The Uncle Gnarley Blog has a new website. Click here to visit www.unclegnarley.ca to view the latest posts!

Monday 8 March 2021

THE "MYTH" OF DEFICIT (It's "reality" PERT can't face)

Hark! The People’s Economic Recovery Team (PERT) have spoken. This is the self-styled group of academics, labour organizations and non-profits who present themselves as an “alternative” to Moya Greene’s economic recovery committee. Based on news reports, they are supported not just by the Federation of Labour, but also by the doyen of moonlighting consultants, the Memorial University of Newfoundland Faculty Association (MUNFA).

PERT does their group — and the Province — a disservice, having delivered what amounts to a "tract" on taxation that doesn't even reflect the details contained in the Budget Estimates. PERT states: "The premier has noted that (the deficit is) about $800 million; others have put it at about $1 billion." This is their idea of research? Furey might have said that the deficit is $300 million, had it helped win the election. Presumably PERT would have agreed. 

The correct figure is $1.84 billion. A group ostensibly engaged in research can't even open up the "Budget Estimates". 

Premier Andrew Furey must rue the day that he asked Moya Greene to examine the Province’s dreadful financial condition. The Finance Minister embraced PERT when she ought to have delivered them a stern lecture. Eager for fiscal change at the start, the Premier, too, is sounding more like his guileless predecessor.

In the PERT world as in Furey’s, what counts is mutual self-interest. Short-term will do — for now.

For a group whose day job is, ostensibly, preoccupied with empirical methods — proofs — the Minister of Finance might have proposed “peer review” of PERT’s analysis; instead the group throws out tax and revenue forecasts lacking either the sophistication or the rigor of BINGO. 

How much additional revenue can be generated by PERT's proposed “wealth” tax, “luxury” tax, "carbon tax", enhanced “capital gains” tax, increased "fines", and higher HST? Amongst the verbiage we are assured of $800 million. The latter even captures low incomers. 

I don't think that a $15 minimum wage is going to be nearly enough.

Angela Carter (PERT) Photo Credit: CBC

What PERT wants to obscure is the truth; this instalment of an NDP rant will do nothing to facilitate a sober analysis of our fiscal crisis. Yet the problem is of a magnitude where not a grab bag of fees, fines and taxes of undetermined merit will suffice, but 20% across-the-board increases in taxes, combined with a decrease of thousands of public sector workers may have to be considered. This is serious biz! 

When “wartime” focus on the problem is warranted, the labour and academic communities are playing tax and spend games with fewer taxpayers than are held in the HMS Pen!

Minimally, I would have expected MUNFA to consult one of their own — Dr. Wade Locke — who might have thought the exercise blessed relief from the influence of Nalcor’s censors. It is unlikely, however, that even he would have shared PERT’s characterization of the spending problem as a “myth”.

It is bad enough, too, that the group is co-led by a political scientist when a far more plausible fit is someone in the theatre arts. Indeed, I might have found relief had the serious academics obtained peer review from the leader of the NDP, who is an economist, has plenty of time on her hands, and enjoys bombast too.

It is hard to take such tripe seriously, as you can see. 

Related:

PERT Revenue Options Paper

On The Trail of the Real Provincial Debt

The remainder of this item is more serious and is presented for the benefit of PERT, Premier Furey, Siobhan Coady, Dame Moya Greene and the members of her Committee. It offers a grim view of reality: one that depicts the extent to which a sense of “responsibility” is manifestly absent from all our institutions: academic, business and labour. It was prepared by a person of enormous qualification. He suggested that many pieces — including my own — are missing the nub of the fiscal problem. Perhaps, he is right.

I offer one caution though: if your preference is to stay drunk on the vapours emitted from the Budget addresses of successive Finance Ministers — and increasingly from Premier Furey, and now from PERT — the efficacy of this vaccine has not been tested nor has the research been peer-reviewed. However, on the balance of probabilities, it is bound to cause a reaction.

This is one illustration of the sheer magnitude of what abolishing GNL’s $1,840 million annual deficit would involve:

2019/2020 GNL Own-source Revenues totalled $5,793 million, but GNL ‘controllable’ Own-source Revenues were $4,836 million

(after excluding $957 million of oil royalties because oil production rates and existing oil royalty regimes are beyond GNL control)

Using GNL ‘controllable’ Own-source Revenues:

 Step 1

Apply and collect:

20% increase in "personal income tax"

AND 20% increase in "corporate income tax"

 AND 20% increase in "HST and other taxes"

 AND 20% increase in "all other revenues from charges, fees, etc."

Which, in total, yields $967 million [$4,836 million x 0.2], leaving $873 million [$1,840 million - $967 million] more to be cut.

Step 2 

@ $70,000 per public employee (50,000 public servants costing $3.5 billion), terminate the employment of 12,4701 (i.e. 25%) public servants, and annually save $873 million [$70,000 x 12,470],

leaving $0 (a balanced budget).

Reduced to a tweet-sized 140 characters:

Eliminating NL's $1.84 billion deficit requires 20% increase to all NL sales tax, income tax and other charges AND all NL public servants to decrease their costs by 25%. 

The analysis is sobering. It is but a single illustration. Others might have performed some combination of wage rollbacks with smaller reductions in employment along with larger tax increases than even 20%. It is easier, however, to be cynical and propose a "yacht tax" or one on "leased BMWs". But it doesn't solve the problem. We have simply let the deficit get totally out of hand.  

It is why the PERT response is little more than a distraction, contributing to the prevailing view that "hope" and "PM Justin Trudeau" will relieve us of being responsible citizens. It is why the Premier’s increasingly glib handling of fiscal matters must stop.

Finally, I am compelled to bring to your attention that NONE of those figures, their tax and job implications, include any recognition of the cost of “rate mitigation” associated with the Muskrat Falls Project. Nor do they account for the possibility of long term depressed “oil royalties” or for the knock-on economic effects associated with any fiscal measures eventually taken. They do not account for the cost of $1.5 billion Public Private Partnerships (P3s) soon to be a line item on the Current Account.

Do you still think, as does PERT, that overspending by the Provincial Government is a “myth”?

_______________________________

1.     1.  At the top of page 28 of her REPORT TO THE HOUSE OF ASSEMBLY On the Audit of the Financial Statements of the Province of Newfoundland and Labrador For the Year Ended 31 March 2019, then Auditor General Julia Mullalley said: "48.0 per cent, or $3.5 billion, was spent on salaries and employee benefits"; hence the choice of $3.5 billion as the total amount its public servants cost GNL. 

A rough estimate of the size of the NL public service being 50,000 can be derived using Stats Canada Table: 36-10-0489-01 [49,490 = 6,740 (Provincial and territorial public administration) + 6,630 (universities) + 12,475 (educational other than universities) + 12,415 (hospitals) + 5,905 (nursing and residential care facilities) + 5,325 (others)].