...on election promises, the budget, and the Big Blue Book
Tuesday afternoon, I did a phone interview with Finance Minister Jerome Kennedy. As part of an ongoing project, I’ve been running through the PC Party election platform — the Blue Book — to look at election promises and see what’s been done, what’s left to do, and what’s dubious.
Previously, I reported on the PC party’s promise to eliminate post-secondary student loans and replace them with up-front grants. In Wednesday’s paper, I reported on an interview I did with Kennedy about the whole shebang. You can read the story as it appears in the paper here but for you, the few, the ultra-elite Newfoundland politics nerds, I took the time to transcribe the entire interview.
I’ll leave it for other folks to parse the content here, and analyze it. But if you’re interested, give it a read for yourself.
McLEOD: (I actually don’t know what my first question is. I only hit the “record” button after I finished asking it. The tape starts with Kennedy speaking. But it was something about the government’s 2011 election commitment to set a ceiling on new spending as part of the budget process. Anyway, I’m not the important one here. Over to you, Minister Kennedy…)
KENNEDY: “What you’ll see is that the budget is a very fluid process, and we start the process, for example, in October or November. At that point, departments will develop a list of priorities and new spending initiatives. Over a period of months, then, new spending initiatives are looked at, we look at the costs that are going to increase simply as a result of ongoing government business and we then try to fit our new spending within that, what I’ll refer to as a ‘notional figure.’
“That notional figure, or that ceiling that you talk about, can be described two ways. It can be a percentage, as in 2012 where we know our new spending was approximately 2.2 per cent, and in 2013 it was 1.5 per cent. So you can do it by setting a figure and trying to maintain within that figure of your new spending in terms of percentage, or we can say that we have $100 million that we’re going to utilize for new spending and new programs, and as we work our way through a budget process, some of the new spending initiatives will go on, some will come off, and it’s a continuous juggling of initiatives so that at the end of the day, the figure that we set for new spending — whether it be a percentage or a dollar amount — is where we get to where we want to be.”
McLEOD: “But that promise, the way it’s worded, y’know, ‘establish a ceiling for new spending growth and make our choices accordingly,’ it makes it sound like a ceiling for new spending would come first, and then budgetary choices would flow from that and all choices would remain under the ceiling.”
KENNEDY: “But see, it’s difficult to do that because we don’t get our projections — our oil projections — from the CNLOPB until January. By January we’re a couple months into the budget process, so it depends on the amount of money that we have available. In terms of a ceiling, it’s simply a target or something we are looking at in terms of how we are going to approach the budget process.
“So it’s not meant to be a hard-and-fast figure whereby it’s one per cent and one per cent only, or it’s 1.5 per cent. It’s a figure that we come into saying, ‘We’re going to keep our new spending within two per cent, or for example, $100 million.’ At the end of it all, it could be 1.7 per cent, or it could be $125 million or $86 million. So it’s a figure that we use to guide the budget process internally so that we make sure that our new spending fits within our budgetary framework.”
McLEOD: “But just to be clear, in those two budget years, was a ceiling for new spending established before you started making your budget choices?”
KENNEDY: “See, I wasn’t here in either of those years. I was over in Natural Resources and in Health, so for the last two years, I don’t know how, exactly, they would do that. When we start the budget process this year, when we do our mid-year update, we’ll have an idea where we’re looking at in terms of the projected deficit for this year. We’ll look at the costs for our ongoing programs and services, departments will be reviewing their programs and services to ensure that programs are still relevant and that they’re ones that they want to continue funding, and so it’s a process that continues for a period of four or five months until, at the end of the day, at the end of the budget process, we say we set a target of new spending of $100 million, we’re at $110 million. Can we live with that? Or we’re at $90 million; do we want to add $10 million more of initiatives that we previously decided may not have the same priority?”
McLEOD: “It just seems like if you make an election promise to set a ceiling, then that would be something that would be stated and public. I mean, if it’s purely internal — the people don’t ever see the ceiling, all they see what’s established on budget day — how do we know if the election promise is being kept?”
KENNEDY: “In the sustainability plan, I think, we’ve outlined this year what our spending on new initiatives had been for the last couple of years. And at the end of the day, what the ceiling does, it simply says to the people of the province that we are going to ensure that new initiatives are monitored closely and that the new spending does not go too high, for lack of a better term.
“So we have a notional figure in our heads, we work our way through the budget process, but I can tell you that there’s no way, at the beginning of this budget year, that we’re going to say we’re going to spend — you know, whether it’s going to be one per cent or two per cent new spending. By the time January comes around, we will have a better idea what that figure is going to be and we work internally to meet that figure.
“I’m not aware who wrote this, who put this in the Blue Book, what exactly they meant. Essentially, what we’re saying is that each year we will try to keep our new spending within certain parameters and that we will then make our choices accordingly based on the priorities put forward by departments, especially in areas such as health care and education.”
McLEOD: “Now, the broader thing that got quite a bit of attention during the provincial election, was, there was a promise on the same page — ‘To be fiscally responsible in certain circumstances, we may need to rearrange priorities. We will make those decisions in consultation with Newfoundlanders and Labradorians in the pre-Budget process.’ — and that was sort of taken to mean that this is what we want to do, this is the blueprint, but we may not be able to do all of this if it would be fiscally irresponsible to do it all. If we can’t afford it, we won’t do it.”
