Provincial Finance Minister Tom Marshall is right: when a provincial budget depends on commodity prices for one-third of the money coming it, dramatic price dips in those commodities are bound to have serious effects.
Those dips, this year alone, have catapulted the province’s single-year deficit numbers from an expected $258 million to $750 million, essentially tripling the expected deficit.
The deficit comes from lower-than-expected oil and mineral prices and a worldwide decline in demand.
But while Marshall may be right about the risks, they are really nothing new. The only remarkable thing is that province didn’t see the need to plan for the eventuality. Even lowly editorial writers have been pointing out the risks for years.
Here’s a snippet from The Telegram’s post-
budget editorial in 2009: “But there are critical issues involved in the total size of the government’s bills, and where the money is coming from. Non-renewable oil revenues accounted for 32.8 per cent of the province’s revenues in 2008. That’s a crucial number, because oil prices fluctuate and oil output is expected to decline, and there are not many other sources of capital, should oil revenues dip. There is no doubt that this province has had to spend money to bring its citizens an adequate level of public services. The only questions are how big can government get? And how long will it be until there are real problems finding the cash to support that style of expanding government?”
And in 2010: “We’ve got all our eggs in one oilfield basket. Last year, one out of every four dollars of provincial revenue was forecast to come from offshore royalties. This year, it’s forecast to be one out of every three dollars. But oil is a finite resource, and government commitments go on and on. And while the budget this year says, ‘we are investing in diversification to broaden our foundation,’ that foundation is getting narrower, at a time when oil reserves are getting smaller. When, exactly, is it time to apply the fiscal brakes?”
That’s only two editorials. There are plenty more. But you get the point.
For the past few years, we’ve been lucky enough to have the commodity dice fall in a way that’s helped our economy.
Well, that luck’s run out for this year, and likely for next year as well, right in the middle of discussion about the province’s single-largest investment ever.
And while Marshall says no one should be alarmed about that timing — that Muskrat Falls will pay for itself (more to the point, that customers in this province will carry the fiscal freight) — you’ve got to wonder what will happen with things like electrical demand as one of the province’s largest employers, the provincial government itself, not only gets ready to put on the brakes but actually plans to shift into reverse.
Here’s a simple question: if you pat yourselves on the back for being fiscal geniuses when the commodities dice fall the right way, what do you do say about your performance when they come up snake eyes?
The answer seems to be to wash your hands of any responsibility and shift the blame to the world economy.
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