Throne Speech 2015 was the kind of document you’d expect from a group of politicians who are out of new ideas.
People are making a big deal out of the review of the provincial curriculum for K-12 schools. That’s what the folks in the education department do for a living. It’s nothing new.
The promise that the review will produce a 21st century curriculum is such a cliche that it is laughable, given that we are in the second decade of the new century.
Not very impressive, is it?
CBC’s On Point this weekend delivered up some all-too-familiar conversation on the budget and a political panel talking about Judy Manning but sometimes you have to look closely at things to appreciate the value in public comments by politicians and reporters.
In an interview with David Cochrane, finance minister Ross Wiseman confirmed that he cannot even think about trimming government spending because the economy is heavily dependent on it. Wiseman put the figure at about 30%.
Regular readers of these e-scribbles have know this for years. What’s news in this is that we have a finance minister admitting it publicly.
On the outside, the spring budget for 2014 looks like a delicious assortment of goodies for everyone. You can tell it is delectable because everyone is shouting for joy and drooling over their good fortune.
There is not a single group who have had their hands out for government money that did not get something. And they are telling anyone who will listen just how happy they are.
Once you bite into one of sweetmeats in the Conservative Quality Assortment budget, though, the result might be a wee bit less tasteful.
Finance minister Charlene Johnson will read the new provincial budget speech on Thursday.
In keeping with the provincial Conservative tradition, though, they’ve been announcing bits and pieces of the budget already. On Monday, for example, justice minister Darin King announced that the new budget would contain money for 20 new sheriff’s officer to provide court security and new lawyers and staff for the legal aid division.
Both news releases specifically indicated that the money was from Budget 2014, that is, money that isn’t supposed to be announced until Thursday. Reporters asked King if the finance minister would have money for these announcements.
When any country or province depends heavily on the money that comes from resource extraction, it affects politics there.
Political scientist Michael Ross is probably the most recent author on the subject. Terry Karl has also written extensively on the resource curse. She wrote of the best known books on the subject: The paradox of plenty: oil booms and petro-states. You can also find some of Karl’s further thoughts on the issue in an article she wrote in 2007 and revised in 2009.
These studies focus on the developing world, for the most part, but what academics observe about those countries can cause you to think again about politics in other places.
Like say, Newfoundland and Labrador.
Simply put, Tom Marshall’s most recent news release about the report by Dominion Bond Rating Service doesn’t match what the bond rating agency said in a news release about the provincial government’s finances.
You can see that pretty clearly if you read the whole release from DBRS.
In a column in the weekend Ottawa Citizen, Brian Lee Crowley of the Macdonald-Laurier Institute made a convincing argument for investing provincial government oil revenue in an investment fund:
Natural resource revenues, by contrast, gyrate wildly. The temptation, when prices are high, is to pretend those revenues will always exist, causing a cycle of booms and busts in public finances. Moreover if you acquire recurrent obligations on the basis of one-time asset sales, an inevitable day of reckoning comes. The natural resource is gone and you have a lot of public servants you can’t pay and a lot of people reliant on public services you can no longer afford.
This problem is resolved by using the money to pay off debt and then investing the rest and only spending the fund’s returns.
Ah yes, the temptation to spend irresponsibly – i.e. unsustainably - followed by the day of reckoning.
Sounds familiar.
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In the wake of the latest revelations of financial mismanagement in the provincial government, SRBP has been looking at some of the possible contributing developments over the past decade or more.
Last week, SRBP noted that it appears the provincial government broke up the treasury board secretariat around 2007. They sent some of its bits off to one department and put the rump of its administration – about the size it had been in 1968 - under the finance department, as it had been before the 1973 reforms introduced by the Moores administration.
At around the same time, the provincial cabinet started a series of massive annual increases in public spending that Premier Kathy Dunderdale admits is unsustainable.
And the same cabinet also ballooned the size of the provincial public service. Again, it’s something that Kathy Dunderdale admitted was something she and her colleagues now had to sort out.
