Finance Minister Siobhan Coady delivered the 2022-23 Provincial Budget last week, enshrouded in the kind of rhetoric that suggests the Government is prudently managing our finances.
Let’s take a look at the 2022-23 Budget Estimates to see
if what she is selling is in line with the reality that the PERT Report described only one year ago.
PERT stated: “The Government of Newfoundland and
Labrador is facing an unsustainable fiscal situation that requires immediate
action. Spending is out of control and the Provincial Government is paying out
far more than its revenue allows…This untenable situation must be addressed.” The
Report also noted that “Cash deficits in the last five years have averaged $1.9
billion annually.” (P.10)
If, as Minister Coady suggests, she is close to Budget balance, how did Moya Greene get her stark analysis so wrong?
The 2022-23 Budget Estimates show revenue flat at $6.9
billion against current and capital expenditures of $8.1 billion on a cash
basis (against $8.3 billion last year) a modest decrease – but still enough
spending over revenue receipts to report a deficit, this year, of $1.25 billion
($1.4 billion last year).
“Current Account” expenditures are $7.84 billion ($7.49 billion last year), up $300 million, while “Capital Expenditures” are down from $796M to $284M; the reduction of just over $500M due, in part, to a reduction by $250 million in the capital requirement for Muskrat Falls. (In truth, the Capital Account expenditure is misleading anyway, due to GNL’s portfolio of Public Private Partnerships (P3s) where the capital expenditures are provided by private sector builders, but let’s not complicate the narrative too much).
The net result, nevertheless, is a decrease in the combined public expenditures of no more than $200 million.
Based on GNL’s accrual accounting methodology, it forecasts
a deficit of $351 million in the 2022-23 fiscal year. The real deficit, however – the amount for which GNL will ask the Legislature to approve borrowing, is
$1.249 billion. (See Current and Capital Accounts - Statement I of the
Estimates below.)
The Minister can delude herself, and the public, too,
if she pleases, but her claim of a $351 million deficit does not stand up to scrutiny. Public accounting methodology is one thing but it should not be used to obscure the fiscal situation facing the province.
GNL will need to raise a little over $3 billion in the bond market this year; maturing debt and sinking fund requirements of nearly $1.8 billion must be paid, in addition to the $1.25 billion deficit.
These are the facts of the Estimates…unless the
Estimates are wrong.
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| Finance Minister Siobhan Coady (Photo Credit: CBC) |
The Province has been more lucky than many people realize. Revenues have held up especially well considering the confused state of the current global market; supply chain disruptions, the Ukraine war, related risks, and inflation offer serious financial threats, especially for places poorly governed, like ours.
On a local level, too, the Come By Chance refinery
remains closed, the West White Rose project is still dormant, the Terra Nova
FPSO is in drydock and Hibernia has been less productive due to the COVID-19
pandemic. Though offshore oil royalties
are down by $200 million, a plethora of tax revenues, the sales tax and mining
royalties in particular, have replaced this loss. The figures suggest a likely ceiling
has been established for what can be squeezed out of the economy right now.
Those risks expose enormous uncertainty in NL’s revenue stream. The
Minister projects deficit reduction out to 2026-27 and an $82 million surplus
in the final year; she may as well have doubled the figure given the paucity of evidence offered for how the surplus will occur.
The Minister pretends that her deficit reduction
targets, which are in excess of those proposed in the PERT Report, are
achievable, though the Budget lacks all of the cost cutting measures that the Team proposed.
Besides, in misrepresenting the “real” deficit,
the Minister ignores the reality that interest on the new borrowing will rob
another $40-50 million next year and every year thereafter, which ought to be directed
to pay for public services. The Budget already reports a debt expense of $1 billion.
There are other problems.
The total Public Sector Debt is recorded in the Estimates
as $28.1 billion (see Appendix III to Budget Estimates below). Moya Greene’s PERT Report detailed the “Real Debt” and
stated: “In total, the province’s liabilities plus other obligations and
exposures stands at $44.5 billion as of March 31, 2020. Add borrowings to
cover the 2020-21 shortfall of $2.8 billion brings the number to $47.3
billion.” The PERT Team studiously accounted for and were rightly alarmed by
the massive debt burden. The 2021-22 and 2022-23 Budget deficits enlarge the figures.
The Minister’s delusion, therefore, is not just
over a deficit of $1.249 billion which she reports as $351 million; she either
doesn’t understand, or deliberately misrepresents, the state of the public debt,
too.
On a lesser level, the Minister ought to explain the
salary figure for staff in Executive Council, which is rising from $50 million to $90 million. In contrast, an approximate net 5% increase is shown
for all other groups.
In addition, Consolidated Fund Services
is carrying $47 million for severance, etc. vs only $0.5 million last year.
Is there a big layoff program coming about which no one was told?
The Government’s misrepresentations extend to the Muskrat Falls project – big surprise – the Minister claiming that they have “fixed” it financially “through the rate mitigation plan and the $5.2 billion partnership with the federal government.”
This assertion is delusional, too.
GNL has been promised by the GoC a revenue stream arriving over a period of 38 years from the Hibernia Dividend Backed Annuity Agreement, the future value of which the Feds have estimated at $2.5 billion. On a present value basis, some economists estimate its value as $1.3 billion. Quibble with the math if you please, but the balance of the $5.2 billion package includes the immediate deferral of up to $844 million; the other $2 billion represents loan guarantees. The NL public is on the hook and must repay every cent of those loans.
The Government is selling this as a “fix” for rate mitigation?
Better that the Minister told the public the truth of the pain that awaits them.
Overall, GNL exhibits no capacity to reduce expenditures
and hides behind public sector accounting rules to feign progress.
When the province ought to be implementing a
necessary reductions in health costs, GNL is in perennial crisis over basic
staffing. The report of Sister Elizabeth and Dr. Pat Parfrey – like the PERT
Report and the Report of the Muskrat Falls Inquiry – is DOA.
Of course, the most obvious point should also be noted: if the Minister of Finance can’t balance the books when the economy is running fairly well inspite of known challenges, how will our gigantic debt ever be dented as a more typical economic circumstance is felt?
On what basis
should workers feel secure or investors think their money safe if the
Government’s behavior brings us annually closer to a fiscal precipice?
In short, this third Budget of the Furey
Administration continues to build on our “House of Cards”.
The Government will always have an excuse for why
it won’t face reality. Denial works best. Like calling a deficit of $1.249
billion only $351 million.
Two questions: if the deficit is $351 million, why
do we have to borrow $1,249 billion?
If the PERT Report was so incompetently prepared, why
wasn’t Moya Greene and her Team called out and the work re-assigned?
Unless, it was just a case of Greene not telling politicians
what they wanted to hear.
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