Thursday, 29 August 2019


Editor's Note: What follows is the text of my remarks to  St. John's  Rotary today titled "Optimism is Not a Plan: Addressing NL's Fiscal Crisis". I am truly grateful for this opportunity. - Des Sullivan

Ladies and Gentlemen:
Firstly, I want to thank Rotary for inviting me. Let me also acknowledge your work supporting an array of projects and commend you for offering an essential platform from which to air important public policy issues.

Having been an intervener at the Muskrat Falls Inquiry with Ron Penney and your fellow Rotarian, David Vardy for the past year, Muskrat might have been an obvious subject for my remarks today. However, a desperately larger issue looms over us…the Province’s debt and deficit which, of course, is inseparable from the Muskrat Falls Project anyway. 

The "direct" debt is nearly $14.0 billion. The $12.7 billion borrowed for Muskrat is assessed by the Budget Estimates as "self-financing" – a euphemism used to disguise reality – when the requirement for “rate mitigation” implicitly gives some of this debt the status of “sunk" cost. Add the public sector pension deficit and the Province's recent dalliance with P3s, essentially an off-balance sheet form of financing and those debts easily put the Total Direct Debt in excess of $20 billion. Who is surprised by Moody's downgrade?

I have titled today's remarks: “Optimism is not a Plan: Addressing NL's Fiscal Crisis”, and with good reason. In June, the House of Assembly passed the seventh deficit Budget in a row that substantially exceeds a billion dollars, if you include the Capital Account. This year, the Current Account deficit alone, on a cash basis, is roughly a billion dollars.

The numbers reflect a growing, predictably insurmountable, financial problem for our economy and society. Given mostly good intentions from successive majority governments, the new minority government era offers even less hope for budgetary fixes.

Optimism alone doesn't work well on fiscal discipline any more than it does on weather or the price of oil. Optimism is not a plan. It should, however, inspire confidence in a plan, if it is sensibly created - but we need both; confidence and a plan.

Outside of government, the typical response of businesspeople is that offshore oil will resolve our budgetary woes.  There are some bright spots to be sure such as Bay du Nord.  But the realist will tell policy advisors that at 300 million barrels recoverable, it is a marginal project raising the probability that it will not get sanctioned at current low oil prices.  Besides, even '2025 first-oil' means an additional 7-9 years before any appreciable royalties from that project enter the Treasury. 

Oil Projects are a 20-year development in this province.  Any new success with the wells now being drilling will not account for royalties for decades.

Make no mistake we cannot continue at near $1 billion operating deficits. Oil is not a magic pill. Neither will Alberta provide the lift that we can't.

That said, the Minister of Finance clings to the claim of Budget balance in 2022-23. It should count for something that Moody’s thinks the goal "highly ambitious" - their euphemism for "never going to happen". 

This is not a new discussion. But, as citizens, shouldn't we wonder when action will replace well-intentioned chatter? 

Admittedly, it is not as easy as it sounds, especially when there is no more room to tax; and cuts are certain to cause disruption to programs and services. But if governments won't act when the whole society is transparently imperilled, whose influence on them will prevail?
It is tough to expect ordinary people preoccupied with balancing household accounts to get their minds around the implications of a $20 billion direct debt. But I believe that they will have to. Why? Because no one else will.

You might ask: Where have the traditional players disappeared? Why are our institutions so incredibly mute, including the University which will have its own crisis to manage? Where is the voice of business and the professions - many of which have profited from a decade of private sector investments and excessive public sector spending? Why are they so quiet when the perils are so large?

Intellectually, most of us know that neither inflation nor demographics are on our side. The younger members of our society are more mobile than ever.  The great outmigration of the 90’s ensures that current Newfoundlanders have extensive networks in the rest of North America.  They will not stay here to face an increasing tax bill, an uncertain future, or a poorer standard of living.  A new wave of out-migration threatens.

Many people await a "quick-fix" to our decade of fiscal irresponsibility that does not exist. Hence, the question: What will we do when doing nothing is not an option?  Who will provide the leadership?

