Blood and turnips

Russell
Russell Wangersky
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Well, we’ve had a little while to let it soak in a bit.

Russell Wangersky

Just before Christmas, the new Liberal provincial government dropped the news about just what kind of financial shape this province is actually in. This year, the province isn’t just going to spend $1.1 billion more than it is taking in: it’s going to spend almost $2 billion more than it’s taking in.

And you can’t say we haven’t seen it coming for a long time: here’s then-premier Kathy Dunderdale at the Progressive Conservative annual convention in October 2012: “When people don’t pay a whole lot of income tax and so on, then sometimes you can get a little benign about your advice to government. Yes, give ’em a higher raise. Yes, build that. Yes, do that. Yes, yes, yes,” Dunderdale said. “Startling fact for you now: we are all so dependent on oil and revenue from our offshore and our mining and our fishery so on to keep this place going. Nineteen per cent of the people in this province pay 70 per cent of the taxes.”

(Now, at that point, oil was still pumping royalties into the provincial coffers, and Dunderdale was saying the province was going to have to cut spending anyway. Too bad it didn’t happen.)

But take that number now: assuming that Dunderdale was talking income taxes (the only area where the government can identify precisely where tax dollars are coming from), that would mean that roughly 96,000 people in this province paid 70 per cent of the $1.2 billion collected in provincial income taxes.

Stop right there and think about that number again: every penny of income tax the province expects to collect in this province totals just $1.2 billion, yet we’re short $2 billion this year alone.

The simple fact, to put a shortfall of $2 billion into perspective, is that if the provincial government wanted to cover those costs outside of oil revenues, it would have to not only double the province’s income tax rates, but double the provincial share of the HST as well. (Given the current five per cent federal and eight per cent provincial breakdown of the 13 per cent HST, that would bring this province’s total sales tax to 21 per cent.)

Neither of those is even remotely possible — but they indicate the sheer size of a problem the province is in. To break even, we would have to essentially double the take from not one, but both, of the province’s largest sources of revenue.

Then, there’s expenditures. When it comes to what the province spends its money on, the big two, the most expensive services, are health and education.

Between them, they account for roughly half of the province’s expenses, clocking in at around $3.7 billion a year. Of that, by far the largest is health, which eats up $2.4 billion all on its own.

Again, stop there.

The amount of this year’s shortfall is perilously close to the cost of the province’s entire health-care system combined. All the doctors, all the nurses, all the paramedics, all the support staff, all the hospitals, all the health-care services.

The fact is, though, that something’s going to have to be done, and not just more borrowing. In fact, the province is going to have a hard time going to the financial markets to borrow for even this year’s deficit — let alone the deficits expected in coming years — unless it can show clear signs that it’s bringing its costs under control.

And not just some kind of knee-jerk “well, we’re reviewing discretionary spending” effort, either.

Right now, the rock we’re looking at rolling is huge, but it didn’t get there overnight. The former government was warned as long ago as 2005 that oil revenues might be fleeting — and it was warned regularly: by this newspaper, by the province’s auditor general, and by a host of others, that there had to be fundamental changes. Even the province’s finance minister took to warning that there were problems with depending on oil — not that any of those ministers actually did anything about it.

Nero fiddled. You get the rest.

Russell Wangersky is TC Media’s Atlantic regional columnist. He can be reached at russell.wangersky@tc.tc — Twitter: @Wangersky.

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Recent comments

  • Daryl Pinksen
    January 06, 2016 - 08:36

    It's time to increase income tax and provincial sales tax. These were lowered when times were good. By the exact same logic, they should be raised when times are bad.

    • Sandra
      January 07, 2016 - 09:29

      That's the problem. Tax cuts aren't free but many of those who receive them feel hard done by when they are asked to share the pain they're so keen for everyone else to suffer.

  • Randy
    January 04, 2016 - 17:02

    It's too bad Russell and his colleagues couldn't muster any of this courage when Danny Williams was squandering billions of dollars. Better late than never? Or is it?

  • The arse is out of her...
    January 04, 2016 - 16:21

    Yes. Even though Williams had a frosty relationship with his handpicked successor, Dunderdale did nothing to address the problems her boss created. Given the big increase in Muskrat costs and its many other problems, she could easily have pulled the plug. She would be remembered as the smart lady who pulled us back from the brink. Sadly she didn't have the spine or the sense. Interesting to know how close Williams is to the current crop of ministers. Politics in this province has always been about personality not policy. Some early signs that might change under Ball. Unfortunately few people understand what a tight spot he's in from a fiscal point of view.

  • Christmas Dread
    January 04, 2016 - 09:20

    All indications are that the Liberals will continue borrowing and spending, just like the Tories before them. In a few years, when we look back at the debt projections they gave us for our Christmas stockings this year, we will feel much more dread than we do even now.

  • Dolf
    January 04, 2016 - 08:37

    You got it all, right on the nose Russell. To even think about leaving Muskrat on the table now would be more irresponsible than the dumb decisions made by Dunderdale and her Bobbleheads. Those same Bobbleheads would like to just disappear into the fog right now.

  • Judge j
    January 04, 2016 - 08:19

    A person owing fines once told a provincial judge " your Honor, you can't get blood out of a turnip". The judge responded " we will put the turnip in the cellar". Not one of the PC's ended up in the cellar (yet!). Not only did they not end up in the cellar, they were given the privilege to bleed the turnip another turn. This is what's wrong with our judicial system.

  • Kev
    January 04, 2016 - 07:58

    This is he true monument to Danny Williams. Now add the overpriced Muskrat Falls and its huge power rate hike.

  • Concerned
    January 04, 2016 - 06:50

    We have a temporary revenue issue. We have a long term spending problem, getting worse by the day. Our expenditures will be increasing nearly 2% a year just to service our increased borrowing costs. It is not sustainable. We need to start cutting now. The cuts need to be severe (10%) and across the board. although Dunderdale, Marshall, and Davis did little to correct the issue, the root cause sits squarely on the shoulders of Danny Williams. Williams had more of a long term negative impact on this province than any other leader in our history.

    • TJ
      January 04, 2016 - 21:18

      Buddy, You hit the nail on the head. Williams was the worst thing that ever happened to this province. Spending has to be cut.

    • John Smith
      January 05, 2016 - 14:32

      ...and I thought Russell said he wasn't going to print or read anymore vile, hateful spiteful comments ? I guess that was referring only to those made about Mr. Wangersky...and not about anyone else....the truth is that after 50 years of utter bare subsistence, poverty and starvation...we needed 50 billion dollars to even make an attempt and getting our house up to a Canadian standard....schools full of mould, buildings falling apart, healthcare in ruins etc....now instead of whining about the next new fire hall... it's all "the tories and Danny blew 30 billion"....what a load...but typical...