Over the Christmas holidays, I read with interest Mary Shortall’s letter to this newspaper titled “Building a better future.” Ms. Shortall is president of the Newfoundland and Labrador Federation of Labour.
I wish to offer insight into both the fiscal situation of this province and our economy. My comments are based on published data and commentary by former auditor general Terry Paddon and Memorial University economics professor Wade Locke.
With the first point Shortall makes, she states the drumbeat of fiscal doom in N.L. is beating again as it did in 2015. She acknowledges the fact that while our current deficit is significant, it’s not crippling, and the provincial budget is forecasted to be balanced by 2022.
Let’s review some facts. This past fall, then auditor general Paddon released his final annual report. He noted in this document our net debt will climb to $14.6 billion by fiscal year end — the highest net debt in the history of this province.
These deficits we’re running are leading to excessive borrowing. We are not drawing down on our cash position on the balance sheet to finance these deficits, in part because there are no cash reserves to draw down. Borrowed money comes with a cost. Interest payments are in the millions of dollars. These deficits are putting us, as stated by Paddon, in record debt levels.
As for the balanced budget, I would remind the reader that Paddon warned “there is considerable risk” that government won’t be able to hit its target of a balanced budget in 2022. Paddon pointed out there are four requirements for a balanced budget: 1. Oil prices increase. 2. Production increases. 3. Economic activity occurs as government predicts. 4. Spending is constrained. He further buttresses his position by stating that tax revenue might be lower than anticipated because the province’s economy is in rough shape.
MUN’s Wade Locke, in his February 2017 address to the St. John’s Board of Trade business summit, noted from a base year of 2013 to 2016, employment fell by about 10,000 people in N.L. It is forecast to drop further by 2022.
Locke used a figure of another 32,000 people. Let’s say, for the sake of argument, that employment will only drop by half that figure to 16,000 (a running total of 26,000). That will still mean (noting, again, Paddon’s drop in tax revenue) less income tax revenue and less HST revenue. Not good projections for the public purse seeking a balanced budget.
Will government also reign in spending? Will oil prices rise as well as production? If yes, how high and for how long? Any healthy discussion on the state of this province’s economy as it relates to a balanced budget in 2022 has to include these elements. I suspect that without a change in the equalization formula or some other tool to infuse copious amounts of cash into this province from Ottawa, any talk of a balanced budget is fantasy.
Moving to another section of Shortall’s letter, she states, “What about spending? Is it really out of control?” She says, “sorry, but no.” She then goes on to say that it is high if you look at per capita spending per person, and adds the province’s spending per gross domestic product is second lowest in Atlantic Canada.
Even though this province brings in more revenue per capita than any other province, our expenditures per capita are the highest in Canada. Our non-crippling deficit, which Shortall refers to, is being manufactured by our high spending. Again, we’re borrowing to finance it.
As recent as Jan. 3, Finance Minister Tom Osborne reiterated that we are borrowing about $2 million per day. So, 365 days a year times $2 million equals $730 million of yearly borrowing. Earth to Ms. Shortall: we have a spending problem!
Throughout her letter, Ms. Shortall used such terms as “Grinches” (to refer to those calling for layoffs/spending cuts) and “doomers.” Providing the facts about the state of this province’s finances and economy is not pessimism for the sake of it. It is realism. They were completely absent from Ms. Shortall’s letter, and with that void I submit them for the reader’s consideration.