Monday, 31 March 2014

BUDGET 2014-15: FISCAL PRUDENCE vs. IRRESPONSIBILITY

Budget 2014 has been handed down. Taxpayers’ money has been liberally sprinkled by a Tory Government determined to avoid a repeat of last year's Budget fiasco. 

The media describes it an “election budget”.  That is an all too familiar code for fiscal irresponsibility.  Boosters of full-time kindergarten, student grants, lower small business tax and a plethora of other programs and initiatives have been placated. 

Everyone got something; a new Premier will arrive soon, too.  Why would anyone speak of ‘change’ when the good times are rolling again?  Why would anyone expect Tom Marshall or Frank Coleman to represent better government?

What about the awful government that has been upsetting voters? 

Why would anyone ask?  Don’t you understand that was Dunderdale’s fault.  It was not her policies either; it was simply her inability to communicate. And, besides, the wicked witch is dead! 
You know we are a society with problems when, following such an unwise Budget, even Opposition politicians jostle for position placing claim to having inspired a particular initiative. But then, not a solitary soul - union leader or community head, could be heard to gripe.

Perhaps, myopic union leaders enjoy having the deficit in the public service pension plan differentiated from the other debt obligations of the Government; as if pensions were a lesser obligation than money owed the Bond market.   If I were a public servant, I would not embrace the inference.

An ‘election’ Budget might be understandable if it possessed signs of a government attempting to reform itself and bent on demonstrating a modicum of fiscal prudence; but this Budget demonstrates no such hallmarks.  
Reporters recited the spin doctors’ carefully selected highlights; Debbie gushed over the Finance Minister’s new shoes (pumps, she judiciously noted).  Such careful scrutiny did not extend to the Government’s forecast surplus for 2015-16 of a highly questionable $28.5 million and in 2016-17 an equally doubtful $32.3 million.  Did it not occur to anyone that these figures are so razor thin, in the context of an $8 billion Budget, that they constitute a rounding error?  Might they be manufactured? We’ll come back to this point.

Is a passive public asking: what’s $807.6 million added to the public debt anyway? Why should we worry if Nalcor receives another $552.7 million equity infusion this year, in addition to the revenues it presently gets from equity investments in oil - compliments of prior donations from the public purse, monies that would normally be sent to Confederation Building to offset one social program or another?

What does it matter that the Budget does not even explain exactly to what projects or purposes and in what amounts the money will be applied?  We must not stress Nalcor CEO Ed Martin by looking for an accounting of our money, must we!

Should we be concerned that the public debt is forecast at $9.8 billion?

What if the key underpinning of government revenues (offshore oil) is fully priced in, at $105.00/barrel; that the Budget gives no quarter to the uncertainties of the world commodities market and the prospect that even temporary shrinking demand caused by economic contraction could see oil prices tumble, resulting in serious deficit? 

Indeed, these are all serious questions but who is taking them seriously when the Government, Opposition Parties and the media are ambivalent about the state of our fiscal mess. 

It is truly tough to blame the public for expecting the good times to keep on rolling.  

Still, notwithstanding the approach dull Opposition leaders take to the Budget, the euphoria of interest groups (even if a few are legitimately sated) or even the shallow analysis of disinterested media scribes, no one should forget that Budget Day it is supposed to be the Government's day. 

It is an occasion for a public exhibition of leadership, an exposition of its intellectual heft, its planning skills, its regard, not just for the immediate needs of a society, but of its future. 

As it stands, we cannot get as much as a frank and honest statement about the condition of the public purse, or a truthful update about cost overruns at Muskrat Falls!

The Budget Speech places great claim to “strong fiscal management”.  This should have been a clue to reporters to put the issue under a spotlight.

Perhaps, it was those pumps the Minister was wearing.  The media did seem distracted.

Let's take a look at just two examples of the Government's claim.
Compared with the Budget Revenues of 2013-14 (Revised) the Government reported increased revenue of $233 million for 2014-15. 

