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The Telegram

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

$600 million.

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.



Geographic location: Newfoundland and Labrador

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Recent comments

  • I am Very concerned over the under-estimating or low-balling and overestimating or high-balling concepts being utilized. Very risky statistics.
    October 09, 2012 - 11:22

    Underestimating or low-balling the amount of electricity available in the province for consumption and overestimating or high-balling the projected price of Oil are two statistics that can skew the Muskrat Falls to being sanctioned with high risks to the province of Newfoundland and Labrador and its people.

  • Virginia Waters
    October 09, 2012 - 10:28

    To the person or group posting under the alias John Smith - Me thinks thou dost protest too much!

  • Fintip's commentary should be published
    October 09, 2012 - 09:33

    Winston, I agree Fintip's commentary of October 6, 2012 at 15:52:19 is very powerful and should be published in The Telegram where it is plain for everyone to see. We do need to educate our public on what is transpiring with the proposed Muskrat Falls Project and all the decisions that were made, like projecting the price of Oil too high so as to make this project look viable in the eyes of the rating companies and whoever else had to evaluate the project.

  • Cyril Rogers
    October 08, 2012 - 10:40

    Excellent commentary, FINTIP. I would add, as a caution to all of us, except the business elite who support this project, that we, the people, will pay an even bigger price when the reality of this monstrous project finally hits home. For all their bravado, these business "leaders" are showing nothing but contempt for the people of this province by supporting such a wasteful and unnecessary prjoect, but they also would do well to keep in mind that our economic prospects could very easily be derailed by the completion of Muskrat Falls. How will that impact their pocketbooks? I find it interesting that the same people who decry wasteful government spending, presumably only when it doesn't benefit them, are on the government bandwagon now. I ask: Is there nobody in the business community who will speak up, as a patriot, and condemn this wasteful scheme. After all, if Premier Dunderdale can play the nationalist card, why can't I?

  • Winston Adams
    October 07, 2012 - 10:56

    FINTIP, the more I read your views, the more I am impressed by your reasoning. This commentary here is worthy to be republished in letter form in the Telegram.

  • Al
    October 07, 2012 - 10:15

    While the price of a barrel of oil still figures into the equation, don't let the powers that be fool you. We are paying more for a litre of gasoline, home heating oil, and diesel fuel that we paid when oil was at $150.00 a barrel a couple of years ago. The taxes alone on that fuel will more than offset the price of a barrel of oil. All of a sudden the cost of a barrel of oil has nothing to do with the price of fuel. The consumer be damned as far as governments and oil companies are concerned. In our large province people have to use a lot of fuel just to get around. There is no public transportation to ferry us from A to B.

    • Eli
      October 07, 2012 - 13:28

      Various commentaries in the USA have stated that that country can no longer be governed by its people. Everybody and his brother in politics is owned, lock, stock, and barrel by multinational corporations. Tell me the local pikers are any different?

  • Eli
    October 06, 2012 - 16:04

    Felix "The Cat" Collins has seen to it we'll all be issued mandatory eye shades so we won't see accurate forecasting but huge amounts of catnip. Breakfast anyone?

