Monday, 1 April 2013

BUDGET 2013. THE PAIN HAS ONLY BEGUN

John Meaney: Rant N' Roar
Likely, I was not the only one with a sense of unease after last week’s Provincial Budget.  Two essential facts remain inescapable.  The current fiscal mess is a product of poor management rather than one of resource revenue volatility.  Secondly, Budget 2013 makes abundantly clear that “right sizing” the public sector, after a decade of fast money, is easier said than done. 

A few weeks ago, the Minister of Finance threw out a forecast deficit of $1.6 billion.  In the end, the Budget recorded a deficit of $564 million.   
The Budget numbers are one thing, but the question most people want answered is: has the Government reclaimed control over spending now that per capita expenditures have reached 150% of the Canadian average? Have we backed away from the fiscal cliff?  Is the “10 year Sustainability Plan” a “fix” for bad budgetary behavior?
Government Program Spending has increased by 75%, growing from $3.8 billion in 2003-04 to $6.6 billion in 2012-13.  It also reflects a huge revenue increase (82% in the same period) much of it associated with high world oil prices.  Program spending has far outstripped the CPI (20.4%) or the rate of inflation.  Yet, this “austerity” Budget avoided a decrease in spending; spending actually increased by $138 million. 

Though nearly 1200 public service positions were eliminated, the savings were insufficient to prevent another $876 million from being added to the unfunded pension and post retirements benefits liability.  That account is in deficit a total of $6.5 billion, now the largest slice of the public debt.
In place of really dealing with the deficit, as promised, the Minister set out to find, not new, but more generous revenue sources. Higher oil production figures, HST revenues an unexpected increase in mining revenues, altogether, amounted to $700 million.  Hence, the lower deficit figure is the result of revenue improvements (66%) and cutbacks (34%).¹ 

The inescapable conclusion is that, even in the face of axing so many jobs, the Government has hardly made a dent in a decade old habit of overspending. The problem is clearly huge. Bigger, perhaps, than it realizes. 
A couple of other points are noteworthy.
The former Minister of Finance squandered a full year, following the election, during which program assessment and review could have been undertaken.  Tom Marshall had no problem boasting the ability to spend but, when it came time to pare, he couldn’t take the heat leadership demands.

That may explain why the cuts to personnel appear uneven. Cutting public servants and programs is demanding work even for the Minister who took the Muskrat Falls Project all the way to sanction without having a clue as to why it should be built. Streamlining the public service can’t be accomplished overnight.  One would have to question, for example, a 50% cut in Sheriff’s Officers. Is it possible one office could be so over-staffed?  The figure raises a lot of questions.
In addition, notwithstanding the revised oil production number, the Government uses $105 oil/barrel based upon it consultants’ “forecast” (the Government took pains to describe the challenges of pricing crude).  A commodity so volatile, should be discounted by a figure of, at least, 15-25% for budgeting purposes.  The discount ought to be part of a plan to secure protection from both oil price and related currency fluctuation issues (oil is priced in $U.S).  If the average oil price comes in higher, in one year, the excess revenue can be placed in a ‘volatility’ fund and applied against a shortfall, in subsequent years, when the news is not so great.  The same safe guard against oil production uncertainty should also be employed.  Instead, the Minister used the most optimistic number he could extract from the new political appointments at the C-NLOPB. 

The influence of Dr. Locke seems is not in evidence, though with a little adjustment of accent, the Premier will be pleased with her new admirer, even if the new Doctor is not from Latvia.    

Has the Government achieved control over-public spending?
This Budget has all the earmarks of a round of belt-tightening, where Deputy Ministers conceded little.  Government has yet to figure out how to incentivize them to “manage” rather than to “administer”.      

Have we backed away from the fiscal cliff?  Absolutely not.   
What about the “10 year Sustainability Plan”.  It is a fine document for its general analysis of Government revenues and expenditures and for the statistics.  But, little else. It was a better document before the Premier`s Communications staff hacked at it, with "spin".  Still, it is not a Sustainability Plan.  At best, it is a statement of intent. The "Plan" requires separate comment, though I will note one of its chief shortcomings.

The Government has been on a spending spree, since 2005.  Ministers have no experience making the tough decisions essential in an economy, like ours, where the economic challenges range from negligible population growth, under-populated communities with expensive needs, the lack of scale economies and a narrow economic base. A place like this needs courageous and skillful politicians. They need the backbone to say “No”. 
After a single Budget, in which the word “austerity” was used, but not applied, it is difficult to take the Government seriously.  A sensible Minister, one whose return to the Department is measured only in months, ought to have known, that for a Plan to be credible, its Sponsor needs a track record.    

The Minister of Finance needs a couple of years, as a minimum, to set out sensible budget principles, establish targets, show how they can be achieved and ultimately confirm the essential proof that he can be successful; then, and only then, might the public's attention to a “Plan” be warranted.  He might have profited from What The Premier Must Do. A Budget Primer (Part I) and Part II.
As it stands, the Minister projects two more years of deficits, until 2015.  It should be lost on no one that these years represent the period when local employment numbers will be at their best, when all taxes, especially HST, will reach a high point.  The Government is forecasting balanced budgets as construction on Vale ends and Hebron and Muskrat are in decline. The Government wants us to subscribe to “faith based math”.  I ain’t buyin’.

One reassuring line in the Budget Speech has the Minister counseling that you should “not borrow to pay for day-to-day expenses and send the bill to your children down the line”.

If you are looking for certainty in this Budget, you can find it under health care. Even more money is needed; mostly, in the area of amnesia.
 ¹  Securing the Future A 10-Year Sustainability Plan for Newfoundland and Labrador
Postscript:  JM returns this Thursday with a new Uncle Gnarley.

1 comment:

  1. The so called sustainability plan is an allegoric representation of this PC government. It sounds good, it looks good, and is spun well by the communications people. However, when you read the document you quickly realise that there is no substance. The sustainability plan is a broad review of the terrible position we are in, with a summary of future oil prices. There is no discussion of the demographic challenges we face, and how our overall revenue will drop substantially after 2025. Point blank it is not a plan, merely a brochure. Sure government will say that Muskrat Falls will fill the void when offshore revenue goes in decline (ie 400 million a year). But where is this MF revenue stream coming from? It is not new wealth, but is rather recycled from the rate payers. Rate Payers are also tax payers. People need to realize that Muskrat Falls is the largest make work project in our history. When it goes into service the largest make work project will instantly become the biggest tax grab in our history. Muskrat Falls is a regressive tax that will burden the poor and disadvantaged. It is shameful what this government have imposed on their people. New Energy.... ??? I can not believe the members of the Tory caucus have not defected, for it is a sinking ship. The next 2 years will be interesting.

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