Friday, 15 April 2016

A STORY OF POLITICAL CHAOS: PUBLIC SHOULD DEMAND NEW BUDGET

The Government’s first Budget, one entitled “Restoring Fiscal Confidence and Accountability”  will do nothing of the kind. It is, in brief, something akin to a “sick joke”; except the April “fools” are the ones the public just elected.

This is a Budget which the Liberal Government’s PR builders assured would reflect the beginning of some political leadership, absent so far; the kind that would rectify Tory incompetence.

What the province got, instead, was the blunt artistry of a clique of deceivers.

The Government has confirmed, again, Nalcor CEO Ed Martin is firmly in charge.  

It takes no great mind to figure out the singular agenda of Finance Minister Cathy Bennett, even if it is lost on union leaders of NAPE and CUPE, that the Province took a very retrogressive step, yesterday. Instead of stepping back, this Liberal Government has actually advanced our collective march over a very steep fiscal cliff.

Let’s begin here:

      -          There was no progress made on the deficit

      -          Operating and borrowing expenses have actually increased, not decreased, from                  almost $8.1 billion to $8.5 billion.
      
      -          Government went deep into the pockets of taxpayers, reportedly to the     
              tune of around $3,000 annually; higher for others.

      -          Nalcor gets $1.3 billion (after getting $760 million in 2015/16); the new sum is the        
              equivalent of the total tax grab estimated at $863 million plus another half billion 
              dollars.

      -          This $1.3 billion is added to the $1.8 billion operating deficit, and to $570 million for      
              Capital Account; all of which will have to be borrowed.

The Government has to be absolutely stark raving mad!

Possibly, the public will come to that conclusion, too.

Still, taking those Budget outcomes on their face isn’t enough; the public needs to know their implications beyond the immediate loss of the purchasing power they will suffer from higher taxation.

Let’s take a short walk, not through what the hundred or so PR people have written, but through the fiscal realty behind the Government’s numbers and how those decisions, likely, got made.

It is a picture that starts as a $1.3 billion “ransom note”, in the form of a demand to the Government, from Nalcor.

The timing was not accidental. The Nalcor CEO, seeing hundreds of millions of dollars melting like a June snow, in Goose Bay, the Muskrat Falls project near broke, and with Astaldi ordering plane tickets to Milan, Martin would have painted a stark image for the Premier. It would have contained plane loads of workers returning to the Island, hundreds of pissed-off contractors, some of them Liberal donors, a government on the hook for hundreds of millions, a Federal Loan Guarantee in jeopardy; then there’s Nova Scotia…

Martin would have laid it on thick. The Premier is no match for him!

That is why the script that the Minister of Natural Resources blurted out on Tuesday, was so disjointed. Siobhan Coady, in the rush, forgot (or didn’t know any better), that Ball’s decision ought to have been linked to the $1.6 million EY Interim Report.

Coady could only remember the threat to contractors, and our commitment of cheap power to Nova Scotia. 

It didn’t matter. By then, Ed Martin had the assurance of the $1.3 billion, anyway.

Now, for Part II.

Likely, the reader is not aware how Budgets are created. Indeed, why would they be familiar with such an obscure process, especially how specific decisions get made? 

You will recall, however, the Finance Minister’s reference to Cabinet’s involvement; “line by line”.

Bennett was confirming Cabinet’s singular involvement. Historically, proposals for Budget expenditure reductions go to Cabinet for approval. In contrast, revenue generation measures do not.

That is because those decisions may have a bearing on companies listed on the stock exchange, and for reasons relating to “leaks” and confidentially. 

Hence, revenue decisions are made almost exclusively between the Finance Minister and the Premier.

Notwithstanding any “line-by-line” diligence they might have contributed, the Cabinet gave little to the Minister in terms of expenditure cuts. The facts are easily summarized:

      -          The current account deficit, again, is unsustainable at $1.8 billion.

      -          450 positions outside, and 200 positions within the “core” public service, have been 
              eliminated – not people – but positions, some currently unfilled; a rounding error in 
              relation to the public service “bloat”, which has been created since 2007.

      -          The Capital or infrastructure Account, is $570 million even though the historical   
              average, prior to 2007 and oil fever, is around $300 million. So, infrastructure, is still 
              double the historical norm.

       -          Heath and Education which, combined, represents 70% of spending on operations, 
               was virtually untouched; the few cuts minor relative to the size of the budget for those 
               services.

       -          The “Sunshine List” comprising all the people living off the public teat, earning 
               $100,000 to $800,000 annually, the ones with political clout, who work in and meet in 
               the same circles as those of influence, are untouched; there are no wage reductions, 
               virtually no job losses.

The overpaid and the bloat remain.

Do those decisions not seem peculiar to you, in a time of fiscal crisis?