In addition, the 2015-16 Budget reflects a revenue increase of $791 million over the 2014-15 Budget figure.  In other words, over a period of just one year the Government has come up with additional revenues of $1.024 billion. Yes, that’s a windfall of over $1 billion. 

What does it plan to do?  

It plans to spend it all - notwithstanding the debt, the condition of the public sector pension plan or the razor thin $28 million forecast surplus; that rounding error referred to earlier.  

Do you really think that forecast surplus number or that for 2016 (which suggests a similarly slim surplus of $32 million) is credible?  If either of them are, do they really constitute an affirmation of prudent fiscal management? 

Now let me take you to page 8 of the Budget Speech. What does it say?  The Finance Minister states:  “Strong fiscal management by our government since 2003 is reflected by the fact that growth in net program expenses (83.6 per cent) continues to be less than growth in revenue (89.1 per cent).”

Growth in expenses vs. growth in revenue: now that’s a self-serving metric.  Let’s use a more objective one, say growth in expenses compared with inflation. 

If you calculate said inflation (based upon the Consumer Price Index (CPI) prepared by Statistics Canada) the result is that the CPI increased by exactly 20 per cent in the period (2003-2013) to which the Minister refers.  Prudence would suggest program expenditures might have grown by roughly the same rate.  They did not.  In fact, program expenditures, since 2003, increased, in real terms, by a whopping 63.6%! 

The Government is congratulating themselves when revenues have gone up and they have spent it all!  Their expenditures have actually chased revenues – they have failed to control their profligacy using a more sensible metric of inflation; they have locked themselves into a pattern from which, politically, there is no escape.  They have proven that they will find a way to spend every dime that arrives as revenue from the offshore.  This is prudent fiscal management?   

Meanwhile the Minister of Finance states that by 2016-17, unfunded pension liabilities will account for 85 per cent of the Province’s net debt – almost $9 billion. The Minister did not say this is the tenth consecutive year a Tory Administration has failed to deal with the matter.

If I were a public servant, I wouldn’t give Carol Furlong or Wayne Lucas a moment’s peace until my pension benefits were safely out of the clutches of this and any future Provincial Government.

Fiscal prudence? Don’t be daft. 

The Government can’t differentiate prudence from irresponsibility!

3 comments:

  1. There is 2 startling stats from the budget. First 36.5% of our revenue comes from oil. This is absolutely scary. Second is that 3 Billion is spent on health care. For 200,000 workers this equates to 15,000 dollars each.

    The problem with this government is twofold. Their spending is out of control. But what is worse, and perhaps more concerning is that their spending seems to be without plan. Reactionary.

    But this budget is very, very concerning.

    But we always live in the present. It is a character flaw of Newfoundlanders in general. Any I am one.

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  2. A true fiscal conservative government would be shouting from the mountain tops how this is NOT a fiscal conservative budget. It fact I'm sure it stops short of the extreme's a socialist would be so happy to want to take the public coffers to such extremes. The most shocking example of irresponsible fiscal management of this budget is the oil forecast of $105/barrel. Was this # arrived at after very careful forecasting with wall street futures traders? They do know about the shale gas revolution that will take the US away from a oil import dependency and drive the price of oil for years to come. Maybe they don't pay attention to global energy markets and declines of GDP in China and other emerging markets.

    Any true fiscal conservative would be ashamed to be part of such drunken spending.

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  3. What surprised me in the budget was a major tax grab with no real explanation provided. The province is reducing the dividend tax credit on eligible dividends so that the top marginal tax rate will go to 30% from 22.5%. Eligible dividends are those paid by publicly traded corps as well as dividends paid out of private company earnings that are over the $500,000 small business threshold.
    Surprisingly, this change was not mentioned in the budget speech but my accountant alerted me last week.
    The government has prided itself on low income tax rates, second lowest next to Alberta, enabled of course by our resource revenues. I think this change in dividend treatment is the thin edge of the wedge. We will be seeing higher rates on other incomes including salaries in due course.

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