During the Budget Update in October 2016, the CBC quoted the Minister of Finance saying that "the seriousness of the fiscal situation remains and needs to be addressed". Bennett added that the government is still projecting a surplus for 2022-23.
The target assumes the eradication of a $1.58 billion deficit — just on the current account.
The province is forecast to borrow $2.9 billion in the 2016-17 fiscal year alone.
The figure may go higher when the $800 million settlement with Astaldi is accounted for.
Debt charges and other financial expenses are just under $1.0 billion this year and climbing fast — a matter to which I will return. Nalcor’s champagne taste is not a separate issue, as many pretend. Nor is the Capital Account.
Debt servicing and related expenditures — including deferred pension contributions — constitute the second largest expenditure of the government, following health care. That is serious biz.
Last fall the Minister substituted the government’s promise of a “mini-budget” with blather. She should have invoked the challenge for which the Jewish religious leader Hillel is credited: “If not us, who? If not now, when?”
But such an invocation is the stuff of real leadership — requiring both spine and a plan. The Ball Liberals have shown neither. The best they can muster is a PR document called “The Way Forward”. Stripped to its essence, it exposes a government with not a clue as to where they should begin.
Even Dr. Wade Locke, Nalcor acolyte and long-time apostle of solving budget deficits with hope — especially the hope of high oil prices — described “The Way Forward” as backward. Locke told the Society of Professional Chartered Accountants on February 23, 2017:
The Minister of Finance took a pass on tough decisions in the first year of the government’s mandate. Back then the pubic's short memory — the perfect political escape hatch — could be counted on. But in this, the second year, with no fewer than four 'familiar' fiscal freight trains bearing down — the deficit, Muskrat, health care, demography, and one 'new' one in the form of shrimp and crab depletion — the Minister’s steadfast flat-footedness is an assurance of an ignominious legacy.
Bennett cannot claim that she is a Cassandra ignored by the Premier, the caucus, and the public. They didn’t disbelieve her warnings. She didn’t offer any. The Minister only gave the assurance that the problems are manageable.
Bennett is beholden to a weak Premier, one who told a reporter recently: "I wish we had had better information going into the election campaign last year" — what amounts to a head-butt to literacy. Someone should have told Ball that budgets, by law, are published. It seems that, as leader of the Opposition, he had not read one.
As the government dithers, galloping debt service costs replace a program or service or ‘something’ that the public needs.
If the burden of a doubling of electricity rates are reduced, taxpayers will have to give up another ‘something’.
How many ‘somethings’ are people willing to forgo?
The public can’t have it both ways.
The banks are not people, they are institutions. They neither cry nor listen. The bondholders want to get paid.
If the government fails to make a serious dent in its expenditures in the forthcoming budget, we will head into the next election with a fiscal crisis far larger than the mess the Tories left behind.
The government’s plan for budget balance signals the start of year two, and six more fiscal years to deal with a $1.56 billion shortfall. On an equal basis, that’s an annual expenditure reduction of $260 million — assuming no decline occurs in revenues.
The problem is, even if those reductions are achieved — which is unlikely — they won't keep pace with the rise in the cost of debt services and deferred pension contributions. This concern is represented by the record of the past three years:
Fiscal Year Debt Service and Deferred Pension Contributions
2014-15 $476.5 million
2015-16 $721.1 million
2016-17 $998.9 million
In short, between 2014-15 to 2015-16 debt-related expenses increased by $244.6 million, and from last year to the current year by another $277.8 million. The forecast for fiscal year 2017-18 will be larger again as the debt climbs.
In this context it seems silly to discuss the "Current Account" deficit without dealing with borrowing for the "Capital Account" and for Muskrat Falls. The Capital Account is laden with items that are essentially administrative and others that justify a relatively brief period of depreciation. Yet the debt for long disused assets is rolled over and over.
In addition, how can we even talk about budget balance when the government acknowledges that the electricity rates required to service Muskrat debt are unsustainable? The implication is that a write-down of that project is necessary even before it is commissioned. Yet everyone — including the Auditor General — carries on a huge pretense over what constitutes "Net" vs. "Gross" Debt, as if the difference between the two is self-financing.
In case you're only mostly bored, let's take a quick look at the overall debt picture.
The projected “Net Debt” to the end of the 2016-17 fiscal year is $14.6 billion — which does not account for the debt of Nalcor. The “Total Debt”, which includes the debt carried by Crown Corporations (chiefly Nalcor), can be closely approximated at $18.57 billion at the end of the 2016-17 fiscal year.
How is government going to deal with all that debt? How can it be given a human face that the mere figure of $18.57 billion does not?
I don't have that answer. I do know that the Government, the Tories, the NDP, and the public sector unions are not telling the truth.
How much cost cutting is necessary this year? I suggest that, as a short-term objective, we should work back to the 2015-16 Debt Service cost level of $721 million AND insist on meeting current account balance within the period the Government proposes. An expenditure cut of between $350-400 million is necessary — just in this fiscal year.
It's seems nutty — but don't forget who the nuts really are.
Speaking of which, Muskrat threatens to undermine ANY plan of fiscal sanity we might attempt. An independent review of the project is essential, especially given that multiple engineers associated with the project now claim the cost is heading for $15 billion.
Certainly, the job of cutting government spending is going to have to be taken on by the public — because Ball and Bennett won’t do it.
We can lament the human cost of cuts, and indeed we should. But when the government won’t act, the only alternative is for us to push them. If the cuts aren’t deep enough, the public will have to demand more.
If we think this idea is a tall order, we could remind ourselves of the fine words of the Jewish Rabbi: “If not us, who? If not now, when?”