There is only one conclusion; one that seems to exist whether due to, or in spite of, its newness: this Government is in a state of chaos! 

Even as the Province’s bankers threaten to turn off the money supply, the Premier was unable to achieve consensus over virtually any expenditure reductions!

The Cabinet, uncooperative, is signifying the Premier carries far less weight than their commitment to his election promises.

Ball is a ditherer. Cabinet Ministers know he pales at any hint of disagreement.

But, there is a bigger elephant in the room; one  not nearly as expendable as the Premier. That’s the bond rating agencies.

They represent the lenders; the very people on whom borrowing for Muskrat Falls, and deficit financing, depends. The Premier understands that much.

This dilemma takes us to Part III of the saga unfolding inside the new Government.

The Premier, having capitulated and agreed to pay the $1.3 billion “ransom” to Nalcor, and finding himself with a Cabinet unwilling to take the political “heat” for Tory malfeasance, is left to consider his options.

There aren’t many. In fact, there is only one: sock it to the taxpayers.

And that is exactly what the Premier did: a gas tax increase of 16.5 cents per litre, a “temporary” deficit reduction levy (aka the Muskrat Falls Tax), 2% increase in the HST, and a veritable register of hundreds of additional taxes and levies; all adding up to $860 million.

But, the Premier and his Finance Minister had a problem. $860 million was not enough for the lending agencies, when an equivalent sum, plus another half billion, had gone to Nalcor.

Ball had to offer the lenders more. 

His solution was simply to buy time to get Cabinet on side; offer the Lenders a “supplemental” Budget later this year, when cuts could be made without Nalcor in the room. Promise them something, next year, too. Make it a problem for, yet, another day.

As a result, what the Finance Minister delivered, yesterday, was harsh. Very harsh. Rather than tackling the fiscal crisis, Bennett has only made it worse:

The financial impact of all those taxes has been equated with an annual cost of $3,000 for an “average” family; for some, the cost will be even higher.

What the public has to digest is that this financial “hit” is just a beginning. It is not the end. It is not even the beginning of the end.

Before it is too late, the public needs to ask: how much more can we take. Will I have to pay another $3,000 in taxes this Fall? On top of all those additional taxes, how deep will public services be cut? Those questions might now get asked. 

Yet, Ed Martin, having gotten another $1.3 billion, will state with even greater authority, next year, 'there can be no going back, the province has too much into Muskrat'.

So, the public is stuck between a rock and a hard place; first, by a Government held to ransom, by an incompetent and out-of-control Crown Corporation; second, by a dithering Premier, and a Government out of touch with realty. 

They cannot even count on an elected Opposition to represent them, the Tories having created the problem, and the NDP too small and ineffectual. 

The public can take this fiscal assault and do nothing, in which case they will have signed on for more.

Or, they can draw a line in the sand by taking one single large step:

The public needs to tell the Premier to fire his Finance Minister and to craft a new Budget.

Else, we will all be broke. 


41 comments:

  1. What would be the first step in forcing a revised budget that would correct some of the issues you have highlighted Mr. Sullivan?

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  2. Do we have the social infrastructure to rally people Iceland style?

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    1. Not yet...but maybe enough to start something. It's about time people had a real choice on the ballot!

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  3. Wasnt this finance minister the former nalcor chair? Even wrote the telegram in praise of muskrat and scorning doubters. Objective governance is not possible with a conflict of interest this irreconcilable, but nothing is reported on it?

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  4. At a time of economic crisis where are our leaders, business and otherwise, and patriots that put the interests of NL first? Williams, Martin, Dunderdale, Marshall and their acolytes (Kennedy, Kent, Skinner, Lane, et al.) recklessly gambled away the future of NL. They were derelict in their duty. It's a colossal betrayal. These people need to be held to account and the people of NL should demand an explanation...perhaps a public enquiry.

    The financial tsunami that's upon us requires action now. We need leadership. Please make your voices heard now.

    Keith

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  5. The only thing left to do is march to the Nalcor building and demand the resignation of Premier Ed Martin.

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  6. Good analysis as usual Uncle Gnarley. I have been saying for years that people wont start caring until things really start hitting them in the pocketbook. This budget wont get most people there yet, but they are certainly starting to pay attention now that the pain is real.

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  7. Muskrat Falls and the inability of the government to stand up to the Nalcor mafia is sending NL over the fiscal cliff.

    Is not the real issue tackling Nalcor with an opening of the books and engineering studies? Don't forget that this may become a "stranded asset" if the spur melts away after 15 billion has been wasted.

    Who will confront the Nalcor dons? NL future rests on the answer.

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  8. Most people want to be entertained, as 7 comments out of about 800 hits to this site since this morning, suggests it is too much trouble to write a comment. This site should be burning with overload of comments.Pity.

