Monday, 17 May 2021

Self reliance or Commission of Government? The choice is ours.

Guest Post by Ron Penney 

I don’t really think we will have the second Commission of Government, it will likely be some faceless federal bureaucrat in the bowels of the Confederation Building managing our finances. We may retain the fiction of responsible government with none of the powers. 

The Greene Report has for the first time added up all our debt and busted this artificial construct of net debt, mandated by the arcane rules of the accounting profession. The amount is staggering: $39 billion, $12.6 billion added in the past 12 years. And when the unfounded pension liability and other exposures are added in, it goes up to $47.3 billion,  $215,000 for each household in the province. 

Cash deficits have averaged $1.9 billion over the past 7 years. 

Who’s to blame? 

As the report points out, big increases in the numbers of core public employees by 3000, increases in compensation in excess of inflation, the number of full-time employees in health care, 1,900,  all happened between the late 2000’s to 2012. That is the source of our problems. 

Who was the Premier during most of that period? Danny Williams. 

Who launched the Muskrat Falls project just before he retired from office? None other than Mr. Williams.

He’s got a lot to answer for. But so do we as we countenanced and rewarded such profligate ways. 

We are in a pickle but you would never know it from the commentary following the release of the report, particularly from our powerful public sector unions. 

And the recent announcement of the resumption of talks with the Newfoundland Medical Association quoted the President as saying they aren’t “tone deaf” to our fiscal predicament and then proved that they are, as they demand more compensation for their members and say that any savings must come from elsewhere. How are we going to wring out 25% out of the health care system without effecting the compensation for physicians, the most highly from the public purse. This will be the first test of government’s resolve. 

And on Saturday the President of Municipalities NL said don’t cut our operating grants. 

Dame Moya Greene, Chair - Premier's
Edonomic Recovery Team
It’s the same story, by all means cut expenditures as long as it doesn’t effect me and increase taxes but not mine. 

And, of course, just before the calling of the election the government entered into collective agreements which included 4% wage increases. This, just a few months after former Premier Ball begged the federal government to lend us money the private sector wouldn’t. So there isn’t much sign that the current administration will do much to control expenditures. 

The Auditor General has been warning us for years that our expenditures were unsustainable and telling us that we have the highest per capita revenues in the country but also the highest per capita expenditures. 

But until now neither the Auditor General nor anyone else has provided a road map for how to reduce our expenditures and to balance our budgets. 

For about half of my senior public service career, I was the City Manager with the City of St. John’s where we, along with every other municipality in the province, were required to balance our budget. And for 16 years I led the effort to meet that legal requirement and succeeded. Most years we had a surplus.

So it won’t surprise you to hear that I strongly support balanced budget legislation. 

The expenditure reduction recommendations are necessarily harsh and may require a longer time line to accomplish, assuming that there is political will and public support to do so, which there is no evidence of so far. 

Full disclosure: I receive a pension for my years of service with the province and I’m worried about it and so should the rest of you who are members of the public service pension plans. 

If we had kept our increase in expenditures to the Maritime level over the past few decades we would have a fund of $10 billion. But we didn’t. 

The underlying notion behind her recommendations is that we have to get our expenditures back to the Maritime average, which will require either wage rollbacks, layoffs or a combination of both; very tough measures which will effect the majority of households in the province, who are used to a certain level of income. And added to that will be the increased taxes we will all have to pay. Its not a pretty picture. 

I think the notion of creating a special fund was a good idea 15 years ago but it is mission impossible now. We will need every penny we have to maintain a bare minimum of public services. No future fund for us.  

And none of Dame Moya’s prescriptions account for rate mitigation. If there is none, we are facing a doubling of electricity rates at the same time as those draconian austerity measures and tax increases occur. Energy poverty will happen and many of us will have to chose between keeping warm or buying our groceries.  

It’s going to be a very tough place to live. And many of us will leave as a result, making the situation worse. 

I don’t give a lot of credence to the suggested approaches to economic recovery. The green economy sounds very much like the “energy warehouse” that led us to Muskrat Falls and to the poorhouse. Fortunately we don’t have the fiscal capacity to develop Gull Island either on our own or as a partner, so it is all academic. 

The fundamental issue for us is whether we will meet this challenge ourselves or will we let the federal government or the bond holders do it for us. 

In the nineteen thirties we decided to relinquish self government and allow the British Government to run our affairs. Will we do the same almost 90 years later? 

Everything I have heard so far gives me no confidence that we will choose self reliance. 

There seems to be an underlying assumption that the federal government won’t allow us to go bankrupt, which may be true. But who would have thought that a publicly funded university like  Laurentian would become insolvent resulting in the layoff of 100 professors. Once you can no longer borrow money things can get quickly out of hand. 

Look at the example of Puerto Rico, which had a similar decades long history of structural deficits in the order of $800 million a year. Eventually its debt rating declined to junk bond status and ultimately it couldn’t borrow at all. 

Congress enacted a law which put in an oversight board to control the commonwealths budget.

The City of Detroit went through a similar process. 

If the government of Canada takes responsibility for our debt, public opinion in the rest of Canada will require austerity. The question is whether an imposed austerity will be worse than one which we impose upon ourselves. 

The recent “state of the province” address by the Premier agreed with the Greene diagnosis but was skimpy about the details of implementing it. 

I regret to say that we will likely choose the option of having the Government of Canada take over, at the same time as they will have to honor their guarantee of the Muskrat Falls debt, which we also can’t afford to pay. 

I don’t see any evidence of us being collectively concerned about the potential loss of responsible government for a second time. 

So the faceless federal bureaucrat running our financial affairs is the most likely prospect for our future.