Debt reduction strategy needed: economist

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Wade Locke

Professor of economics at Memorial University of Newfoundland and Labrador Wade Locke wasn’t sugar coating the province’s financial outlook on Saturday.

“There’s no good story here,” he said.

Locke was giving a talk titled “An Economic Perspective on Newfoundland and Labrador” for the Newfoundland and Labrador Construction Association’s (NLCA) 44th annual conference at the Delta Hotel.

It was just last month that the province forecasted the prospect of a $1.6-billion deficit next year.

“We have a fiscal problem in this province,” Locke said.

And the government has recently availed of Locke’s expertise to soften the blow of what is predicted to be much different economic times than the province has experienced recently. He has been appointed senior policy adviser for this year’s budget cycle and will be working with the government briefly, but intensely, until March 31.

Locke gave a sobering overview of what this province is facing.

“The future is still bright but there are two things we need to think about,” he said.

One of those things is the demographic shift taking place in the province. The population fell almost 13 per cent in the 15 years following the moratorium. It has risen slightly in the last five years or so, but there is still something of a trap here with regards to the resource projects planned for the province. Taken directly from Locke’s presentation is the statement, “If the resource projects that are expected for the province proceed, we are likely to see a significant increase in population. Otherwise they cannot proceed because we do not have enough workers and we have an aging population.”

The second thing we need to consider, he said, is an aging population. With a demographic that’s aging so dramatically, both the work force and health care are affected. There are some pressures that an aging population will place on available health-care resources: in the workforce, there are fewer people entering the labour market than are expected to retire. Currently, the potential retirees exceed the new entrants into the workforce by 34 per cent.

“That’s not a good sign,” said Locke.

Some cushioning, though, is provided by the higher wages that are being offered in this province, a temptation that will delay retirement for some and attract others into the work force. The resource industry is known for paying well, but the average taxpayer has seen an increase in their pay too, said Locke.

“Their normal incomes have gone up significantly,” he said, adding that the increase is probably not as much as people would like, but the proof is in the numbers, nonetheless. The average weekly wage in this province is above the Canadian average.

What’s really the most foreboding for the overall outlook of the province is the turn the provincial budget is about to take. According to Locke’s presentation, from 1949 to 1993 there were cash surpluses in only two years. However, there have been budget surpluses in six of the last eight years. Now, there’s a deficit of $1.6 billion expected next year.

According to Locke’s slides, government assumed oil prices of $124 per barrel at budget time, but prices have averaged $109.87 per barrel since April and $111.54 per barrel since August. This false prediction, coupled with historic government spending, means things are about to change.  “We have to think about how we move forward from here”, said Locke. “Things are looking OK. We have to be careful how we handle the fiscal situation.”

Long before the government took Locke on as its senior policy adviser, he was offering advice to the government. In an article from The Telegram in 2011, Locke was raising concerns about the province’s financial future. “There is a serious problem in terms of debt and deficits,” he was quoted as saying at the time.

At the NLCA talk, Locke said there was no point in regretting decisions made in the past.

Following his presentation, he said he didn’t have any specific details yet as to what he’ll suggest to the government, but what’s needed is a credible debt-reduction strategy that expands over a number of years. If that’s done carefully and not too dramatically, there’ll be a less negative effect, he said.

 

josh.pennell@thetelegram.com

 

Organizations: Newfoundland and Labrador Construction Association, Memorial University of Newfoundland and Labrador Wade Locke, Delta Hotel The Telegram

Geographic location: Newfoundland and Labrador

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Recent comments

  • The NL Government needs to be Pro-Active and set up an Anti-Corruption squa to monitor on-going construction projects.
    March 04, 2013 - 13:10

    First of all the government of Newfoundland and Labrador needs to be pro-active and set up an Anti-Corruption Squad to audit the projects that will be on-going. I believe Billions of dollars can be saved there if we are prudent. We all know what happened in Quebec with its reactive stance. As the article in the address below reveals "Acts of collusion and corruption exist everywhere in Quebec — in every region. Our investigations are proving this to us," Lafreniere told a news conference". http://www.huffingtonpost.ca/2012/12/19/quebec-anti-corruption-squad-arrests-warrants-charges_n_2331658.html

  • david
    March 04, 2013 - 13:09

    A debt reduction strategy would have been useful when we had "discretinonary" money to accomplish it with..... a discussion of it now is 15 years too late, $8 billion dollars short, and now of no point. Thanks, Danny.