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  9. That is a very good idea. I for one would participate gladly.

    john d pippy

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    1. I was referring to idea of marching on the Nalco HQ and demanding Ed Martin's resignation. speaking of demands, is it possible that the bond market could put a stop to MF? Perhaps someone with knowledge of capital markets and these types of projects can comment.

      john d pippy

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  10. `Hey hey, ho ho, Ed Martin has to go` This is what I suggested a march around the Nalcor building should chant. I mentioned this to my wife this morning, and she smiled. Of course it is no good unless there is a big turnout. And the leaders of the march: Cabot Martin, Des Sullivan and some other naysayers, who have fumed with the Muskrat Madness, and few would give then credit deserved for their warnings. Dave Vardy should be there too.

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  11. A fantastic appraisal.

    What upsets me, what ANGERS me more than anything else, is Bennett's role in all of this. Her past with Nalcor, her (very public) stance on Muskrat, and her own (rather comfortable) financial situation. She's the last one who should be gouging cash from our wallets.

    What more should I expect from someone who charges .50 cents for a packet of mayo.

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  12. Des, you are spot on when you assessed Ball as a ditherer. The lazy tax grab from the middle class & seniors was bad enough, but I expected an immediate wage freeze & some sensible re-organization & downsizing at the top admin levels. Not a one. It frustrates me to no end that despite imposing crushing taxes, they increase spending. Then there is the clearly illustrated incompetence & mismanagement at Nalcor. Yet again, our dithering premier does nothing but spin that he has "K"onfidence in the great Ed. We are truly screwed.

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    1. I wonder what happens if Nalcor loses its court challenge over the water management rights. How do they fix that? Would not it be more logical to put MF on hold until they are sure they have enough water to operate the dam? Their policy seems to be spend, spend, spend, all borrowed money, relying only on a hope & a prayer that they will win against Hydro Que. Sheer lunacy.

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  13. A bunch of greedy incompetents lining all their pockets with the small change of seniors and the working poor. It I disgraceful. Tell me where the march is and I'll be there.

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  14. Ball said on TV that the well off class are paying 88 percent of the taxes received, `so don`t say we are not paying our share`. By using the word we, he acknowledges that he is one of the well off class, so that he is paying his share.
    I, too, consider my self well off, but consider the proportion of tax from this budget hits the middle class and poor much harder. So Ball does not speak for me. Tax me more( my tax rate is likely less than many with lower income, because I have dividend income and write offs for interest expenses) and tax the less fortunate less. I would prefer no one paid higher taxes, but the situation demands it, through stupidity and mismanagement.

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    1. That same justification was used by Dunderdale when challenged. Imagine Ball using Dunderdale as an inspiration. Shows just how weak he really is.

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  15. I'm still sure over half of our rate paying population still do not comprehend what it will mean to their power bill once MFs is commissioned. If people think cutting back and putting on a sweater will be a solution they're sadly mistaken. That will only lead to paying more for even less. And as people go abroad, the remaining will unfortunately have to pick up the slack, in dollars of course. I guess we can soon look forward to reduction in property assessments. But then I'm sure municipalities will hike the mil rates to keep their cut. A sad state for sure. Nalcor has a large lawn that could serve as the social infrastructure to personally tell Ed NLers did not sign on for this project or him and his mismanagement skills.

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    1. With the advanced in alternate energy and generally going off grid, going off grid may become more common. Technology is improving constantly. In new home von dt ruin, assuming there will be dome, investments in beer insulation and installation along with energy storage might be popular. Retrofitting will be difficult but the problem with this is that there will be a tipping point reached where the taxpayer will have to pick up the tab over the ratepayer. Sigh...
      PS...does anybody really think on 2041 when NL gets access to 65% of the Churchill Falls output it will be worth as much as sone tank? As it is a constructed plant it will be of value but technology advances in the next 25 years may yield it moot....

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    2. With the advances in alternate energy and generally going off grid, going off grid may become more common. Technology is improving constantly. In new home construction, assuming there will be some, investments in better insulation and installation along with energy storage might be popular. Retrofitting will be difficult but the problem with this off grid move is that there will be a tipping point reached where the taxpayer will have to pick up the tab over the ratepayer. Sigh...
      PS...does anybody really think in 2041 when NL gets access to 65% of the Churchill Falls output it will be worth as much as some think? As it is a constructed plant it will be of value but technology advances in the next 25 years may yield it moot....

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  16. The question was posed how do we force the budget to be reconsidered? I would suggest that we the people need to take our own decisive actions. It is one thing to post online but we need to be protesting and trying to send our message the Premier. I for one vote for a coup. I did not elect Mr. Ball.

