Showing posts with label Budget 2007. Show all posts
Showing posts with label Budget 2007. Show all posts

15 October 2007

Logistics: a dismal science

Geoff Meeker raised a question this past week about the nature of election campaigns and media coverage. Specifically, Geoff took some exception to a comment by CBC provincial affairs reporter David Cochrane's comment that

The 21 or whatever days of the campaign is about working the phones, finding out who may vote for you, identifying them and then getting them out on voting day. It is a mechanical exercise with the air war of the leaders traveling around to give you a little bit of a bounce. But it’s an operational exercise more than a philosophical exercise.

Geoff then discussed media coverage during a campaign, arguing that news media should be adopting a somewhat critical posture during elections. As Geoff put it:

I think elections should be a time to ramp up the tough questioning of our politicians. Sure, send the reporters out on the hustings to tell us what the leaders are saying, and make hay when they screw up. That's part of the entertainment. But if that becomes the primary focus of our election coverage, something is wrong with the system.

Cochrane is right. During the 21 days or so of a campaign, the political parties ought to be focused on the essentially organizational exercise of finding the vote, fixing it in place and then firing it at the polls. Campaigning is a logistics problem in that it is basically about the marshalling of resources and managing their use. How the forces are deployed, how they are used and to what end is the strategic question but at the heart of strategy lies logistics. It is futile to develop a strategy calling for spending millions of dollars based on the deployment of hundreds and thousands of volunteers if either the cash nor the bodies exist.

This is not a deterministic argument. A comparative lack of resources does not equate to defeat, either in a specific battle or indeed even in a campaign, military or political. Misuse of resources, that is bad strategy, can and often does lead to defeat. What we saw in the recent provincial election was the result of both logistical differences among the parties as well as some pretty severe strategic errors. We also saw something that actually had nothing to do with logistics but rather another element of campaigns: will. This is where Cochrane's comment is wrong.

Politics is a clash of wills, a clash of ideas, supported by the clash of the machines. A candidate and a political party must want to win but there must be an idea that captivates the imagination or connects with the voters. Without a reason to vote, there would be only a handful of people trooping to the polling booth. Without the desire to campaign and to win, there is no hope of success for that party. There may be two competing wills engaged in the contest, and in that instance, the campaign will go to the one which better marshals and deploys its forces or which has the will to win. In western Labrador, the progressive Conservatives did not quit until the last ballot was in the last box; the new Democrats took the weekend off and effectively quit before they had finished. The stronger will won.

Similarly, as noted here, one of the most obvious things about the Liberal campaign was that the party - as a whole - had accepted defeat not at the start of the campaign but indeed weeks, months and possibly years beforehand. The outcome was only determined by the willingness of one party - in this case the Liberals - to accept the popular commentary that outcome was predetermined. Gerry Reid said as much in his concession speech. Compare that, however, to the British position in May 1940. Tossed off the continental by the Germans, her major ally defeated, and with few of its soldiers left outside German prison camps, Britain stood in a position where many countries had been before. Many countries had sued for peace. Many people expected the British to seek peace. The only thing that paved the way for the subsequent defeat of Germany at that point was the bull-headed determination of Winston Churchill not to accept the conventional wisdom.

Meeker is right here too, up to a point. Take a look at the CBC campaign blog and one finds a disturbing quantity of puffery, including the breathless references to Danny Williams being greeted like a rock star. The CBC is far from alone in this sort of superficial reporting, incidentally, but this sort of commentary - even if it didn't make it into the main stories - is surely an indication of the extent to which embedded reporters can become an integral part of the campaign which they are supposed to be covering at some distance removed:

I missed out on Fogo and Change Islands because there wasn't enough room on the chopper but my cameraman went along and shot what was some of the most interesting and confrontational tape of the week. People in both places had a long list of grievances to place at Williams's feet: the ferry service, outmigration, the hospital, and on it went.

'The hem of Williams's garment'

But Williams listened. His people took notes and promised to get back to people. But other than there and Goose Bay (disgruntlement over the Energy Plan is rife in Labrador) it was mostly about touching the hem of Williams's garment. There is no denying that the guy is popular. At times, it was like being on tour with Mick Jagger! I'm not kidding.