KENNEDY: “I think that’s a theme throughout the Blue Book, yes.”
McLEOD: “So, I think it’s safe to say that people had a different perception of the province’s fiscal situation in the fall of 2011 and the water on the beans has changed a little bit. So, at this stage in the mandate, are you having to sort of revise expectations and revise what you’ll be able to implement in the next two years?”
KENNEDY: “Well, we’ve outlined our projections based on — our projected deficit and then returning to surplus — based on a certain price for a barrel of oil. That’s like looking into a crystal ball. You try to ensure that you have the most accurate information possible, but in a volatile market such as the commodities market, those numbers fluctuate. I think so far this year, we projected a figure of $105 based on methodology that we outlined in the sustainability plan. I think so far this year, we’re pretty close to that $105. So that’s one component of being able to determine or how to budget with any amount of certainty. The second is the issue of the production, which we’re working with the CNLOPB to make sure that we have the most accurate numbers possible prior to the budget — not like in other years, in June, where we would get more accurate numbers from the CNLOPB. With those two numbers, if they are as accurate as possible, then that allows us to determine our revenues, of course, that can allow us to budget with more certainty.
“Last year’s budget was an attempt to put a methodology in place to allow for as accurate a budgeting process as you could have, recognizing the volatility in the oil markets.”
McLEOD: “But I guess what I’m wondering is, when it comes to eliminating student loans and replacing them with a grants program, or province-wide broadband or the hospital in Corner Brook, some of these big-ticket promises, given the kinds of deficits that we’re projecting and cuts that we’re having to go through, and the fact that the fiscal situation in province right now is tight, are some of those things that have to be put on hold? Or delayed? Maybe won’t be completed within this mandate?”
KENNEDY: “I mean, you’ll have to talk to the various ministers responsible for the issues you’ve talked about. I mean, the Corner Brook hospital has been announced and the premier has indicated that we will be proceeding with that. In terms of the other issues you’ve talked about, you’ll either have to talk to the minister of Education or Advanced Education or the minister of (Innovation, Business and Rural Development.) What we will do is we take the amount of money we have, we look at our expenses and we determine how much money we have to spend. We determine our priorities based on what we hear from the people of the province and at the end of the day, we put the money into the programs and services that are most important to the people of the province. And during the pre-budget consultation last year, health and education seemed to be two of the continuing priorities for the people of our province.”
McLEOD: “But I guess it is a team approach. Those ministers — whether it’s Education or Health or Transportation and Works or IBRD or what have you — will be coming to you and there will be a process of: can we do this? Can we afford this? Where you’re at now and with the sustainability plan and what’s been mapped out, if memory serves it was about $120 million-$130 million worth of promises made in the Blue Book. Do you think that the government can, with its fiscal situation being what it is, make good on all those promises before 2015?”
KENNEDY: “Well, I’m not aware of the all of the promises or, excuse me, all of the commitments that were in the Blue Book. You’ll have to speak to either the premier of the previous minister in terms of some of them. What I can tell you is the role of the minister of finance is to ensure during the budgetary process that we are as fiscally responsible as we can be. All ministers come to the minister. You’re right, the ministers develop their requests and their proposed budgets for the year. They come to the minister of finance who goes through them with him or her. The minister of finance then takes it to cabinet and cabinet engages in an extensive process reviewing the requests and determining priorities.
“So the minister of finance is simply what I would describe as the quarterback for the budgeting process, and not the decision-maker. The decision-maker is the cabinet in the final result.”
McLEOD: “Yeah, but you’re the one with your hands on the books. You’re the one who’s managing the Department of Finance. Obviously these decisions are made at cabinet, but you’re going to be a prominent voice around that table when these discussions happen.”
McLEOD: “Can we afford to do the things that your party promised to do in 2011?”
KENNEDY: “You used the word promise. I’m not sure that the Blue Book can be described as a promise. It outlines a platform of initiatives that we plan to undertake during a mandate, which is the election in 2011 until 2015. We strive as best we can to ensure that the commitments made or the components of the platform are complied with. In terms of individual items, I’d simply have to refer you to the ministers who are responsible and would know where these items are in terms of their departments.
“Back in 2011, I mean, I could tell you what the Blue Book, what it contained in relation to health, but I couldn’t tell you what it contained in relation to education. So the Blue Book is a very serious document which we outline our platform and which we try to outline what we will do in the next four years.”
McLEOD: “It’s more of a blueprint and a direction, as opposed to…?”
KENNEDY: “That’s the way I would describe it, yes. It’s a blueprint or a platform, as opposed to an absolute promise that we will do things. I think throughout the Blue Book, if I remember correctly, there’s always the caveat that the commitments will be made having regard to the fiscal situation of the province.”
McLEOD: “I think that’s about all my questions. Is there anything else I should know about this stuff?”
KENNEDY: “No, other than that during the budget process, it’s a well-thought-out process, one that’s been utilized over the years and involves the committees of Treasury Board, Economic Policy and Social Policy. It works its way to the cabinet so that there’s a lot of analysis that goes on, and at the end of the day, cabinet makes certain decisions based on the funds that are available and the priorities of the new initiatives that are put forward by different departments.”