    I am mostly "ok" with the tax and fee increases, they were generally expected. The debt deficit levy is what kills me. I believe if they had introduced Income Tax increases over a period of three years there would not have been as much backlash.

    The government would not have made as much back as quickly as they need it, but it would have been an easier pill to swallow.

    Just some of my thoughts.

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  18. This situation reminds me of the conditions prior to the French Revolution. The Political and Corporate Elites here draft the policies which impoverish us and enrich them. What a Travesty and a Farce. And the Cowardly Liberals have now scattered to the four Winds with Duct tape over their lying mouths.

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  19. What actions can voters legally take to have a bearing on actions taken by this government? This blog's readers must have many suggestions.

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  20. I think the liberals have evoked a great strategy. Tax people to the point where they will break. Do this in the absence of any real cuts. Then when they start to remove 1 Billion in spending (which they have to do) the public will be behind them. Dwight is in a terrible position, he has to cut spending, and raise taxes. We have to start living within our means.

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    1. 43% of gov. revenue comes from Income Tax while 10% comes from corporate tax. Does anyone see anything wrong with this picture. Dwight's position is not nearly as bad as a person who has a gross income of $20,000, travelling to a minimum wage job and hit with just this gas tax! Now let's start talking about all other fee hikes and taxes....Think it's poor Dwight now!

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  21. Iceland went through a financial crisis a few years ago causing suffering. Then, just recently there was disclosure of secret bank accounts in Panama.The President of Iceland had a secret account there. Within days the marches on government there forced him to resign. It was the size of the march: 6 percent of the population. CNN reported that such a demonstration in the United States would be 20 million people! For Nfld to react in portion would see 32,000 at the doors (on the lawn, in the streets) of the Nalcor building, or at Confederation building.

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  22. Isn't it a pity that there is a lack of competent business journalism in this province. Real, solid investigative type. I would like to see someone 'follow the money' on the Muskrat project; the Labrador partnerships, the sizeable contracts, the kickbacks. Is Sunny Corner still doing a big job in Labrador, and is Cathy Bennet still tangled up with that company? There will be many multi millionaires come about from this project - many having to do nothing but sign a piece of paper.
    Corny capitalism, Chinese style.

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    1. Don't forget nepotism. ..I gather there is lots of that across the contractors embedded in the ptoject, generally on person companies.

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  23. Little prayer: Dear God, why did Ray Guy pass so soon. Can you send a replacement, even someone close would help, in this hour of need. We can do with some humour with this bitter medicine.

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    1. At least there are people like Mr. Sullivan picking up the mantel for NL. His knowledge of MF is obviously immense. He is articulate and while it is a complicated issue, he manages somehow to make it understandable. Another Ray Guy in our midst I think!

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  24. O'Connell was ahead of schedule and had full plans for the entire project before being replaced by an underbidding Astaldi. Within a year we were 6 months behind.

    Dreadful!

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  25. …and all of this comes as a surprise…Because?

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  26. This was a cowardly budget by any definition. The Finance Minister and the Premier decided that they would make life unbearable for most people in this province by raising taxes and fees and not dealing with expenditures that have clearly gone out of control. What were these town halls and pre-budget consultations about? A pile of BS. This budget was about passing over to the "world class experts" at Nalcor $1.3 billion so they can fritter it away. This is not acceptable. If this is the best you can do, resign Mr. Ball! Resign Ms. Bennett!

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  27. Des,
    How do you propose stoppage of MF take place, this is the looming question.

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  28. If we had to tighten the belt and suffer financially for a few years on account of the Muskrat Falls project, with the understanding that once that power was on line we would have lower energy bills and steady energy costs thereafter, it would not be so bad. But after phase one with a 3000 dollar hit per family, and likely phase 2 and phase 3 to follow, and then after that, a 80 percent jump in electricity rates from 10.6 cents to 19.8 cents as the reward.... well is it so bad for Nfld to declare bankrupsy right now. Seems we are headed for a Depression type era anyway. And didn't we all know from day one of high electricity rates due to Muskrat Falls. That is nothing new. Anywhere else in the world that project would have been shot down immediately.As a society, do we not deserve this this.
    Sure, it is said we are fighting Nflders, and we rant and we roar like true Nflders, but mostly we are whiners. It took the corruption of Squires in 1932 to rant and roar. But we were on a path to being bankrupt for years before, and then followed a decade of the dole.Are people just starting to pay attention when it hits them in the pocket book. Seems that way.

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  29. One word for the budget:

    Ineptocracy (in-ep-toc'-Ra-cy) - a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

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    1. Seems you have nailed Nfld society

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  30. I'm surprised the government didn't introduce a junk food (Fat) tax. Could help save millions in health care.

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    1. With the Finance Minister owning McDonald's outlets!

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