Monday, 17 March 2014

PUBLIC DEBT: EVADING THE TRIALS OF LEADERSHIP

The new Finance Minister Charlene Johnson recently concluded the annual series of Pre-Budget consultations.  The meetings, held regionally, provide an opportunity for town and community leaders to put their “wish lists” directly before the Minister. 


Almost always, the requests involve demands for “more” not “less” money. Rarely are they about the Government’s poor fiscal management. 


The consultations are supposed to be an exercise in democratic practice. Yet, I suppose it is too much to expect a rural Mayor to give the same government, from whom funding is expected, a piece of his mind.  You won’t get that from the Mayor of St. John’s either.


For a decade the public has been relieved of warnings about the high expectations which usually prefaced the annual Budget. 

Around 1997 oil prices began to edge up giving proof that Peckford’s Atlantic Accord had been worth fighting for. 


By 2007 oil hit $140/barrel.  Soon, provincial coffers were overwhelmed with revenue and public spending quickly achieved unparalleled levels. 


Like Williams and then Dunderdale, most members of the general public never stopped to ask: can this new paradigm last forever?


Of course, no resource boom ever does. 


Today, the hyperbolic rhetoric of the politicians has all but vanished.  The spending of easy money has not.  Budget deficits, now at stratospheric levels, mock any semblance of fiscal prudence.   


The public offers outcry when they are denied.  In place of managing public expectations, politicians rather than lead prefer to follow.


John Maynard Keynes, the post WW II economic guru, counselled national leaders to engage in infrastructure spending as the cure for moribund economies and high unemployment rates.  Keynes thesis involved, among others, a concept built around economic cycles arguing that it made more sense to have the jobless contribute to economic growth at the bottom of a cycle than to be given income support and no productivity in return.     


No economic concept provides for a free ride.  


The seldom discussed aspect of what Keynes advanced is that, when economies re-bound, governments should re-pay the debt borrowed to fund the uplift.


The problem is politicians seem only to understand the ‘spending’ part of Keynes theory. A resounding ‘deafness’ greets debt re-payment.  Politicians of all political stripes suffer the same malady.


Like most other Provinces and countries, Newfoundland learned quickly, after Confederation, that it was unable to limit borrowing to “capital projects” like roads and bridges; soon it was borrowing for current account expenditures such as education, health and other social services, the day-to-day expenditures of government…what some call the grocery money.


Successive Governments continued that approach.  Though most were conscious of the debt ceiling, none, for long, were able to contain expenditures to match revenues.  Whether by borrowing from the market or from the public sector pension plan (usually both), politicians found a way to elude the trials of leadership. 
Even when the revenue capacity had finally been achieved to deal with the debt, the allure of avoiding voter rebuke became just too attractive. Of course, the demands of unions, churches and plethora of organizations  handily provided cover.


Those of us who are gobsmacked by the sheer size of recent budget deficits tend to believe they are rightfully due much opprobrium.  But, the voters have been negligent, too.


We, like most provinces and countries, do not possess a culture of financial discipline.


Politicians do not expect to be scolded and we do not scold them for how they manage public money.  When we do, it is not because we are upset that they have overspent, but, because they have denied us what we have come to expect, what they have assured us, is rightfully ours. 


We praise a Danny Williams and raise him to the status of demi-god.  Yet, we deny during much of his tenure high revenues related not to his leadership but to the price of oil.   


People feign a lack of knowledge of how Government works and ignorance of how Budgets are constructed. But, they possess professorial capacities when cutbacks affect them.


Shouldn’t Budgets represent an annual debate over choices, over decisions about what must be given up because a higher priority has been recognized? 


The debate should be less about how much we can borrow than how much we can safely spend. It ought to relate to a concern about leaving something for a rainy day, something more than a pile of debt for the next generation.


People are fond of saying that the Government works for them.  If that is true: we ought to take charge.  


We should tell the Minister of Finance what we want changed.


First, though, we need to check those expectations.

3 comments:

  1. The low price of borrowing money has kept the economy afloat (nationally) over the past decade. But cheap money leads to poor decisions. People building too large of a home, or purchasing too big of a vehicle, are results on a domestic scale. On a government basis there is really no major deterent to balancing budgets.

    This government have been addicted to high oil revenues, and low borrowing costs to enable their vision of leverage. They have spent money on massive projects. These projects may be required, but they are not wise.

    The result is that Newfoundland and Labrador is in a very precarious position. Prolonged low iron prices, and downward pressure on the price of oil will expose the poor fundamentals of our economy.

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  2. Des: your article is of course 100 percent accurate. The challenge exists as we have trained our population over the last five decades that there is such a thing as a free lunch. Politicians have always found it easy to buy the electorate with their own money while taking credit for the excess. Now how to pull the Province back from the brink ....a daunting task for someone....Bill Barry

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  3. Bill shot himself in the foot on the first day. Now he’s backed into a corner and trying to convince the media that the election is a fix. What a load of baloney!

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