Monday, 7 March 2016

HONESTY SHOULD BE HALLMARK OF NEW BUDGET

It is difficult not to feel a sense of anticipation building around the forthcoming Budget. Not just business but the public, too, are speaking fearfully about the measures that Finance Minister Cathy Bennett may impose to return the Province to a state of fiscal sanity.

Of course, the words “may impose” have no legitimate place in the current budgetary discourse; but they are there. One might ask: what does the Minister and the Premier not understand about a $2 billion deficit, and a reluctant bond market demanding proof the government will act? 

The mere fact that the Minister failed to follow through with the proposed HST hike, in spite of deteriorating revenues, and having failed to offer immediate off-setting tax hikes and spending cuts, represents a sure signal the new government was not quite ready to govern. Indeed, Ball’s early comments suggested he might find respite in Ottawa. Likely, by now, he has figured out partisanship doesn’t count for much; besides, we should fix the problems we have created.  

One thing is certain. The fiscal crisis has not improved since the Liberals took power.

Many believe the public engagement process is less an act of consultation than of delay. Some say the ideas it has generated do not reflect the dire state of the government’s fiscal circumstance. It has received no help from public sector unions; even the doctors offer only a placebo.

What is left to advise the Premier and the Minister? Shouldn’t we just wait for whatever the Minister decides?

I suggest one simple virtue ought to influence the government’s decisions in advance of, and during, the Budget presentation. That is integrity.

Honesty and straightforwardness have been missing from public policy decisions for far too long. The Tories used subterfuge, intimidation, partisanship, as well as raw power to advance their goals.  Demagoguery worked for a while, too. But truth, because it contains its own fuel, is better currency and will last longer. When fortune’s cycle has been run, pixie dust dissolves, but not the deceit it breeds.

Honesty is a default to logic; it is evidence based and constitutes the gravity around which meaningful and enduring public policy issues revolve. The public needs to know the truth. They need to know that their government respects the virtue no less than they do.

The trail of revenue loss in the budgetary materials is something anyone can figure out. The Wiseman Plan (concocted by Paul Davis’ Minister of Finance last year) forecast five more years of deficit, on top of the four deficits in a row already experienced; then he stated there would be balanced budgets. The brazen Tory Finance Minister forecast prices $71-$90/barrel oil over the next five years and omitted any reference to the capital needed for Muskrat Falls.

Using the items which received excessive funding (in total, 145% of the average of those of the other provinces), the new Budget needs to describe a road map for a path to a more sustainable base.

Indeed, the current fiscal issues can only be dealt with if it is a complete narrative, one that pulls no punches. Nothing less should be laid before the public. It will have credibility only in consequence of its completeness and its factual basis.

If the province’s financial position is described selectively or is “spun” for a political purpose, tough medicine will be derived of credibility and get rejected.

If Nalcor CEO Ed Martin’s fingerprints are all over Muskrat EY Review, already undercut by both the choice of Reviewer and its Terms of Reference, the public will be unsympathetic especially as the reality of an impending doubling of power rates hits home.

In addition, not just Muskrat, but the state of Nalcor’s investments need to be laid bare, especially the degree to which the fall in oil prices have altered their original thesis.

Other programs, including expenditures on the proposed Gull Island hydro project, must be disclosed.

It is unthinkable that we will suffer program cuts and tax increases as funds are applied to an “energy warehouse” mandate that was always unwise, and now plainly dumb.

If lives and livelihoods are impacted as public funds are wasted for a foolish purpose, not only will the Liberals be robbed of the moral authority needed to conduct painful program alignments, there will be hell to pay!

So far, the Liberals have been very generous to the Tories; though they have no reason to be.

The blame game is inherently distasteful. But that is not the same as saying it serves no purpose or that it degrades politics. On the contrary, any bolstering of bad policy, especially any outcome re-framed as a loss of good fortune, is not just bad politics; it reinforces the lie that all politicians are corrupt; that there is no need for standards of honesty and decency.

This Budget should tell all; it should pull no punches.

The integrity manifested in the Budget will constitute the government’s first opportunity to demonstrate it was and is serious about “change”.

Sheer honesty and straightforwardness should be its hallmark.

If that is the case, and the government is decisive too, the medicine may be bitter, but it holds the best chance it will be swallowed by the public.

10 comments:

  1. in 2017 Hebron will be winding down... Vale should be completed... Much of the Muskrat Falls project will be completed. Meanwhile the Alberta economy, and our own oil production will just linger on.

    It is just going to get worse.

    We need to act very quickly now, before it is too late.

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  2. Is Nfld Power decision yesterday to roll back their 3.6 percent rate hike to households to 3.1 percent suggest they feel the `heat`. Afraid that citizens may turn up to the hearings! A response to the Throne speach that all must do their part, even Fortis shareholders! Or heat from Uncle Gnarley perhaps!

