Premier, economist differ on legacy fund concept

Steve
Steve Bartlett
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Premier Kathy Dunderdale

 

This province already has a oil legacy fund, Premier Kathy Dunderdale argues. It's the millions and millions the Tory government has pumped into infrastructure in recent years.

"People talk about a legacy fund all the time and we respond to that by saying, 'That's our legacy fund, the investment in infrastructure.' Because unless you have roads and wharves and hospitals and schools, your economy can't grow," she says.

There have been calls or suggestions over the years for the province to put a percentage of its oil revenues into a legacy fund to help ensure a better fiscal future.

The most recent was courtesy of economist Wade Locke.

Addressing a Harris Centre forum on prosperity planning earlier this month, he mentioned a heritage fund as a potential option for the province to grapple with the post-oil possibilities of soaring debt and deficits. Locke estimated the debt could reach $10 billion within 10 years and that there could be $1.6-billion deficits by decade's end.

But Dunderdale told a Telegram editorial board last week that leading Canadian economists have congratulated the province on its invest-in-infrastructure approach.

She said the government has started to curb infrastructure spending because it pumped almost a billion dollars a year into it during the recession.

"You've always got to continue to make investments in it, but it doesn't need to be at the high level now because we've put so much money into the last few years."

Asked about the premier's perception of a legacy fund, Locke said infrastructure might be badly needed and it would be difficult to prosper without good roads, appropriate health services, state-of-the art education facilities and qualified health and education personnel. These things might even have lasting benefits, he wrote in an email, but "they are not a legacy or heritage fund.

"It is important to distinguish between keeping resources for future generations and spending on infrastructure that will improve the current situation and presumably have benefits into the medium term and maybe into the longer term with appropriate maintenance," Locke said.

"The current resources belong to all Newfoundlanders and Labradorians and need to be shared appropriately with both current and future generations."

Locke suggested a sharing formula be determined by consulting widely on what the current needs are, and what the present and future priorities should be.

Meanwhile, while meeting with the editorial board, Dunderdale noted the province is also pumping non-renewable oil revenue into renewable energy projects like Muskrat Falls.

There is lots of energy to develop on the Lower Churchill and in Labrador, she said.

"We can't even talk about how much wind is in Labrador because it doesn't even make sense to do it, so we talk about 5,000 megawatts of wind. It could be just as easy 10,000."

The premier also said the province must continue looking at the offshore oil patch, trying to stimulate growth by encouraging more exploration and investment.

"There are exciting things happening in that piece," she said.

sbartlett@thetelegram.com Twitter: bartlett_steve

Organizations: Harris Centre

Geographic location: Labrador

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Recent comments

  • A Harvard scholar
    July 02, 2011 - 22:49

    Mr. Wade Locke represents the traditional economics graduate of several decades ago that has little bearing on today's reality. His idea of a legacy fund is unoriginal and merely parrots what alberta did and failed at.

    • David
      July 03, 2011 - 11:46

      A "Harvard scholar"....well, anything's possible. But I'd expect more than that even from a Yalie! Seriously though, based on the lack of any kind of explanation of your point of view, I think you might check into getting a refund.

  • Eugene
    July 02, 2011 - 08:16

    FINTIP - good comments. "If you have made a conscious decision to ignore any claim from future generations to a share of the non-renewable resources being rapidly depleted today - then say so; but please do not insult our intelligence by referring to today's infrastructure spending as a legacy fund for our children, grand children and great grand children." Hospitals & Schools are social programs - if we spent this years non-renewable resources money on social programs it can not legacy fund. R&D and training for future the economy (ie aquaculture) may be justified Legacy fund spending - but not make work projects like building a wharf. The closes connection between infrastructure and legacy funds would be the Lower Churchill Development. While it may not return the best fiscal return on investment today, the project which protect our children (to some degree) from future oil price spikes, provided guaranteed clean energy for them as well as pay back the capital invested, to the legacy fund for further future development.

  • Cyril Rogers
    July 01, 2011 - 22:48

    Well, there you have it. Premier Dunderdale is RIGHT and Mr. Locke is wrong..... Come on, Premier, you surely are jesting! This province desparately needs a long term plan than includes infrastructure investments but NOT at the expense of spending away our future! We have a unique opportunity to build a solid financial future but your lack of foresight and apparent inability to develop a plan will lead us back down the road to "have not" and poverty!! I trust the people of this province are paying close attention to the plan.....or lack thereof...you are trying to have us buy into.

  • stanley
    July 01, 2011 - 16:16

    You all are very quick to condemn the premier on this. Remember, wade locke is an ECONOMIST, which in now way means a wealth management expert. He would have a hard time passing a university accounting course, but can probably graph the heck out of inflation rates and population demographics . The fact is it's down right dumb to set up a legacy fund when you still have a such a high pension liability. Any excess cash should go towards your penion investment which earns a return and closes the liability gap. A "legacy" fund would be nice - after the debt is down to a more manageable level. You wouldn't put $2K in an investment portfolio if you had $20K in credit card debt. Remember, expert after expert told the goverment to put the $2 billion cash from the Atlantic Accord straight into the pension fund to get the most out of it. I think funded pensions and a cleaner provincial balance sheet is pretty good "legacy".

