Thursday, 22 January 2015

"MINI-BUDGET” NEEDED; TIME TO DISMANTLE NALCOR

The Province needs a “Mini-Budget”.  The Government should commit to dismantling Nalcor, too.

Presently, the House of Assembly is engaged in a ridiculous debate over minimal savings on downsizing the Legislature. The Government has created a diversion; large, financially worthy decisions are delayed. It should to be talking about public policy issues and measures that will seriously downsize government expenditures; it dwells on an amount equal to a rounding error in the context of the size of the deficit, especially next year's.

A crisis looms; the important issues can’t make it to the top of the public agenda.

Politicians don’t get that the role of government, in a democratic, free enterprise economy, can and should be limited. Its chief role includes programs and services. Governments should be preoccupied with figuring out how they can be delivered cheaper and better. They should be concerned about laws and regulations for the well-being of society.  They should be worried about sound management practices, good governance and about providing for the future. 

Experience has shown that, while these are roles in which bureaucrats are suited, they are not good at running businesses.

The “international experts” at Nalcor have been permitted to use the public purse as a roulette table; to place a large bet on the public treasury; doing, at Muskrat Falls, what one local icon of industry said “he wouldn’t touch with a barge pole”.

Muskrat enlarges the fear the well being of thousands of people will be affected if the current financial crises is poorly handled.

The Government should be working on an interim budget, right now. It should bring in a “Mini Budget”; one that provides for immediate action, including specific cuts to expenditures. The imprecise declaration it made, late last year, about freezing "discretionary expenditures" won't suffice. Firm decisions, now, might lessen the pain of delayed decisions; any deferral will surely shock the economy and make matters worse. 

The government has stated it wants to delay the Spring budget, too, and wait until the federal government has brought down its budget, now delayed until April. That is a mistake; decision time is here. A new statement on the deteriorating condition of revenues is also required.

Oil prices have fallen further since the Finance Minister released the “Budget Update” on December 16th, when the forecast deficit was estimated at $916 million. The deficit likely exceeds a $1 billion, now.  In addition, the fall in oil impacted only the latter six months of the current fiscal year.  The new Spring budget will be based upon a full fiscal year at the lower oil price.

At $30 million for each dollar oil has dropped, the 2015-16 budget is short $1.65 billion. That figure does not include loss of mineral royalties, the prices of other commodities having moved in oil’s southerly direction.  

Remember, too, that the budget deficit this year would have been $538 million even if the forecast $105 price for oil, for the full year, had been on target. Then, there is the annual inflation rate including public sector wage increases, already contracted.  All of those issues add to oil’s shortfall which place the government’s problem well in excess of $2 billion next year.

The need for a mini-Budget is obvious.

Lower oil prices and out-of-control public spending have compounded the problem of cost overruns and other issues at Muskrat Falls. 

Now that the oil bubble has burst, confirming Williams' energy warehouse idea was based upon a political architecture of inflated egos and false expectations, we have to kill the policy and, where we can, its offspring. Nalcor must be stopped from making new commitments. It must be dismantled; carefully but unmistakably. 

The process will be neither easy, or fast, nor cheap.  Martin has already made references to “sunk cost”. Now, the government should make immediate decisions to ensure we experience as little further capital destruction. 

Muskrat Falls is a black hole that will compete with hospitals and schools. We may not be able to stop it now; I don’t know. I do know, given the severity of our Budget crises, a Crown Corporation which has advanced that project through a sanction process history will judge as reckless, must be permanently stopped from compounding the harm it has has already conjured.

Of course, the alternative is the government will continue to evade responsibility and not make any important decisions at all.  

The dismantling of Nalcor will require public discussion.  Monday’s Post will attempt to first give the issue some further context; a second Post will offer more specific proposals.


Your own views are welcomed, as always.

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