    October 06, 2012 - 14:22

    There is no reasonable explanation for the province's decision to assume an average price of $124 per barrel for the 2012/13 fiscal period. Even allowing for the differences between Brent and WTI, Newfoundland's assumptions were much more aggressive than other jurisdictions. This behaviour is further evidence unfortunately of an economic philosophy within the Dunderdale administration that is contrary to the risk averse policies expected of all prudent governments. It is far wiser to use conservative assumptions and wind up, if changing circumstances dictate, with a surplus than it is to saddle taxpayers with an unexpected deficit double or more the amount budgeted. But, of course, the bigger issue here is why this province - in the midst of a surging boom in mineral and energy production that is yielding unprecedented royalties to government - would find it necessary to run a deficit at all. In his book, Peckford writes about the dismal state of finances during his tenure - the product of Smallwood's wasteful spending, worthless investments, and incessant borrowing - and the difficulty of making ends meet. Whatever excuse past administrations may have had for putting this province in debt, there is absolutely no justification for the present government to do so. Indeed when Dunderdale refers to infrastructure like roads and bridges as a form of legacy investment, economists everywhere cringe. These types of expenditures (they are by definition not investments) not only fail to share today's wealth with tomorrow's children but indeed saddle those new generations with assets that will be expensive to maintain, upgrade and replace. All of this, of course, underscores the very serious threat which this government's love affair with Muskrat poses to this generation and future generations of Newfoundlanders. Until recently, this province had the dubious distinction of having the highest per capita debt in Canada - and indeed it remains one of the highest. That debt for all intents and purposes will double if Muskrat proceeds. Dunderdale and her apologists, of course, will try to convince the public otherwise with fallacious notions that the Muskrat debt will be off-balance sheet, that the debt doesn't count because it represents an asset, or that the debt isn't real because it's being guaranteed by the federal government. The bond rating agencies - the people who determine how much interest we pay on future borrowings - are unimpressed by such sleights-of-hand. If Muskrat proceeds, they will move immediately to downgrade this province's credit rating which will add billions to the cost of our (non-Muskrat) borrowings over its 57 year amortization period. But the saddest aspect of this financial nightmare is that, having had her and NALCOR's earlier arguments for the project so soundly rebuffed and refuted by very knowledgeable groups and individuals, Dunderdale has been reduced to playing the nationalist card. Speaking to the pre-converted at the Board of Trade (the people the Honourable William Marshall once referred to as the 'grubby little merchants of Water Street'), she wrapped herself in the Newfoundland flag while proclaiming that 'getting back at Quebec' was reason enough to go ahead with Muskrat Falls. She is betting that our disdain for that province based on the Upper Churchill is so great, so profound, that it will cause us to suspend our normal good sense of reasoning, objectivity and judgement long enough for her to get this abomination through the House of Assembly. Now those who oppose it are not only negative thinkers and people without vision, but indeed we are unpatriotic to boot. Well, as one critic of this project Ms. Dunderdale, I want to tell you that I very much resent your condescending, dismissive, offensive characterization of me, and many others like me, for having the temerity to voice an opinion at odds with your own. What your insulting comments, and the persistent nasty put-downs of your critics by sock puppets like John Smith, reveal to the public is just how horrible are the economics of this project, that you must resort to such low-brow tactics to push it through. Given, nevertheless, the size of your majority in the House, I have no doubt that this project will get the go-ahead. But I very much suspect that you, your government and your party will pay a high political price for doing so once the full extent of this boondoggle becomes evident.

    • John Smith
      October 09, 2012 - 08:03

      Fintip...I am not associated with any political party, and I am in no way, shape or form associated with Ms. Dunderdale or the PC party of NL. As well, I don't understand why, because I support the muskrat falls project, I am a sock puppet? Because I disagree, with all the lies, inuendo, and BS that you put in your comments I am a sock puppet? I think for myself fintip. I can read, I have read far more of the available information than you have. I know this from reading the inaccuracies in your comments.Like the price of oil. The Government has a group they use to predict the price of oil. These are the same people that all provinces including alberta and Ottawa use. It was their best estimate at the time. Not to mention that oil recently got up to 115 dollars a barrel, not too far off their predictions.The bond rating agencies are bending over backwards, and are standing in line waiting for a chance to loan us 4 billion for an 8 billion dollar project.Finding another way to transmitt our power besides going through Quebec is an absolute necessity for the future growth of our province. Do you think we should continue to be held hostage be Quebec Hydro? Forever? ReallY?You call Muskrat an abonination, you calll our government dishonest and corrupt, you insult me by saying I am a sock puppet...yet you have no eveidence of any of these accusations...yet you say them anyway. What does that make you?Show us the proof that we don't need the power, show us the proof that Muskrat is not the lowest cost option....where are your experts? Where is your documantation, where is your proof? Silence...thought so...

  • Concerned
    October 06, 2012 - 09:25

    Are we suppose to sit by and let this government financially burden us for the next 55 years. We as the people of this province have to stop this now before its really to late, once they sign those papers this province will never, never, be the same.