It might not be a great year to be the finance minister in this province. In fact, it might be a rotten year to hold the job. For years, finance ministers have had to decide how much more to spend — successive surpluses, all powered by oil dollars, have seen provincial expenditures grow every single year.
But this year, the oil tide has turned. Lower prices than the government expected, and lower production as well, has left a big fiscal hole.
Now the minister will have to find millions upon millions in savings from government departments that have far more experience in recent years in growing than in shrinking.
But even as the Finance Department looks for savings, there are considerable new costs on the horizon.
First, there’s the ramping-up of spending for the Muskrat Falls project. Under the terms of the federal loan guarantee, the province actually has to put up equity before borrowing money with federal backing for the project.
Likewise, there’s about to be $700 million or so in spending for the province’s share of the development costs for the Hebron project. That’s the portion of Hebron construction costs that the province is responsible for as a result of its 4.9 per cent equity stake. Hebron expenses have grown considerably in the past five years, rising from $5 billion to $8.3 billion to $14 billion.
The government would argue that, in the long term, both of those expenditures are good investments: Muskrat Falls, because all of the money sunk into the project (and profits as well) will be recovered from the province’s electricity users, and Hebron because the ownership stake will result in a share of the project’s profits, as well as (eventually) royalties. (We say eventually because the project will operate under a particularly low royalty regime until the $14 billion in construction costs has been recovered by the project’s investors.)
While the proof of that pudding will certainly be in the eating, one thing is certainly true: at a time when the provincial government is already saying that it can’t afford the costs of current services — in fact, forecasting a single-year deficit this year alone of three-quarters of a billion dollars — there are going to have to be significant up-front cash outlays.
And there’s not a heck of a lot left in the kitty to cover those costs.
And that means that instead of turning on the fiscal taps, the Finance Department and its minister are going to have to find a way to turn them off. It’s something this administration has little experience doing — and it’s going to happen right in the middle of another complicating factor: negotiations with the province’s public sector unions.
It is a fiscal reckoning that many in this province have been warning the government about for years — but the Dunderdale administration, and the Williams government before that, preferred paying lip service to even the smallest vestiges of restraint than to making hard choices.
It’s not going to be fun times in the Finance Department.