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    1. Nothing as you suggest. It is a tactic called "give to get". They come in high and during the process roll it back a bit. Looks good on them and everybody feels good even though it may well gave been part of the Grand strategy. Often takes a bit of heat of the process. In the mean time NP do a decent job of it all.

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    2. NP does a decent job you say.....well yes, compared to Nalcor and Nfld Hydro, but
      1. Forecasting for long term, at 0.8 percent increase per year for energy to justify MF is much based on NP projections. And now the forecast for 2017 is almost flat, and may not grow much if any long term. And remember, for sanctioning purposes, it was stated that efficiency measures for houses were at a saturation point! They ignored the new building codes that were in the pipe line and efficient heating systems, and never followed end use research, as best practises for forecasting. Any wonder forecasts will be off substantially.
      2. They have one of the poorest records for peak demand reduction from efficiency measures, which impacts the risk of winter outages.
      3. They are losing customers who have electric heat as the main source, especially outside the Avalon. While they are a little sensitive to the negative effect of alternatives available for heating, the so called elasticity effect, this is likely to be a major problem with the shock rate hikes planned for MF power...... and begs the question :has Nfld Power been vocal enough on that issue, during MF sanctioning and since.... I think not. And as most people see them as the power supplier, they will suffer the fall out in public discontent later.
      2.

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    3. Forecasting is not a science as such.They are dammed if they do and dammed if they don't. If you don't forcast demand conservativy (high) you further increase risk of dark NL things. Pre darkNL Hydro would have been damed for seeking new generation. Heat pumps do a better job at reducing energy than demand though.But agree more can be done re reducing. However George Bernard Shaw said it best... "If you put all the economist in the world end to end, they still wouldn't reach a conclusion.

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    4. Agreed, forecasting is tricky, but... pre darkNL Hydro were NOT dammed for seeking new generation. In fact,they sought 824 MW of new generation via Muskrat Falls, of which Nfld needed little. They also thought a 60 MW gas turbine plus low maintenance on Holyrood would do until 2018. Then darkNL showed that: 1. Holyrood`s maintenance was not prudently maintained. 2. existing gas turbines were not prudently maintained. 3. For reasons of 1 and 2, a 120 Mw gas turbine instead of 60MW was urgently needed. 4. Even this is not enough due to 1 and 2, and more peak demand reduction is essential (according to Liberty). As for reducing, to avoid power outages, power curtailment is employed from the larger industrial customers, which is a temporary solution that helps. Permanent demand reduction is also needed to flatten our peak winter heating, which is NOT being done.
      You suggest heatpumps do a better job at reducing energy than reducing demand. You are correct, but needs clarification: heatpumps on average reduce energy for heating by two thirds. Some makes (minsplits) also reduce peak demand by 50 percent at cold snap conditions, if properly sized (which is essential, so they do not overload to inefficient mode). Ducted type heatpumps do little for demand reduction when conditions are cold, yet many of these are being installed as contractors make more profits on this, and the power companies do not discourage them, despite offering no peak demand reduction. Seems there is no intention to reduce demand via heatpumps for residential. Nfld Power gets an F on this account. Do you agree.

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  3. Generally re heat pod and NP and for NLH for that matter. More can be done. Studies did show a small uptake on this stuff and price increase helps..elasticity..re NLH a lot failed near the same time and forecast off. Anyway it will improve I believe. Not convinced that conservation will save the day on any of it. Not realistic to think Holyrood can do the job and post in feed should be eliminated and a few simple cycle turbines added tat could be converted to combined cycle later if it all turns to crap.

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  4. Generally re heat pumd and NP and for NLH for that matter. More can be done. Studies did show a small uptake on this stuff and price increase helps..elasticity..re NLH a lot failed near the same time and forecast off. Anyway it will improve I believe. Not convinced that conservation will save the day on any of it. Not realistic to think Holyrood can do the job and post in feed should be eliminated and a few simple cycle turbines added tat could be converted to combined cycle later if it all turns to crap.

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  5. Of course, efficiency on residential heatpumps allows on average 3kw reduction per house= 450MW on space heating alone, but needs time to ramp up. This alone would have replaced much of Holyrood production. While alone it may be insufficient, but as a part of the Isolated Island option it would have been very substantial component. Example Hawaii Islands proceeding to reduce demand by 30 via efficiency alone.
    But the further along we go with MF the more the power companies will resist efficiency and heatpumps, but use will accelerate with much higher power rates.... so a viscous circle, use less power results in even higher rates.
    Seems the thinking pre sanction MF was that nothing will replace baseboard heaters.
    Per kw of production MF costs more than 10,000 dollars, For a typical new house that is lie 150,000 dollars per house. To reduce demand, it is like 1000 to 1500 dollars per house. And reducing demand would have held power rates flat or very little increase. Should not world class engineering see this ? But even if my suggestion is valid, it is now rather late to expect serious conservation, I guess.

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    1. Should read "like 150,000 per house",....... and to reduce demand it is like 1000 to 1500 dollars per kw of reduction. (nearly one tenth the cost)

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