Let me offer this perspective.

 During my years on "the Hill" in the 70s and 80s, business could be heard saying that government could do nothing right, boasting that they could do things better, faster and cheaper.

But, by the early 2000s government incompetence evidently had resolved into management prowess and efficiency. Where once they couldn't get credit for building a good mile of road, government was suddenly thought capable of building multi-billion dollar megaprojects.
Was this change bolstered by new competencies? I don’t think so. The only noticeable change was the requirement that we all believe. "I believe in NL" ran the refrain of the PR campaign headed by the Board of Trade's leading lights.  Was this anything but a default to populism to goose a business case for Muskrat that was completely fictitious? It is hard to arrive at a different conclusion.

The MF Inquiry has displayed for all to see that reasoned, fact-based decisions normally forthcoming from the public service have been replaced by the strong armed tactics of the Premier’s office. But the excessive concentration of executive power is not our only problem. Changes have occurred in the structure of our economy which are not a positive influence on public policy either.   

Worrisome is that so few people in our society are willing to ‘speak truth to power’. It is a fact that aligns with the “franchised” business era which has long been gripping economic change. This change not just diminishes local power and the number of local people with 'skin in the game', the real owners of the capital are national or global and they could care less about local social, economic and political structures.  Evidence is found in the fact that 95% of those who control the goods coming into the province are mainland companies; less than 5% are controlled in NL. This is not a commentary on globalization as much as it is a statement about the need for the people and institutions within vulnerable societies to adjust. Consider this reality:

The "franchised" economy is not just manifest at the Avalon Mall, Stavanger Drive or on Kelsey, nor just in how banks or oil companies are managed. It is found equally in how law Firms, Accounting, Engineering and Architectural Firms operate. Even our labour Unions have become franchises.
Within this structure, no one doubts where the capital or the power and decision-making reside.  Like the power within governments, power has shifted to centralised executive offices. Business, the professions, unions, and others can pretend they still have clout, but in fact their power has been cashed in and is now under the control of some else's joystick. In a society historically deferential to authority, the implications for public policy should be obvious.

Let me be clearer.

Will the CEO of Costco discuss possible spending restraints with the Minister of Finance? Will the nearest Exxon or Husky V-P or those who run Walmart, Burger King or Loblaws think it their civic duty to lecture the Premier on the merits of fiscal discipline? Will the lawyers, engineers and accountants whose major ownership operates from some distant backyard feel similarly obligated? In an economy heavily dominated by public spending, will outside ownership even allow the locals to bite the hand that feeds them? Those questions expose one dimension of NL’s problem.

There are others, one exposing the fact that our concerns over public policy shouldn't be limited to the deficit or Muskrat. Consider how easily the province capitulated to the Federal Government's pursuit of Bill C-69, weakening in the process the core principle of Joint Offshore Management and one of the province's tools of fiscal repair.

Why do we still feel emboldened to defer to a Federal political agenda - one that lets every self-appointed environmental critic from here to B.C. have a say over the development of an industry that is fundamental to our economic survival?   Make no mistake Bill C-69 will only add more time to the 20 years it currently takes to develop an offshore project. Does the Trans Mountain Pipeline increase your confidence that federal involvement in oil will be the short-term answer to our fiscal woes?

The point to be made is that political weakness permeates far too many spheres of this vulnerable society and as much as some think that business and the local elites control public policy, I suggest that that ship sailed long ago.

Political leadership is a problematic issue. Equally, when traditional power structures don't have the power to rebuke the politicians when they shirk their role, it means that preserving our society and economy falls to us as individuals.  As individuals - not as businesses, unions or some other commercial entity - we are the ones who must make our society work because no one else will.

Mike Tyson was once heard to opine: "everyone has a plan until you punch them in the mouth".  The metaphor may seem crude, but it is worth asking: is our Mike Tyson Moody's or DBRS or a Bond Market freeze? Is a knock-out punch a pre-condition to addressing fiscal drunkenness before we are girded into action?

What of solutions?

