Guest Post Written by JM
Rightsizing Expenditures – Where the Real Work Is
Needed (Installment II of Part V)
In the first
part of “Rightsizing Expenditures”, I presented the first five ideas to reduce the
annual provincial budget by 10%. This is
a continuation of that post; the ideas discussed taken together, constitute an attempt to
identify measures to achieve this recommended target. As a spoiler alert I should inform you,
despite all the austerity measures proposed, I was unable to achieve the 10%
target. Nevertheless, here are my
additional views on the subject:
6. Transportation and
Communications
The annual “Estimates”, produced with each budget document, contains
an informative exhibit which describes “Where the Money Goes”. The following is the excerpt from the 2015 Budget.
During the current fiscal year, the
province proposes to spend $324 million on transportation and
communications. As shown in the graph
below, this value has increase by about 120% in real dollars since 1995.
One can’t review the budget allocation
for “Transportation and Communications” without having a much larger discussion
about services to rural Newfoundland. Those
costs need to be reduced, allowing an historical reference point to guide
future expenditures.
One controversial topic is the cost
of providing coastal boat services. I
suggest that, within the next five years, we must cut all coastal boat services
to any area having a population of less than 500. Taxpayers can no longer support communities where
the cost of a single service is completely disproportionate to its economic
contribution. We pay $80M annually on coastal services for less than 15,000
people. That is $5,000 per person per
year! As the rural population declines the per capita number will just
increase. As politically unpalatable as all governments regard the subject, I
suggest we need a discussion now, to properly plan for specific community relocations.
A similar discussion can be had
regarding road and bridge upkeep. The
province’s infrastructure is in very poor condition. Like the coastal boats, this infrastructure
cannot be maintained in the smaller areas for a diminishing population,
regardless of what politicians say.
Notwithstanding the need for a 10%
cut across all government expenditures, transportation and
communications cannot be neglected. I
would target a reduction of $30 million from current annual expenditures.
6.
Health
Like transportation, there can be no
discussion about downsizing government in the absence of a real debate on the
future of health care. I suggest the
discussion needs to be focused on three key points. They are:
(i)
finding efficiencies in system delivery
(ii)
public– private components of the system - we need to deliver more services with the
use of private companies.
(iii) rural services
Given our aging population, it is
not reasonable to decrease the total health budget (other than through the
reduction of staff as mentioned in item 1 in the previous post). The province should hold the line on current expenditures
as it seeks ways of providing more efficient services.
The health care
field contains many places where efficiencies can be found and abuses
eliminated. We need to begin identifying
the most egregious and start correcting them.
But real change should begin at the top and not just with administrators.
Physicians should not be the oligarchs
of Newfoundland society. They are public servants, too.
7. Pensions
Although
the province has recently made some much needed change to the public service pension plan government’s claims to long term
sustainability seems suspect, considering how minor the changes. Additional data should be released to
substantiate the claims, especially the assertion of an 84% probability the
plan will be self-funded in 30 years.
I suggest the government needs to
implement the following changes immediately:
1)
New employees should have a
defined contribution plan rather than a defined benefit.
2)
The minimum retirement age
should be 65 or 35 years of service.
3)
There should be no double
dipping on pensions permitted.
4) Pensions should not be based on
the best 5 or 7 years earnings of an employee.
The
pension should be indexed exactly to the average annual salary over
the full duration of the employee’s period of employment.
Anyone in the
private sector who has directed that their financial advisor determine their
annual RRSP contribution, to ensure 70% of their best 7 work years, indexed, and
with medical benefits, will truly understand how difficult it is to retire at age
60.
Conclusions
Each of the eight ideas for cutting 10% from the annual budget could justify a lengthy and
detailed post. So, these comments
constitute a mere beginning. Hopefully, readers will weigh in with their own
views. However, one thing is certain: as
I studied the estimates in order to address the question “where would I cut?” I
quickly concluded it is impossible to arrive at real cuts, unless a fundamental
shift in the way services are delivered to the rural areas of the province is
contemplated.
In addition, whether
it is the College of North Atlantic which operates 17 separate campuses, or the
unrealistic demands for a plethora of health care services, in areas with small
populations, we can’t have a real discussion on reducing the budget without
addressing the two other major issues.
The first of
those is the aging demographic, which is a crisis unfolding in front of our
eyes - in both the rural and urban centers.
The second is the reality that the small outport way of life can’t be
resuscitated, in spite of the amount of government money devoted to the attempt.
My personal
story reflects that reality.
The town in
which I spent my formative years has a population of about 250 people; the average
age is 65. I will never live permanently
in that community again. This is a
choice made irrespective of economic opportunity or job prospects. Like many of my generation, I simply do not
want to live in a town of 250 people. In 20 years,
this small town will be reduced to 200 people; the average age will be 75.
The inevitability
is that unforced resettlement will continue to occur.
High oil prices
have enabled a decade of inaction by government on the problems represented by demography.
I suggest that convenience is at an end. The economic realities represented by
50$ oil, declining production, and limited federal transfers, will impose on
us the necessity to make tough decisions, and they will need to be made within
the next 5 years. The catalyst will
simply be financial disparity. The
first of the baby boomer cohort will start reaching age 70 in 2016; the cost of
sustaining small rural towns will be exacerbated, even if the province’s financial
situation improves.
The impending
provincial election campaign is a time when those issues, and the ideas to deal
with them, should be discussed in earnest; though that is not likely. Our politicians seem inured to fiscal reality. Whether it is the promise of student grants,
the refusal to reign in the size of the public service, except through
attrition, or the willingness to ignore the possibility tax hikes may be required, they are content merely to keep borrowing.
With a total NL public
debt nearing $12 billion (Muskrat Falls included) we are nearing a very
uncomfortable place for a population of 0.5 million. Puerto Rico, the Caribbean archipelago that
is an American territory, has just defaulted on its public sector debt. It has reached $72 billion. Puerto Rico’s population
is 3.5 million; seven times our own. The math is as compelling as it is
disturbing. We should think about that.
Finally, in the
future posts, I will conclude this Budget Colloquy by presenting an alternative
10 year fiscal plan.
______________________________________________________
Editor's Note:
"JM" is a researcher and writer. He is a frequent contributor to Uncle Gnarley Blog offering analysis of the Muskrat Falls project and on other issues, including the fiscal position of the Province.
JM's essays include: IN NALCOR WE TRUST, Delusion and Deception (Part III), and The Snow Job (Part I). The very latest Posts, on the 2015-16 provincial Budget, include IT'S THE SPENDING STUPID and The Budget Colloquy (Part 1): Put Him In The Round Boat Til He's Sober, The Budget Colloquy (Part 2) Revenue Projections: Close Your Eyes, Make a Wish, Hope for the Best and The Budget Colloquy (Part 3) Whistling Past the Graveyard No More and The budget Colloquy (Part-5) Getting Back to Basics, and Rightsizing Eexpenditures, part one of the above post.
Having chosen to retain his anonymity, JM is prepared let his articles be judged on the research and argument each contains.
