You may be hearing a lot of discussion about the government of Newfoundland and Labrador going bankrupt. Hearkening back to a dark day, some commentators employ hyperbole by referring to commission of government or even a takeover by the federal government. To be clear, government bankruptcy is the least of the problems in Newfoundland and Labrador.
The government repeatedly states there is a spending problem that needs to be addressed. However, a look at the government’s fiscal plan presented in Budget 2017 tells a different story. In order to balance its budget by fiscal year 2021-22, government spending is forecasted to increase by $7 million and government revenues are expected to increase approximately $830 million, when compared to fiscal year 2017-18.
Bear in mind this fiscal plan does not reflect the government’s efforts to keep electricity rates at 17 cents per kilowatt hour when Muskrat Falls becomes operational. Some estimates suggest the cost to the government could be $500 million per year. A balanced budget is a long way in the future, if this is the case.
According to federal government data, in seven of the last 27 years, the government has recorded deficits. In fact, in fiscal year 2008-09, the provincial government recorded a surplus over $2 billion. The next fiscal year? A deficit of $33 million.
As interest rates increase and the cost of living grows, there will be an effect on consumer spending, which means less revenue for small businesses in the province.
Whether the province received equalization payments or revenues from oil royalties, running a deficit has been par for the course. Moral hazard is ingrained in provincial fiscal planning because, for Newfoundlanders and Labradorians, the federal government will always be there as a backstop.
There is an element of truth to this. The federal government, similar to the situation in Saskatchewan in the early 1990s, will not let the provincial government default on its debt.
Yet, what is not getting the attention it deserves is the provincial economy, which is undergoing a transformation unlike anything seen since the cod moratorium. The completion of large development projects means fewer high-paying jobs and a lot of people with skills that are currently in low demand in the province.
As interest rates increase and the cost of living grows, there will be an effect on consumer spending, which means less revenue for small businesses in the province. Small business owners are noticing there are fewer dollars circulating in the economy, as the recent Canadian Federation of Independent Business Business Barometer shows.
There is absolutely no doubt that small business owners, as a collective, are worried about the economy. Revenues are simply not growing at the same pace as the cost of doing business. As a result, a number of them are wondering, “What’s next?”
While some may think it is important and necessary to discuss the potential of government bankruptcy, unless there is a real focus on addressing the weaknesses in the provincial economy, it is wasted energy.
Director of provincial affairs
Canadian Federation of Independent Business — Newfoundland and Labrador