Monday, 10 April 2017


The Jerry Earles of the world seem to be applauding their good fortune that the Ball Administration wimped out on the task of resolving our fiscal mess. Such prescience aligns completely with the agenda of the Tories and NDP. It remains a real and present danger to the province's ability to manage ourselves as a society. 

There are three fundamental problems with Cathy Bennett's second Budget. 

The first is that she has failed to tackle what she has described as a "culture of spending" which took root under the Tories.

Second, the Minister has aligned herself with the Great and Exalted Ditherer, the Premier, having used an all too tenuous increase in the price of oil to paper over a serious deficit and fast rising public debt. 

Third, having sidestepped any plan to rectify public sector mismanagement and bloat, the Minister reinforces a public view that the fiscal crisis is really not a problem - that the Tories were bad, but not all that bad. That is a dangerous proposition when the truth is otherwise.

The great irony of it all is that the Ball government has used the Atlantic Accord – the most hard won victory this province has achieved since Confederation - to cower under their most elemental responsibility, which is to safeguard the integrity of the public treasury.

Most irksome is that another culture - one of deceit - continues to spread throughout the processes of government making it difficult for the public to distinguish between what is a fabrication and what is real. The Jerry Earles see no problem as long as their interests are served.

Seven examples help confirm this deceptive culture.:

1. As noted, the ability of the government to operate hinges strictly on the price of oil. Anyone who keeps track of the machinations of the oil industry - from OPEC's attempts to curb production, to the vast ramp up in the number of drill rigs which threaten to bring on additional supply, along with the success with which shale producers have lowered production costs and increased productivity - should see that oil is no longer a commodity on which a poorly diversified economy can depend for long term prosperity. The ability to forecast prices is now measured in weeks. Yet, Bennett has structured around an inherently unstable oil market the prospect of budget balance five years from now - without a plan to trim expenditures in the meantime should the bet she has placed turn out to be silly.

Only those comfortable with falsity - or who are in denial - have the temerity to engage in such a deceitful enterprise.

2. In the 2016-17 Budget, the Minister forecast a current deficit of $1.83B which was revised to $1.1 billion. But only $81 million of the reduction is due to lower expenses. Again using the cover of forecast oil prices - not any plan it has executed - the government projects a deficit of $778 million for 2017-18. She barely mentions the Capital Account which is funded 100% by borrowing - reflecting rising total debt levels.

3.  The total public sector debt has increased during the past year from $14.5B to $17.5B   The government has announced its intention to spend $3 billion for capital purposes (infrastructure) over the next five years - $573 million this year.

Far too many operating expenditures are dumped into the Capital Account. Government uses no depreciation schedule for physical assets. The bonds raised for this purpose - as in the past - are certain never to be re-paid. They are rolled over and over. The bond market does not distinguish the source of the debt anyway. 

And by the way, one of the great difficulties with public accounting methods is that total debt is by no means "total". 

In NL's case you still have to add over $4 billion - the shortfall in various pensions plans. The practice serves the government's purpose well. But failing to note the figure is to suggest it doesn't exist.  

The Jerry Earles of the world would never warn their membership of the perils facing those pension plans if the government's gamble with oil is wrong. 

In case you doubt that the Total Public Sector Debt is actually $21.5B - and going far higher as continued planned borrowing including for Muskrat Falls persists -  you might want to read the caveat (highlighted in yellow below) found on page A-3 of the Budget Estimates. 

4. The government claims success on the deficit, but the budget forecast confirms it has no intention of reining in spending  - notwithstanding the bloat throughout the government. The Exhibit below needs no additional comment.

The Minister of Finance released the Exhibit below with the Budget Summary. She commits to reducing spending by only $283M but, based upon government's performance to date, even that relatively small sum - against an $8.4B budgeted expenditure - likely won't get done. Next year is one closer to an election and the next one has no room for the truth. What does it matter if everyone is party to the denial!

5. One of the government's claims is that it has reduced borrowing this fiscal year by $2 billion. It doesn't tell the public that that this occurred chiefly because borrowing for the Dept. of Natural Resources has dropped from nearly $1.1B last year to $485M for this fiscal year in relation to Muskrat Falls - borrowing which has nothing to do with normal government expenditures.

The deception is manifest in two other ways. First, the government fails to write-down the capital cost of the Muskrat Falls project even though it claims to be pursuing "rate mitigation" - proof that the revenue from the project can't sustain its capital cost - making it worth far less the Nalcor's books record.. 

Second, the government doesn't acknowledge that the interest costs on those borrowings show up each and every year under the "Costs of Servicing the Public Debt". It doesn't go away. Yet, the government soft- pedals Nalcor's complicity and Stan Marshall's flat-footedness, as the Jerry Earles of the world maintain the fiction, on their behalf, that the continued piling on of these costs is sustainable.     

6. The government made no effort to rein in the cost of healthcare, offering neither discussion of a new model of delivery or a strategy to rid the system of waste and inefficiency. It seems crazy that we would allow a poorly-run public administration to trump fiscal sanity, to endanger vital programs, and even to threaten the payment of public sector pensions. But that is the choice that has been made. 

The Minister talks about altering the "culture of spending"  - but she has not a clue where to begin.

7. The government has committed itself to future "electricity rate management" to soften the impact on ratepayers for the catastrophe that is Muskrat Falls. The public is not permitted a single shred of information as to what public assets it will sell, whether it will borrow for the purpose, or if it will be forced to reduce public services - rob from Peter to pay Paul.  That is one part of a larger problem.

Another, is that the disclosures on this Blog regarding "phony" cost estimates for the project

A former Nalcor engineer has reported a record of systematic "low-balling" of both the estimates and the budget figures, ostensibly to pave the way for easy sanction - in the beginning - and later, to keep the truth of egregious cost overruns from becoming an issue in the 2015 general election. 

A government concerned about the integrity of the political system would have sent a full team of forensic accountants to assess Nalcor's complicity and to expose the crown corporation..

In summary, a feckless Liberal government has placed all its trust on the oil market, adopting not a prudent program of fiscal management but a reliance on providence - even in the face of declining forecast GDP, declining employment and population, and a demographic trend that would rattle far wealthier places. 

The Jerry Earles may be feeling pretty smug. But they do their membership - and the province - a great disservice by applauding the government's inability to lead.  

The deficit/debt problem has not gone away.

It's just that the Jerry Earles have figured out what OPEC can't seem to.