Premier Ball’s March 20, 2020 letter to PM Justin Trudeau seeking help following his Administration’s failure “to finalize our borrowing program, both short and long term”, might have reminded the PM of the Dickens character Oliver Twist, and his plea to Mr. Bumble: “Please, sir, I want some more.” Luckily for Ball, he wasn’t handy enough to Trudeau to be given a knock with the soup spoon, Oliver Twist’s reward for ingratitude; surely only distance could have spared him.
During his five years as Premier, Ball has never shown an inclination to “self-help”. That is not to suggest that the Province did not need the assistance of the Government of Canada to meet the public sector payroll. However, the economic fallout of the pandemic and an oil industry labouring under obliterated demand, has only compounded a pre-existing overspending problem; it did not originate there.
For that reason, the Premier’s letter to the PM ought to have had an attachment — a Plan — dealing with the crisis that successive provincial governments, including his, have created.
As it stands, the Bank of Canada is the backstop for Newfoundland and Labrador’s unfettered borrowing requirements. Otherwise, the Premier looks to federal “stabilization transfers” to replace the shortfall that the new Budget — whenever it arrives — will contain. The Feds are unlikely to be so generous. Hence, the only option is borrowing, once again, on a “Muskrat Falls” scale — for as long as it will be tolerated.
The Finance Minister decries the current Equalization Program, but he knows that no revamp is in the cards. He also understands that any enhanced transfer program, whether “fiscal stabilization”, or a rose by any other name, is unlikely to fully replace recent provincial revenue losses. And, note, “rate mitigation” has not been invoked!
What has the Premier proposed in response to our economic and fiscal crisis, apart from making the plea of a less deserving, modern-day, Oliver Twist? The answer is Paul Mills.
Mr. Mills has been elevated to the position of “post-pandemic Czar” by the Premier. VOCM News reported that he is expected to get “the local economy back up and humming into what will be the ‘new normal’.” Mr. Mills is a capable and experienced former Vice President of ACOA NL. But he is the wrong guy, brought in to perform the wrong job.
The province is broke. That it is surviving at all right now is due almost entirely to the new role given to the Bank of Canada, which is to keep the provinces afloat. But more borrowed money won’t allow Paul Mills to do much of anything, making his appointment just another distraction from a Premier who indulges in tiny, mostly partisan, and otherwise meaningless moves.
ACOA-style funding solutions for players in select industries may be important, but it obscures the fact that it is the whole NL economy that needs saving, not mere bits and pieces. At the heart of the issue is that our ability to borrow on top what we now owe does not confer on us a capacity to repay.
We don’t need too much reminding of the origins of the problem. The names of the failed Premiers and Finance Ministers, and their failed public policies, are well-known. They have been far too willing to submerge leadership to the in-bred misrepresentation afforeded by the “Net” debt which downplays the size of “Gross” debt, its pejorative usage still more accurate than the accounting lingo.
The imperative that “most” of the $9.4 billion Utility (mainly Muskrat Falls) debt must be written off is now a debate only between liars and deniers.
As for the so called “tax-supported debt” — now at approximately $20 billion — even the lenders of this sum (which includes over $4 billion in Promissory Notes to government sector-related pension funds) will likely require a “hair cut”. Even if taxpayers are feeling in a generous mood - which is unlikely - and are content to have some of their big sources of taxation (income tax or HST) more than double, the measure won't cure even the pre-pandemic fiscal shortfall, let alone the new one.
The Government has no qualms about borrowing a billion or two in any fiscal year, but neither the politicians nor the public ask: What would a reduction in services by a billion dollars look like? Alternatively, what would we have to do to raise one billion dollars under the limitations of our current fiscal means?
In last year’s Budget Estimates, the provincial portion of the HST was $1.1 billion, and roughly the equivalent amount was forecast from oil royalties. Personal income tax was expected to raise just under $1.5 billion.
The forecast, last year, put Budgeted Capital and Current Account expenditures of $8.01 billion against $6.23 billion revenue. That arithmetic puts us short by $1.8 billion annually, with no end in sight. If you think this figure is ugly, what is a post-pandemic Budget going to look like? And there is no easy money in a world awash in oil.
With all due respect to the able Mr. Mills, his services are not required. What is needed is someone of the stature and experience of a former Governor of the Bank of Canada, or otherwise a person who has led Treasury Board, Finance Department or Government restructuring — at a senior level — and who will be mandated to head a public sector program reset, has the “ear” of the Federal Government (who will be expected to maintain fiscal support to the province until the “reset” is completed), negotiate the cancellation of the “unsupportable” portion of the public debt, and, otherwise, lead the resolution towards a balanced Budget.
Any other approach is just “kicking the can down the road”, though the implementation of legislated, possibly constitutional, limitations on future borrowing and Total public sector debt may well be – and should be - part of the package. The insolvency experienced in the 1930s was possibly excusable; insolvency today, considering the wealth that good fortune has bestowed on us, is not.
It will be one heck of an adjustment for us to leave the La La Land that we have come to love for the world of Oliver Twist.
From Danny Williams to Dwight Ball, voters should have been far too kind to their soup spoons.