A good place to begin might be to start thinking of politicians less as deliverers of every district's share of the fiscal pie than as legislators having a public policy role. When we dampen political parties' ardour for unbridled spending because their tool kit contains the easy choice of seemingly limitless borrowing, rather than the requirement of making policy choices, we will have made a good beginning. Our challenge may be that we have to figure out a way to tie their hands forcing them to make those choices.

Secondly, if the Government is serious about Budget balance in 2022-23, they won't mind showing us each year's target until it is achieved. As citizens, we have the capacity to distinguish between fact and fantasy. We should see the Plan for ourselves and have time to assess it.
Thirdly, our vital interests as a province are inseparable from control of our resources - something that has become confused with the high-risk development role that now excites power-brokering bureaucrats and politicians. We easily forget how tough it was to win the Atlantic Accord. We need a return to those issues. Watching silently as hard won powers are diminished is self-destructive and it must stop.

Fourth, let's put an end to public policies that give rise to monolithic Nalcor-type entities, their unfettered power and access to the public purse beyond anything, I suggest, the Legislature ever contemplated. Given the damage done by Muskrat, the idea that slitting off the oil and gas side, rather than selling it at an opportunistic time, seems terribly unwise. As politically sexy as those decisions seem, politicians forget the financial risks they pose.

Bay du Nord, for example, offers miniscule local benefits but there is much ado about having taken a high-risk equity stake in the project. No differently than Muskrat, those investments do not represent government's core competencies and may be in conflict with what we expect to get from our resources. I believe that they only represent further proof that Government has lost its way.

Fifth, in stating that our fiscal problems require a thoughtful, planned and disciplined existential response, I am aware that individuals can't reform health care, the ferry system, or excesses in public administration. That's the job of governments, their bureaucrats and consultants. But everyone understands excess, including laypeople, and can help define the outer limits of both spending and borrowing. If ordinary people, overnight, can force Parks Canada to remove an unwanted fence on Signal Hill, using social media platforms and direct messages to their MPs, the same can be used to give spine to the Finance Minister and the Premier, too.

What else can we do as individuals? We can and should support Government's best efforts when they are sincere. When they are not, we should demand better.

Finally, if Government won’t lay out its plan or believes that it cannot garner public support for the one they want to bring forward, I suggest that we all get behind an idea first proposed by one of our finest citizens, Edsel Bonnell.

Worried about our fiscal condition, he wrote the Telegram in June, 2016 proposing, as first step, that the “Legislature...establish a Task Force which would focus solely on our fiscal and economic challenges…” He proposed as Step 2 that the House be “called together for a special session” and involve all members and with no other business on the agenda except fiscal issues and the economy.” He suggested that unanimity might be achieved without party discipline or caucus strategies, and that such an apolitical (and “historic”) event could create the mandate for the Task Force which would be "responsible to the House as a whole”.

In steps 3 and 4 he laid out other ideas suggesting that the Task Force comprise our best and brightest citizens in various disciplines, that it fundamentally involve the people and organizations of the province. Ultimately, it would create a long-term strategic plan to deal with the debt to which everyone could buy in.

In 2016, I didn’t think that Edsel’s plan was workable. I have since come to the view that, realistically, it is the only other viable option because it is a process that will involve legislators and individual citizens on a non-partisan basis. It is time, therefore, to revisit Edsel’s initiative.

Am I optimistic about our chances of success? I am. Right here at Rotary I see people of action, volunteers offering themselves in the cause of public service - the Rotary Sunshine Camp, Pottle Centre, Geraldine Rubia Centre, Elaine Dobbin Centre for autism, are just a few examples. The Province needs people like you, prepared to volunteer their time, to give the best of your talents in the pursuit of good public policy, too. Right now, we need people with the ability to leave aside partisanship, people with  the desire to find ways to address our fiscal and economic plight.

As Newfoundlanders and Labradorians we know challenge; we have faced plenty and I believe we can do it again, knowing that we have to do things differently. It’s the belief that each and every one of us will leave no stone unturned in this endeavour that sustains my optimism.

Thank You.