These three things are connected.
Even if the government loosened the constraints of its internal financial controls, there are other agencies that have a role to play in keeping an eye on the public treasury.
Mr. Speaker, if the members opposite think that the level of scrutiny that we do over a $3 billion expenditure in health care is to take every single health authority and work down line by line by line through every piece of that, I do not know what they are thinking over there.
Health and community services minister Susan Sullivan, House of Assembly, May 30, 2012
Let’s hope that health minister Susan Sullivan doesn’t sit on the treasury board.
That’s a committee of cabinet created under the Financial Administration Act. Passed by the House of Assembly in 1973, the Financial Administration Act was one of several great reforms of public administration in the province introduced by the Conservatives after they defeated Joe Smallwood and the Liberals in the 1972 general election.
Every provincial government and the federal government has a treasury board. It is typically the most important or one of the most important cabinet committee by virtue of its control over money and people within government. Treasury board is also the only cabinet committee whose existence is set down by law.
The treasury board’s main job is to oversee how the provincial government and its agencies spend public money.
Premier Kathy Dunderdale is singing the usual Tory song before contract negotiations and a provincial budget.
Yes, folks, in a speech to the St. John’s Board of Trade the Premier was talking about the need to control spending.
We’ve all been down this road before. Of course, the same people who talk the talk don’t walk the walk. They’ve been the ones who caused the current fiscal problems the Premier was talking about.
In this corner, your humble e-scribbler has been warning about the Tory fiscal imprudence since 2006. It’s one they’ve acknowledged being vaguely aware of since about 2008, at least. That’s when the Auditor General of the day warned about it. In 2009, the finance minister and the Premier of the day admitted their spending was unsustainable.
And yet they continued to crank up spending to record levels.
So basically there is nothing in Kathy Dunderdale’s speech on Tuesday that the Tories haven’t said before. Kathy Dunderdale’s strategy to deal with the problems she and her colleagues created is the same one the Tories have talked about since 2003. And that’s the one that created the problem she claims she wants to fix.
Think of it like make-work for politicians. First, you create a problem. Second, announce that you plan to tackle the problem. Third, tell everyone the strategy you will use is to follow all the policies that caused the problem in the first place. Repeat annually as needed.
Anyway, just look at one part of the speech if you want to know how seriously out of touch with reality a politician can be:
What is the best fiscal policy response in the face of this reality? Some may suggest that a balanced budget is the best goal in order to avoid taking on debt. However, this would require a dramatic reduction of spending.
If they can’t balance the budget without a dramatic reduction in spending then they are already spending way more than they are bringing in.
D’uh!
So if you are spending beyond your means – and don’t stop - you cannot really get spending under control, reduce public debt and all the others things that genuinely responsible governments do.
And if you reject balanced budgets because it would mean spending cuts, then obviously you just aren’t serious about all that talk of spending cuts, controls or that thing called fiscal prudence.
After eight years, the unions know all about the born again fiscal virgins. They aren’t fooling anyone.
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“[o]ur spending at the rate that we've been doing over the last eight years — and it has been very necessary for a number of very good reasons to do that — is not sustainable in the long run.” [CBC online story]But when Mark claims that “[u]p to now, Tories (and others) have disagreed with that assessment” he is not exactly right.
Can she and the government say no? Consistently?No.
Alison Redford, Alberta’s new Conservative premier promises she will deliver some long overdue attention to the provincial government’s heritage fund.
That’s a stash of oil and gas cash created in 1976 as a kind of rainy day fund.
Previous Conservative governments took cash out, stopped putting cash in and otherwise neglected a fund that could be worth $100 billion today according to former premier Peter Lougheed, the guy who created the fund.
Meanwhile, Newfoundland and Labrador’s Conservative premier is promising “fiscal responsibility”.
Unfortunately, Kathy Dunderdale and her colleagues have been promising that since 2003 and they still haven’t delivered.
