Wednesday, Bank of Canada President Stephen Poloz was in St. John’s, and one of the points he made was that oil prices will eventually rise, and, if we’re patient enough in this province, oil revenues will return to once again make up a large extent of the provincial treasury.
Strong oil revenues — at least, revenues from somewhere — are something the province needs, especially as we continue to run large deficits and run up more and more debt every year.
But what we’ve shown in the past is that the first impulse for governments when there’s money around is to spend it. When we had significant oil royalty revenue before, governments simply increased the size of government and overall spending — spending that we can’t now afford, and can’t shed, either. Past governments have built the huge load current ones are expected to continue funding. We’re great at being grasshoppers, less so at being ants.
So perhaps, in anticipation of oil’s return, the provincial government could set a few guidelines for itself.
How about bringing in a law that restricts the growth of provincial spending to a maximum of the annual increase in the rate of inflation?
How about part of that legislation requiring that any surplus funds be directed to bringing down our colossal debt, and only the debt?
Provincial politicians will probably complain and squirm about such legislation, arguing that those sorts of rules would unfairly affect their ability to react to the needs of the people of the province.
You could accept that explanation, except for the fact that it’s a clear example of “do what I say, not what I do.”
Look for a moment at the province’s Municipalities Act, which sets the rules for most of the province’s municipalities.
In particular, look at Section 78 of that act: “In a budget, proposed expenditures shall not exceed anticipated revenues.”
Keep in mind, what we’re suggesting for the province is not anywhere near as limiting as a requirement that the province produce a balanced budget. We’re only suggesting limits on the growth of the province’s expenditures, at least until it’s clear that the province’s debt — including the massive debt for Muskrat Falls — is under control.
And the beauty of the whole idea?
The current government could bring the law into effect at a time when the cupboard is bare, and there isn’t money to spread around anyway.
Of course, nothing would stop future governments from undoing the legislation — nothing, of course, except having to explain just why they want to open up the fiscal taps.