  • Nick
    March 04, 2013 - 13:04

    To the guys above, you should be more reasonable and work within the realm of realty. Your pessimistic attitude will not lead to a better outlook for this province. First of all, you can bash the current government for a lot of things, but the reality is that the long term debt problems this province faces are not the fault of the current government, but of successive governments for multiple decades of not having a strong economy. Yes, there has been more then are share of stupid decisions as well. BUT, 6 budget surpluses of the last 8 is NOT bad.... AND they are paying down the debt we have racked up since confederation. (which saved are asses) However, I am not sure about Muskrat falls ... still on the fences, but it makes some sense not sure about the valuation though. Many industries and future companies will need this energy to operate in this province, and the indirect growth and tax revenue will benefit the province I believe and will outweigh the costs of the project in the long run. P.S. B'ys if your going to post on here, do everyone a favor and crack open some economics texts books and use stats canada ;)

  • Jay
    March 04, 2013 - 11:58

    Nothing new here. Everybody knows that Wade Locke is the Tory's "boy" at the university. He'll say anything they pay him to say. The only difference is that now he's officially on their payroll.

  • roland
    March 04, 2013 - 08:42

    Government has Wade Locke to carry their cause. They spent like drunken sailors, and ignored the signs. On top of that, what idiot would overestimate the price of oil, and then base their budget on that. Where was Wade Locke when this was happening last spring. He couldn't tell government then, but he can tell the electorate now, to tighten their belts.

  • Maurice E. Adams
    March 04, 2013 - 07:37

    “If the resource projects that are expected for the province proceed, we are likely to see a significant increase in population. Otherwise they cannot proceed because we do not have enough workers and we have an aging population.” What a circular statement.,,,,, "they (resource projects) cannot proceed because we do not have workers and we have an aging population", but nevertheless,"if resource projects...proceed, we are likely to see a significant increase in population". Pure gobbledygook. Irrationality --- disguised as profundity. The good doctor says that we do not have enough workers and an aging population, therefore resource projects cannot proceed. At the the same time, he says if resource projects do proceed our population will increase. So now we should proceed with resource projects and go billions in debt as part of a strategy to temporarily increase our population? Is this supposed to be insightful, rational, fiscal advice? ---- No wonder we are in a fiscal mess.

  • Cold Future
    March 04, 2013 - 07:08

    Wade Locke equals zero credibility. What kind of Government buys whatever propaganda and support it must buy to prop up and support the money losing Muskrat. And the money sent over to Nalcor has nothing to do with the looming mismanagement and forcast deficits- that money came from the tooth fairy!

  • Concerned
    March 04, 2013 - 07:01

    Easy for Mr. Locke to say, he's not hurten for a dime. What worries me is when the time comes to start paying for Danny's Legacy, Muak Rat Falls, what's going to happen to the people of this Province. This government is destroying the people of this province with our own money, why are we letting this happen, this govenment is a disgrace to the people of this Province.

  • tom
    March 04, 2013 - 06:58

    Locke also said we will be a have province for the next 20 years. Really? Running a deficit like that? And what about after that? We are running a monster deficit because we estimated the oil price $13 higher than it was - so what is going to happen when the oil starts to wind down? I think we should also be looking at what else we can do after the resources money slows down - or we will all be up to our necks in it.

  • tom
    March 04, 2013 - 06:56

    Locke also said we will be a have province for the next 20 years. Really? Running a deficit like that? And what about after that? We are running a monster deficit because we estimated the oil price $13 higher than it was - so what is going to happen when the oil starts to wind down? I think we should also be looking at what else we can do after the resources money slows down - or we will all be up to our necks in it.