What’s worse, they have explicitly rejected every responsible fiscal idea that’s been tossed their way.
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Earlier this week, finance minister Tom Marshall announced a second increase in the estimate for offshore oil production for 2011 and with it an increase in provincial government revenues.
Marshall claims the money will go to paying down the public debt.
It won’t.
Every time Tom Marshall says he’s paid down the debt, his nose grows. Marshall has a case of pinocchiosis that defies medical science.
If his case of pinocchiosis politica swelled something other than his nose every time he bullshitted about paying down the debt, Tom could do porno as if he was Johnny Wad and Ron Jeremy and Long Dong Silver combined.
The cash will either:
Speaking of spending, that’s exactly what the local chapter of the New Democratic party wants to do with the windfall cash.
"This money, I think, needs to be seen as revenue that has come early, and we [should] keep it until we look at how we need to spend our money in 2012/2013," Michael told CBC News.
You will not be able to slide a sheet of paper between the political parties in this election. They will all have the same policy, especially hen it comes to spending.
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Tom Marshall keeps a tight grip on the provincial government’s purse strings.
He has to do that.
The damn things won’t stay that wide open on their own.
In presenting the provincial government’s budget to the House of Assembly on Tuesday, Marshall announced that the Conservative administration of Kathy Dunderdale would continue the practice of unsustainable public spending set under Dunderdale’s predecessor, Danny Williams.
Overall government spending will grow by 4.9%; that’s about twice the rate of inflation.
A windfall in oil prices directly attributable to turmoil in the Middle East helped to erase a forecast cash deficit of $959 million and turn it into a modest cash surplus of $133 million. (Estimates 2011 p. iv)
For the past two years, Marshall claimed the government’s profligate spending came from the need to spend cash to fuel an economic recovery.
Now he’s got a different excuse: we can afford it. Marshall told reporters that the provincial economy was “sizzling”. That’s nonsense, of course. The economy is actually becoming increasingly fragile and public spending is sustained by cash coming from a volatile source, namely oil. Marshall seems to know that just like he knows the public debt is something he should be reducing.
Oddly, Marshall never seems to do anything about it.
Marshall forecast that the province’s net debt will increase in 2011, largely the result of continued growth in unfunded pension and benefits liabilities in the public service.
And that’s despite repeated warnings from the province’s auditor general among others. In 2009 a provincial cabinet minister resigned unexpectedly citing concerns about unsustainable public spending. Earlier this year, Auditor General John Noseworthy repeated the same concerns; interestingly enough he did it in a report on Fiscal Year 2009, the same year Paul Oram left cabinet.
Two years later, the provincial government is still on the same path.
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Related:
There was, of course, nothing responsible or prudent about Danny Williams’ tenure as Premier, and nothing, other than name, that was conservative about it. He chose a different track.
That is why a government that collected over $9-billion in oil revenues during its tenure still presides over a $9-billion net provincial debt.
And that is why the provincial net debt per capita this fiscal year was over $17,000 and rising, when in the alternative universe it would have been $7,000 and falling, and falling fast.
The provincial government hasn’t really been managing the public purse in a sustainable and fiscally responsible way.
Your humble e-scribbler has been saying that since 2006. There have been plenty of charts and graphs to drive the point home.
In 2009, Paul Oram said that government spending is unsustainable, but unfortunately he said it on the way out the door as he left politics.
But you don’t have to just accept that just because you read it here.
Now you know that government spending is unsustainable because no less an authority than Tom Marshall – the province’s finance minister – is saying that in every single one of his pre-budget consultations.
Take a look at the slide deck for his presentation. You’ve seen similar slides here and in some of the conventional media maybe. You’ll find the information is a wee bit familiar and that’s because the figures your humble e-scribbler uses and the ones Tom is using come from the same place: the provincial finance department.
But Tom’s slides are better because they are accurate and up-to-date. Now Tom doesn’t give you all the information you’d but what is there is enough to scare the bee-jeebers out of any doubters out there.