  • Ed Hollett
    June 30, 2011 - 06:41

    The Premier's body language in that photo says it all. Too bad for the people of the province any ideas let alone new ones.

  • John Smith
    June 30, 2011 - 06:32

    Mr Locke must have a book comming out. last week he was on telling us we don't have enough money to pay our bills, this week he is saying we should take some of the money we don't have and start a savings account. LOL All this while half the infrastructure in the province is falling apart.

  • BR
    June 29, 2011 - 21:43

    So the educated economist is wrong and the politician is right. Oh my, are we in for trouble???? Maybe she should go to AB and see what a legacy/heritage fund is. Then again she could do a few economic courses at MUN. Maybe she will learn something, maybe.

  • Brendan
    June 29, 2011 - 14:03

    Now men, you know that a University Professor is no match for Cathy's brain. She said to the editorial people that she's very intelligent. She didn't sound very convincing. That was just before they started laughing. Unless she starts listening to people like Locke, we're headed on the road to ruin. Can't the PC Caucus see the damage she's doing? I shudder to think what the next poll says about her..... and she faces no organized opposition. Governments really do defeat themselves.

  • MacManus
    June 29, 2011 - 13:23

    Oil and legacy used in the Dunderdale context is the $25 million the Province's energy Corp., Nalcor, pumped into a bunch of dry holes on the Port au Port peninsula which the Premier said publicly was a "good exercise".

  • Frank M
    June 29, 2011 - 11:51

    Wise leaders surround themselves with knowledgeable people to provide them with advice. Who the hell is advising Premier Dunderdale?????

  • Jerry
    June 29, 2011 - 10:03

    Investing in more infrastructure isn't a legacy fund, who will pay for maintenance and upkeep of this added infrastructure when we have no money? This person is clueless and has no right being in a position where she can ruin the futures of so many people by making stupid decisions today. We all know that you should save money for a rainy day, and have known it since we were kids, why is it such a difficult concept for the government? I guess saving money doesn't get votes. You heard it right here, if you want no future just vote PC.

  • Fintip
    June 29, 2011 - 09:21

    The Premier is not only being wrong headed and short signted but her unique interpretation of what constitutes a legacy fund opens the province to ridicule. If you have made a conscious decision to ignore any claim from future generations to a share of the non-renewable resources being rapidly depleted today - then say so; but please do not insult our intelligence by referring to today's infrastructure spending as a legacy fund for our children, grand children and great grand children. As necessary or important as infrastructure might be, we cannot escape the reality that each and every one of them actually imposes an incremental financial burden on those future generations. It is in the nature of infrastructure that, once built, it requires annual maintenance and eventual replacement. Back in the 1970s when the federal government was funding up to 90% of the cost of roads, bridges, industrial parks and even schools in this province, there was a blatant practice of upsizing infrastructure. No one wanted to look ahead to the day when the federal cost sharing was over and the Province would face the full cost of maintaining and operating these facilities. As a result there were school boards which were nearly bankrupted by the milstones hung around their necks. There were even projects built that had no realistic expectation of ever being used. These included large industrial parks in places like Gander that decades later were overgrown with weeds or converted to non-industrial use. Ms. Dunderdale's reference to Muskrat as a type of legacy investment would hold a little more water if we could be sure (which is far from obvious at this point) that it represented the most viable means of harnessing the Lower Churchill, satisfying the Island's future power requirements, and yielding the best possible return on our investment. The head of Norway's central bank which administers that country's legacy fund of some $500 Billion has long cautioned against such strategic government mega-projects for legacy funds, advocating instead for investments that balanced and spread risks more widely. Indeed even jurisdictions such as Alberta which had at times dipped into its legacy funds for infrastructure has long since abandoned that practice and placed the funds at arms length. Interestingly they did so in response to a widespread public fear that the fund's long term investment objecties should not be left in the hands of elected officials driven by short term political considerations. The Premier could do worse than listen to Mr. Locke.

  • Scanlan
    June 29, 2011 - 09:15

    Yes, I see the Premier's logic... in another 20 years, we'll let someone else worry about the bankruptcy "piece".

  • Dave from Mt Pearl
    June 29, 2011 - 09:10

    Oh well up again down again Cathy.I heard her last week and for the first time I was very impressed with her style and explanation of her call with Stevey.She actually had me swayed towards her,she was articulate and actually had a good image protrayal on the go.Then she blows it all away with such a poor statment as is in this article,infrastucture as a legacy.Wade locke is correct,this is not by amy means a legacy fund,if one cannot put away 0.05% for later then why not put away 0.005%,anything is better than nothing.