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Monday 8 January 2018


No one will argue that it is the right of every citizen to express an opinion, as Mary Shortall did recently in a letter to the Editor of The Telegram. In it she made a series of claims regarding the fiscal capacity of the government and the financial impact of the Muskrat Falls project; “exaggerated doom and gloom,” she called the comments of naysayers. Her missive contained no factual basis whatsoever.

Presumably knowledgeable readers will conclude that such writers are ill-informed and poorly read. The case of Mary Shortall is bit different, however. She was not sharing her personal views: Shortall signed the letter in her elected capacity, as President of the Newfoundland & Labrador Federation of Labour.  
The Federation, like most labour Unions and professional associations, has for years sought a voice in the formulation of public policy. The President, no differently than her predecessors, is afforded space on the public airwaves and in other media to state labour’s position on a plethora of issues extending well beyond the collective bargaining space. 

NL Federation of Labour President, Mary Shortall
The practice speaks to the right of interest groups in a society to influence both public opinion and public policy. The Federation is a pedestal from which to impact social and economic directions — the purpose of policy. For that reason, the position implicitly carries a weight of responsibility unless, as Shortall’s diatribe suggests, the mission is one of recklessness.

The Federation and other groups are adept at criticizing government when policy changes are not to their liking or when it lacks an evidence-based foundation.  

Is there any reason that the Federation should not be held to the same standard?

Shortall writes: “Once again, we’re hearing the steady drumbeat of fiscal doom… It hasn’t been this loud since 2015 when global oil prices plummeted. Did the sky fall, as predicted? No. Will it fall, as being predicted again? No.”

The idea of an immediate economic implosion from the drop in the price of oil — or for any other reason — is Ms. Shortall’s own invention. She should be reminded that our fiscal nightmare did not begin in 2015 or even in 2014 when the collapse of oil actually had its most dramatic decline.  Budget 2016-17 represented the sixth deficit Budget in a row. Insolvency rarely happens overnight, and is more likely the result of a series of bad decisions or fiscal laxity, which describes the case in NL.

Shortall continued: “The deficit is not crippling. The government is forecasting a balanced budget by 2022, and gross domestic product (GDP) growth sooner. The debt-to-GDP ratio will soon be heading in the right direction, down.”

A failure to curb spending will negate the possibility of budget balance anytime soon, if ever. Then, too, debt is a many-headed monster. The cost of debt-servicing, for example, already exceeds spending on education. It neither stays in the province nor is applied to public services.

The Government worries — or ought to — that a reversal in oil prices (which are showing modest strength), or some unrelated global political event, will cause the Bond Market to tighten again. Fiscal ‘precipice’ is a constant. How is this not “crippling”?

The province’s GDP is in decline with only a very modest turnaround (lower than all other provinces) forecast for the foreseeable future. Debt levels are rising rapidly, due both to persistent deficits on Current Account and the Muskrat Falls project. How does this suggest that the “debt-to-GDP ratio” is headed in the right direction?

Shortall states: “Nor does Muskrat Falls cost overrun mean that the apocalypse is coming. It would result in electricity rates of $0.22 to $0.23 per kilowatt hour, an increase, but not the highest in North America. Rates are going up faster than inflation across Canada; Newfoundland and Labrador is not alone.”

Those comments contain all the wisdom of Kathy Dunderdale declaring that the multi-day power blackout in 2014, known as #darkNL, was “not a crisis”. The Government’s target of 17 cents per kWh — forgetting “rate mitigation” — will constitute a grave injury to most members of the public. It will rob people — including union members — of the basics of life. This is what Ontario Premier Wynne recently discovered, forcing her to offer a mitigation plan too… except Ontario can better afford to pay for it.

A cost of 17 cents per kWh will cause severe demand compression for electricity — forcing a further rise in rates. Reaching 22 to 23 cents per kWh would be calamitous. But as to such consequences, Shortall is dismissive. She refers to unnamed places in North America that are paying higher rates.  Shortall should tell us where, and how those people are faring.

The Federation President continues: “The government is considering electricity ‘rate mitigation,’ reducing rates by putting public dollars into Nalcor. Bringing rates down to $0.17, the target when Muskrat Falls was approved, would cost less than the revenues from the federally-required carbon tax.”

The truth is that we do not yet know the impact of the “carbon tax”. Likely it will be far less than the one associated with 17 cents per kWh power. Whatever the case, “rate mitigation” of half a billion dollars (rising annually due to the financial structure of the project and inflation) will gut social programs of all kinds and cause massive layoffs for public sector workers unless another solution is found. This is not a matter to take lightly, especially when a reduction in program spending must concomitantly be achieved.

The misinformation continues as Shortall asks rhetorically: “What about provincial spending? Is it really ‘out of control’? Sorry, but no.” She suggests: “What the province can afford is indicated by the size of the economy (GDP), not the size of the population. The province’s spending per GDP is second lowest in Atlantic Canada.”

Ms. Shortall fails to acknowledge that the provincial GDP includes the value of NL’s oil exports. Oil has a major distortive effect on GDP because the metric of oil’s value to economic growth is far different than that which applies to any other sector of the economy. (One former Finance official called use of the indicator “laughable”.)  Though the Parliamentary Budget Office uses the same metric — which makes sense in more balanced economies — it is smart enough to provide a numerical representation to the sum of the change in expenditure cuts and/or new revenues necessary to achieve fiscal sustainability. This is a direct quotation from the PBO’s November Report:

“Current fiscal policy in Newfoundland and Labrador is not sustainable over the long term. PBO estimates that permanent tax increases or spending reductions amounting to 6.5 per cent of provincial GDP ($2.0 billion in current dollars) would be required to achieve fiscal sustainability. This is equivalent to a permanent 26 per cent increase in the tax burden (including federal transfers) or a 21 per cent reduction in program spending.”

Shortall nevertheless uses the “debt-to-GDP” metric to draw this conclusion: “None of this fits with the narrative of ‘it’s-a-disaster-we-have-to-cut-cut-cut.’”

It should worry the Federation, and the public, that her facts — and her reasoning — are so demonstrably faulty.

Let’s be clear: Shortall is a poorly informed spokesperson holding an important position. But she does express certain sentiments about which all of us are of one mind. That is the concern over “job cuts” and the assertion that “poverty levels are rising”. Only a fool would be dismissive of this evolving tragedy.

Unfortunately, however, Shortall’s approach is to deny the enormity of the situation. She joins the Ball Government, who can also be euphemistically described as having their heads in the sand. Her narrative is only a tad different than that of the St. John’s Board of Trade. Problem is, it possesses the mindlessness of “La La Land”.

We might bear in mind that the NL Federation of Labour is one of the best-funded organizations in the province, and ought to have undertaken at least rudimentary research and analysis in advance of any public pronunciation.

In their own interest, and that of the public, the Federation might consider a public forum on the state of the province’s finances, possibly even inviting some more open-minded and less ideologically-bent policy wonks to offer analysis and to discuss solutions. The Federation could take the lead where, so far, the Ball Government and public institutions have miserably failed.

The Federation describes its raison d’etre as “advancing the cause of working people and promoting a progressive civil society”. It adds to that roster the goal of “better labour laws and strong, accessible public services”. The NL society with which I am familiar has a strong attachment to the values those aspirations inspire – even if there is disagreement as to how they should be advanced. I suggest, however, any argument that is less than rigorously fact-based only diminishes their import. It undermines our capacity to build the kind of society to which we all strive.