The
Government put out its rate mitigation plan last April prior to the provincial
election.
It
also asked the Public Utilities Board to examine rate mitigation and hearings
are presently underway.
Unfortunately
both efforts are being promised and undertaken in isolation, ignoring the real
elephant in the room, our dire financial situation.
Both
our own Auditor General and the Parliamentary Budget Officer of Canada have
painted a bleak picture of our long term fiscal situation for many years but
those concerns have been ignored and our government continues to budget for
significant deficits for the foreseeable future. While their projections point
to a surplus in a few years time it is a moving target and it is highly
unlikely that, based on the current trends of revenues and expenditures, it
will ever be realized.
While
I recognize that it is very difficult to reduce expenditures and programs that
will have to be done as we cannot continue to add to our long term debt year
after year.
The
fact is that we have the highest per capital revenues of any province in Canada
but we also have the highest per capita expenditures, expenditures which are in
excess of our revenues year after year, continually adding to our long term
debt. We are living beyond our means.
This
interest on this increasing debt will have to be paid for, reducing the amount
of revenue available to fund government
services.
In
addition we face a number of additional challenges which will have adverse
impacts on our fiscal situation. Our population is both getting older and
smaller in numbers. Our aging population is imposing accelerating health care
costs and our declining and older population is reducing our tax base.
While
hope of new oil fields fuels some optimism, it must be remembered that new oil
fields are in deep water, at a great
distance from shore, will be costly to develop with reduced local benefits and
face pressure to reduce our royalties. And we need to understand and accept
that world wide public pressure to reduce dependence on fossil fuels will have
an adverse impact on the exploitation of our oil and gas fields as it does for
the other oil producing provinces in Canada.
If
we continue along this road we are eventually likely to have further reductions
in our credit rating. We have seen the first hint of this with the decision of
Moody’s to downgrade our credit rating, citing continuing deficits and Muskrat
Falls as the reason. Our bonds are still “investment grade” but we are going
down a path to our bonds becoming “junk bonds”, with the resulting impacts on
interest rates and even our ability to borrow at all.
Which
brings me to rate mitigation and our fiscal challenge. The only sure rate
mitigation tool is the fuel savings from the reduction in use of Holyrood,
which the government estimates is worth $178 million a year. All of the rest is
speculative at best.
The
PUB rate mitigation hearings are useful to the extent that they allow some of
the other rate mitigation
proposals to be challenged.
I
would like to focus on one of the rate mitigation proposals, which is the
proposal to divert so-called “dividends” to rate mitigation. Those dividends do
not materialize out of thin air. They have to come from our electricity bills
which we have to pay upfront, and will be reflected in our electricity bills by
adding them to the targeted rate of 13.5 cents per kilowatt hour. So they will
come out of one of pockets and put back in the other. It’s a shell game.
The
other factor is that those rates will be escalating by 2.25% a year. (Once
ratepayers understand that, the race to put in heat pumps will a accelerate ,
reducing demand and causing further rate increases.)
But
those “dividends” were already committed to paying off the $3.7 billion dollars
we borrowed for equity in the project. Who’s going to pay for that? The answer
is that we are, adding another hundred million dollars a year to our debt
servicing costs. And where do we get that? We will have to go out and borrow
that as well, if we can.
Our
debt servicing costs are more than we pay for education. They will soon to
catch up to health care if we keep going down this road, assuming we can still
find someone foolish enough to continue to lend us the money.
We
have two choices. Either we handle it ourselves or the federal government will
have to step in and do it for us.
The
essential first step is to educate ourselves.
We
don’t as a society recognize the dire straits we are in. As an example, even
what should be the most sophisticated government funded institutions, such as
my alma mater, Memorial, are advocating new costly initiatives such as a Law
School.
Which
leads to a proposal, which I suggested in a recent radio interview on CBC, and
that is the creation of a panel of our best and brightest to examine our fiscal
situation and the impact of Muskrat Falls on that situation and to recommend
solutions.
Secondly
a select committee of our House of Assembly should be formed to receive the
report and hold public hearings throughout the province. We need to recognize
that this is a non-partisan issue.
I
for one don’t want to have a faceless federal bureaucrat having to approve
every expenditure we want to make. Do you?
Ron Penney