There is a lamentable tendency among news media to focus on the superficial aspects of politics. They will talk of polls and the horse race: who is ahead? Who is behind? is the Liberal campaign beset by a curse? Polls especially appear to the amateurs to be the essence of the campaign or indeed of politics itself. Which of the province's reporters - Cochrane included -has not spoken as if the CRA polls revealed the essence of all things political? In truth, those polls did no such thing. The Progressive Conservatives finished the current campaign with the same share of the total eligible vote as they did in 2003. The Tories won such a large number of seats this time around, not because they won the approval of the hosts forecast by CRA but because they held the singer and the Liberal vote never showed up at the polls.

CRA's poll results have indicated an apparent satisfaction level on some issues that were at odds with the overall impression. Newsrooms have an option to go with something other than the same pollster used by the government - either Liberal or Conservative - and yet for some inexplicable reason most do not.

Consider for a moment that in the recent campaign, reporters actually elected to rationalize - to explain away - what Danny Williams meant by the word "race" rather than simply ask him what he meant. The comment may have been meaningless but we will never know because the reporters in the room preferred to invent a meaning rather than ask a simple question. The Telegram gave front page prominence to a leak from the highest levels of the Tory campaign aimed at one candidate and yet a week later ignored the background to or implications of Tory claims about imminent bankruptcy contained in their attack on Gerry Reid's comment in Labrador. Did anyone consider checking the actual state of the province's finances?

In the final days, newsrooms ignored entirely Williams' sneering comment aimed at Ed Joyce and yet picked up on comments by the supporter of another party. This is nothing new; similar things occurred in 1996 or 1999 with another premier of another political stripe. There may well be aspects of the Liberal or new Democrat campaign that went unreported but that is really no excuse or balance. As Meeker rightly noted, newsrooms in this past election campaign didn't deploy resources to identify and report "inaccuracy, hypocrisy, blatant stupidity or deliberate untruth", irrespective of origin.

News media in the province - in general - have tended to focus on superficial aspects of politics over the past decade, much as their colleagues elsewhere have done. If anyone doubts the absence of distance - and its relative "skepticism" - consider that a year and a half later, that when it comes to spending scandal no one can say what politicians knew what, when and what they did or didn't do about it.

In a small media marketplace, the inclination of reporters should be to distance themselves from the subjects on whom they report. That distance will become more important to the public good in the next four years than it has been for quite some time.

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30 April 2007

Budget Fibre Questions

Listed in the Estimates for Innovation, Trade and Rural Development (InTRD), is a $10 million line item to "provide for the purchase of fibre optic strands forming part of a new, fully redundant fibre optic telecommunications link along two diverse routes which will connect with national carriers in mainland Canada."

The original estimate for this project was $15 million "over the next two fiscal years", so this line item raises a few questions:

1. Has the amount been reduced to $10 million from the original $15 million? If so why? One of the points raised in the consultant's assessment for this project was that price quoted for the quantity of fibre-optic cable didn't seem to mesh with current market prices.

The consultant recommended increasing the amount of fibre. Buuuuut, the provincial government might have elected to reduce the quantity or bring the price paid in line with the quantity purchased. At the same time they might have opted to increase the quantity of fibre-optic cable being purchased.

2. Has the amount been raised so that the investment will be $10 million this year and an unknown amount next year?

3. Will there be a $5.0 million appropriation next year? It's likely the project is still on track with the original estimate, with two-thirds being committed the first year and the remainder in the last year.

27 April 2007

Budget 2007: a quick look at the numbers

The Government of Newfoundland and Labrador forecast record spending for 2007, at more than $5.5 billion.

Some quick observations based on a simple breakdown into the good, the bad and the ugly of the budget:

The Good

Tax cuts and increased program spending.

All good in an election year and make no mistake: this is an election budget.

People will be happy and the provincial government is certainly counting on people's immediate sense of contentment to see the current administration re-elected with an overwhelming majority.

No region of the province is untouched by extra cash. No person will be left out of the tax breaks or other benefits.

The source of the cash: all the supposedly bad deals signed before 2003 by previous administrations, Liberal and Conservative.

Windfalls from high oil prices produced the supposed miracle of deficit slaying. Everything in this budget, indeed every budget increase since 2003 has been based on high oil prices.

Thank you Brian Mulroney and Brian Peckford. Thanks to the administrations that developed Voisey's Bay and the offshore oil fields at Hibernia, Terra Nova and White Rose.

The latter field is expected to hit payout in FY 2007. As a result, royalties will jump to 30% on the price of each barrel.

