Monday, 11 April 2016


On Thursday, April 14th the Finance Minister will deliver the Liberal prescription for a Province facing financial collapse. While there is fear over how deep the pain might be, a greater concern is that it will not hurt enough.

The Tories were incompetent, unwise, and reckless. The Liberals are faced with a monumental challenge. This week we will discover if they are capable of answering the call of leadership, or if they, too, will choose delay, as a remedy.

The Budget is late; it should have been unveiled by the third week of March; the very fact compounds the Government's growing reputation for dither. 

On the positive side, the Finance Minister told the CBC we have to fix a "culture of spending". That is probably the most important thing the Minister could have said

The "Wiseman Plan", of Premier Davis' former Finance Minister, embraced the unsupportable belief that oil prices were cyclical; that  the government could keep on spending; all they had to do was wait awhile, prices would rebound. The Tories ran deficits even when oil revenues were at their highest;  Wade Locke gave them a reassuring nod.

Well, the Bond Market has a different view, doesn't it? 

The hope, now, is that the Minister and her Cabinet colleagues have learned from that experience and that the folks in the Department of Finance have been instructed to burn the "Wiseman Plan" and to keep Wade Locke at a safe distance.

That said, it was not encouraging to hear the Minister say "every agency, department and corporation had to do a line-by-line spending review in front of Bennett and a committee of cabinet..." , as the CBC reported.

Perhaps, she was just trying to convey assurances the Cabinet is engaged in the process and working hard; except, the remark describes amateur hour. It depicts the Cabinet Minister as 'bean counter', when that is not what they are or how any Budget process should work. 

Cabinet Ministers are expected to give these matters  a perspective unelected bureaucrats cannot. Ministers should give guidance, establish policy, set targets, and re-set the Government's priorities; not an easy job in itself. This line-by-line stuff is what the people on the high end of the "Sunshine List" are paid to perform. 

And, to that point, one look at that "Sunshine List" confirms the evidence of excess the Finance Minister should really be worried about. It is affirmation bureaucracies have taken control, and elected government has relinquished oversight.

Entitled administrators, long on the low end of the Canadian wage scale, have been busy engaging in “catch up”. Infrastructure, be damned!

Bloat, after all, is when five people are performing the work of four. At $100,000 to $200,000 a pop, who couldn't see the deficit melt in an afternoon. Ministers could even forgo Gatorade making those decisions!

Perhaps, they ought to inquire, too: when was the last time someone said there were too many “front line” workers? 

It won’t be easy (or cheap) to deconstruct Crown corporations, agencies, or other institutions.

Nalcor, for example, was created out of the unwarranted assumption oil had only a northward trajectory. And, as one might expect, the most incompetent seem to enjoy the biggest bonuses.

Even Memorial University, long beggared by competing priorities and a poor economy, important as it is, will have to reshape itself, having far outgrown the province's capacity for fiscal support.

When one survey’s the growth, the bloat, the big budgets, and the big salaries, not to mention the inertia that accompanies self-satisfaction, you have to wonder if this Liberal Government has even a chance of success.

The “Sunshine List”, of course, is just an illustration of the larger problem. Bloat is everywhere. The story is in the numbers.

They include a net debt growing to an all-time high of $22.9 billion by March 31, 2021 or $43,603 per capita – almost double the previous high level of $22,980 at March 31, 2005; program expenses are up by 62% from 2005-2015, a $2.4 billion operating deficit against $8 billion of expenditures. All of this is set against a forecast decline in economic investment, in the province, from $11.7 billion in 2015 to $7.2 billion in 2018.

No one seems to be aware, or even care, this place is inhabited by only 527,000 people, of whom 236,200 are employed. 

The figures hide the disproportionate burden on this small and vulnerable society; even if its inhabitants can be blamed for living life in denial; always too trusting, passive and deferential. 

Which brings me to the other elephant in the room, Muskrat Falls.

I expect Muskrat Madness will be avoided in this Budget. 

The Finance Minister's unprecedented "pre-announcement" of a second Budget, later this year, may well have a connection to the timing of certain "Muskrat" events .

Nalcor CEO Ed Martin has said his review won’t be completed until the end of June.

Likely, this means submission of the E&Y Review is also deferred.

Premier Ball will be happy to kick that ‘can’ down the road; first, because it is unlikely the Government is ready to make those decisions having been busy on Budget matters. 

Second, Ball would be happy to de-link Budget cuts and tax increases from funding a mega project in complete disarray; though he should know that is a pipe-dream.

Third, and more importantly, the judgment by the Quebec Superior Court on Hydro Quebec’s claim, regarding the status of the Upper Churchill Renewal Contract, is also anticipated by the end of June. 

That is a critical decision for a variety of reasons; ostensibly, it is one of the “risks” to Muskrat, which E&Y will have to take into account.

The Case has major implications for the Water Management Agreement (WMA), without which the power capacity of Muskrat will not be available on demand. 

The WMA provides for the creation of a "bank” through which energy can be "deposited" when it is not needed by NL Hydro and "drawn down" when Muskrat alone can't meet demand; it links the Upper and Lower Churchill projects, which is why Hydro Quebec refused to sign on. 

A loss in the Quebec Court will be a devastating blow layered on top of a costly mess.

Any decision of substance, especially in relation to whether the project should proceed, ought to be made with the Court's Decision in hand. 

That is not to suggest Muskrat should be funded in the meantime; incompetence, cost overruns, and the lack of an all-important schedule, justify a full and honest disclosure of the E&Y Review, and possibly shut-down of the project, now. 

Muskrat ought never to have been sanctioned in the absence of judicial confirmation of the status of the WMA. That very fact is as compelling, today, as it was before the project started.   

If Muskrat is the cause of the proposed second or “supplemental” Budget, the public had better not tune out this Government, this summer! 

How should the public judge the Minister's job on Thursday?

One metric is to assess the public’s pain threshold. Usually, it is low.

But I can’t take too seriously a government that, on the one hand, talks about the need for a 30% cut in expenditures, and on the other, insists on full-time kindergarten; possibly the most expensive daycare imaginable. How is it, this is a priority now that we are broke?

Finally, if the public concludes the Budget was relatively painless, rest assured the government has ‘kicked the can’ down a very short road.