Here’s a little history: for years, the province’s economy has outperformed the provincial government’s budget numbers by significant amounts, sometimes in the billions. And for all that time, the surpluses have been held up as an example of the government’s good financial management and fiscal stewardship.
The complaint that underestimating revenues — especially the argument that being off budget by more than 30 per cent is somehow a failing, even if it’s 30 per cent to the good — has been given short shrift. Financials that have to be completely redrafted halfway through the year — and then redrawn again at year-end — don’t inspire confidence.
The provincial position has been that the government has been erring on the conservative side of the equation, tempering the expectations of taxpayers, employees and special interest groups in the process.
Well, now the shoe is on the other foot.
As oil prices stay weak, observers like Memorial University economist Wade Locke say the province’s current account deficit for the year could leap from $258 million to as high as
That’s a sort of red-ink jump that hasn’t occurred since 2003, when then-premier Danny Williams made an urgent state-of-the-province address halting all new spending and setting all civil service pay increases to zero.
The change in the deficit numbers is happening now for a number of reasons — among the top two, a strong Canadian dollar and falling oil prices. The province had expected oil prices for the type of oil produced in Newfoundland and Labrador’s offshore fields to average at around $124 a barrel: on Friday, it was around $112, and a few days ago, $108. New oil price forecasts suggest the price should hover around $111 for the rest of the year, and average even less, back down to $108.25. Other forecasts suggest oil prices in the $95-a-barrel range for 2013 and $85 in both 2014 and 2015. (An interesting aside: the province’s case for supporting Muskrat Falls has fuel prices for Holyrood forecast to consistently rise in that same period, from $122.50 in 2012 to $126.90 in 2015 and to $130.80 in 2015).
Those are numbers that must bring shivers to the provincial government, even if they are forecasts that are well into the future.
To be fair, when one-third of budget is tied to oilfield revenues, the ongoing price of oil is definitely the uncontrollable elephant in the room. If the elephant suddenly shrinks, so does everything else.
Another factor to consider is that, unlike 2003, provincial Finance Minister Tom Marshall insists there’s money left over in the bank from past years’ surpluses to help cover the shortfall — as long as you feel that emptying your bank account to pay off what you overspent on your credit cards is good financial planning.
Underestimating the size of a surplus has been something the government readily took credit for, it’s unlikely the same will hold true for underestimating the size of a deficit.
Commodity fluctuations occur. Win or lose, they should not be the measure of whether we have good government.