The Bad

This budget forecasts a spending increase 5.6% from Fiscal Year (FY) 2006. It also projects increased spending of 4.7% and 4.2% over the subsequent two fiscal years.

That's bad since it exceeds the rate of inflation by more than double in FY 2007. The Bank of Canada forecasts inflation to run at 2.2% in 2007 and at 2.7% for each of the two years after.

Prudent fiscal management would hold spending to at most the projected inflation rate. That doesn't mean program spending would need to be curtailed in important areas, nor does it mean the provincial couldn't afford tax cuts to bring provincial rates in line with Atlantic Canada. Rather it would simply require the provincial government to make some clear choices in what it considers important, rather than fix every problem by more spending.

Even in FY 2004 when the current administration proclaimed the province to be in a financial mess, it still introduced a budget that increased spending from the previous year. Spending has increased every year since. That's not going to be sustainable given the absence of a major new development at Hebron, which would have achieved first oil as production from at least two of the other fields slackened.

As it stands currently - and unless there are supersecret talks on Hebron no one is talking about - Hebron won't be producing oil for another decade or more. In the interim, the impact of demographic changes throughout the province will increase pressure on the provincial treasury at a time when the province's coffers will not be seeing significant new cash flowing in.

The current and forecast spending increases are based on optimistic projections for the price of oil in the medium term. Any downward trend in commodity prices (oil, minerals etc) will quickly make the consistent spending increases since 2003 unsustainable. Fiscal reality in those circumstances - taking less money in than is flowing out - would require program cuts, job losses and/or tax increases to correct.

Our plan is to continue this responsible approach in the years that follow to ensure we are increasingly strong, less reliant on the whims of others and more reliant on
ourselves.
The whims referred to are likely those supposed whims of the Government of Canada. This budget - like all recent budgets - builds itself on the whims of international commodities markets. Which one is less reliable?

More bad. Per capita spending will be $10, 871 per person in the province, assuming a population of 512, 000. It will jump to $11, 878 per person in FY 2008 putting Newfoundland and Labrador on par with Alberta for per capita provincial government spending. Drop the population below 500,000 and Newfoundland and Labrador will be outspending Alberta, the richest province in the country.

The difference is that Alberta isn't carrying around the per capita debt Newfoundland and Labrador shoulders, which, as noted below using the finance minister's own words, limits the provincial government's options in dealing with any financial setbacks.

That level of per capita spending is unsustainable in the long run. As a recent Atlantic Institute for Market Studies assessment concluded:
If the province fails to reign in its whopping per capita government spending (about $8800/person [in FY 2006]) and super-size me civil service (96 provincial government employees /1000 people) it will quickly erode any gains from increased energy revenues.
The Ugly

As much as the provincial government talks about the large public sector debt, so far it hasn't done anything to deal with it.

Finance minister Tom Marshall described the issue accurately in the budget speech, saying:
The most significant fiscal challenge facing Newfoundland and Labrador is the burden of debt we inherited, the highest per capita net debt in Canada, more than double the national average. High debt loads mean high interest payments, whether for a family or for a government. Reducing debt frees up money to spend on programs and other priorities.
All government has done is produce a net reduction in the debt by a mere $70 million in FY 2006 and forecast a further reduction of $66 million in FY 2007. At that rate - i.e. $70 million per year - the province will be debt free in 2178.

If there is a budget surplus in FY 2007, as currently forecast, most if not all should be committed to reducing the public debt. Anything else is whistling past the graveyard.

Government's reported success in reducing the debt to GDP ratio has come not from strong fiscal management by government but in growth in GDP driven primarily by commodity prices. Lower the GDP - as in a drop in commodity prices - and those apparent gains will vanish.

There's another ugly element in the budget reporting and that is in the misleading presentation of revenue from the 2005 agreement with the Government of Canada. It will not produce additional cash for the treasury in FY 2007 despite the claim by the finance minister that "[w]ithout the 2005 Accord negotiated by our Premier, we would be receiving $305.7 million less than we are getting this year."

In reality, that cash has already been received and spent on shoring up the teachers' pension plan. That was sound financial decision, but the provincial finance minister cannot claim double credit for the money.

Statement I in the FY 2007 Estimates shows the reality. A modest $49 million surplus on current and capital account forecast for FY 2007 becomes a $255 million shortfall once the $305 million from the 2005 cash advance is deducted.


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