in the best interest of the province.'
Given the endorsement of the project by the Consumer Advocate, Manitoba Hydro (with conditions) and representatives from all political parties, the abdication of the PUB in making a recommendation is baffling, said Williams. 'I am concerned that perhaps the board wanted to wash their hands of any responsibility of this project in the very unlikely event that something goes wrong. The history of the Upper Churchill is a powerful force in this province and some people are just simply too fearful of the ghost of 'Churchill past' to move forward with what is a great project. But we must never fear making bold decisions for great rewards.'
Williams asserts that there has never been a better time in the history of the province to move forward with the development. 'The stars are aligned. We have in place the agreements with our Aboriginal partners; we have a federal loan guarantee worth up to a billion dollars; we have passed the environmental assessment; the world markets make financing the project very feasible; we have an agreement in place with our Atlantic Partners to circumvent Quebec; and we have an incredible opportunity to make Newfoundland and Labrador a province based on almost 100% clean, renewable energy. And the icing on the cake is that this project puts Newfoundland and Labrador in the energy business. We need this power and we need this project.' "

There you have it. A nasty, manipulative attack on the credibility of the Commissioners of the PUB from the former premier. This from the very man whose PC government appointed every one of the four Commissioners to the Board. From the man whose PC government placed the PUB in the position by tasking them with the job in the first place. A diatribe so flawed in its logic, and so spurious in its commentary that it requires challenging.

Firstly, the PUB did not ignore Nalcor, Manitoba Hydro, or its officials. In fact, evidence given by these groups is evident and referred to throughout the PUB's decision. So to accuse the PUB of :
"   ignoring the world-class experts at Nalcor,"added Williams."They even ignored their own hired experts at Manitoba Hydro." is in itself ignoring the facts and stating apparent falsehoods.

Secondly, to frame Nalcor as a "world class" organization is at best a dramatic overstatement. Manitoba Hydro itself pointed out that Nalcor was not even living up to NERC standards. That's North American industry standards - let alone world standards. Williams would also know that Nalcor's power generation assets, and particularly income from those assets, places Nalcor behind even regional companies like New Brunswick Power. So to call Nalcor a world class organization is a shameful attempt to fan Newfoundland nationalism for the purpose of getting his own way. There are plenty of things Newfoundlanders and Labradorians can be proud of without shamelessly exaggerating the status of a crown corporation like Nalcor.

Thirdly, Williams cites endorsements of the project by representatives of all political parties. A disingenuous statement if there ever was one. Both the Official Opposition Liberals and the Third Party NDP have come out against Muskrat Falls. During the last federal election federal parties supported the notion of the project, if it was economically and environmentally viable. The provincial parties, and their representatives are very publicly against it. Their votes in the House of Assembly are obviously more relevant than what their federal cousins might say in the pursuit of votes during an election. In so far as Manitoba Hydro goes, their report specifically states they came to their conclusions based on Nalcor's assumptions and they would not warrant the report to third parties. Again, more cherry picking of facts while dismissing or ignoring the facts.

Finally, and most shockingly, Williams states:

" we have a federal loan guarantee worth up to a billion dollars"

I found that little statement the most interesting of Williams commentary. Apparently, without the public of Newfoundland and Labrador knowing it, the provincial government has in fact secured a federal loan guarantee. Not only that, but the dollar figure of that guarantee is apparently up to $1 billion. When did that happen? Some questions I have on that little gem: 1) When was the loan guarantee granted and why was the public not informed?; 2) How did Williams know about it considering a short while ago he claimed not to be able to get the cellular numbers of ministers since his departure?; and 3) Why is the loan guarantee only "up to a billion dollars"?

A billion dollar loan guarantee would only cover 20% of the province's share of the Muskrat Falls project as currently envisioned. Has the project been scaled back, and the people not been informed of that? Has the project been revised to a dam only project with assorted transmission lines, but no sub-sea links, and therefore no power to the Island? If that were the case, the $1 billion loan guarantee might cover 25-30% of the estimated cost. I am somewhat at a loss to understand why the Newfoundland and Labrador media has not been asking the government and Mr Williams why he would make such a statement. Certainly, the fact this province has a loan guarantee in place for up to a billion dollars would be considered news by most.