Before we get into the details, let’s just say that True Tory Believers should turn away and go play Free Cell or something. They really should not read on. Fan Clubbers should really not read beyond this point. They are putting their heads in jeopardy. Their whole world only keeps making sense because they have convinced themselves that nothing at BP is real, that it is all wrong and just some sort of partisan plot.
So if they keep reading to the end, your humble e-scribbler cannot be held liable for the resulting carnage as their skulls collapse. After all, if your faithful servant says these things only because he is a Liberal and then Tom Marshall says the same things then either Tom is telling whoppers or I am a Tory or…
You can see how easily they could wind up in the Waterford trying to make those two things fit into the same twisted mental space.
Anyway, here goes.
This slide from near the end of Marshall’s presentation shows the net program expenses – everything except debt servicing and capital costs – compared with the consumer price index and the growth in the economy. This is a really good comparison because it shows the changes in the core government spending without things like the “stimulus” capital spending.
This is the sort of spending that would be very hard to cut if revenue dropped drastically. And you can really see the point if you recall that so much of the economy – 30% or so of the labour force – is paid out of net program expenses. This is your health care spending as well.
Now just because Tom Marshall used it, let’s look at the slide showing the comparison between the growth in gross health care spending – with capital works tossed in – and the consumer price index. This slide together with the one above illustrates the astronomic growth in spending over the past four years.
This slide also shows you a comparison which pretty much destroys any argument that the rate of gro9wth was the only thing Tom and his friends could have done. You’ve heard all the excuses about catch-up and making up for previous neglect or that costs are just going up because things are booming.
Don’t look at 2009-2010 because that’s the recession year when the costs of goods and services didn’t grow very much at all. Look at the two years before that. The provincial government could have boosted spending by double the rate of inflation and they still would have boosted spending by a huge amount. Instead, they went for triple or more. in 2007, the year of the last election, they boosted spending by what looks like six or seven times the rate of inflation.
And all that spending was built on what Tom Marshall acknowledges are windfalls from the price of oil. They are windfalls driven by price and by production of a non-renewable resource. All wonderful to spend and spend more as long as the cash is rolling in. But when the prices don’t keep skyrocketing and the money isn;t flowing in, you have a hard time driving spending up at the rate people want.
That’s the definition of unsustainable spending.
Not surprisingly, you can see all the problems in the final slide Marshall used in which he laid out his “challenges”.
That second bullet, the one about high dependence on resource revenues is the bit about price and production. Great going up but prices do go down.
Skip down a bit and you’ll see the other point: there’s pressure to continue spending increases and people are used to seeing growth of nine percent on average over the past seven years. Inflation averaged around two percent each year or thereabouts over the same period.
All the stuff that comes before this points to that bullet about the “Need to control expenditure growth”. Problem is that expectations are there for continued growth and those expectations are on top of the real need that comes from having an aging population and that is on top of the commitments to boost public spending on megaprojects like “equity” stakes.
If that weren’t bad enough the combination of election year plus the unsettled Conservative leadership combine to make it very difficult for politicians to make the tough choices and actually control spending.
Remember 2007?
If you’ve forgotten already, scroll back up and look.
A very popular leader with a reputation for toughness and they still couldn’t spend in a responsible, prudent manner.
And if all that weren’t enough to make you cringe, take a look at that last point. There you have the provincial government’s great plan to reduce public debt: they will pay it off as it comes due. That means about $200 to $300 million a year.
Divide that into the $12 billion gross debt and you can figure out how many decades will take - theoretically - to get to zero at that rate. Yeah don’t bother. Let’s just sum it up by saying the current administration does not have a debt reduction plan at all. Not really. They don’t. If things get really bad, they can just roll debt over and that’s what governments have done over the past couple of decades. They could pay off some debt as it came due; otherwise they just spent as they needed and ran up the debt bill.
We aren’t done yet, though.
That middle bullet about a “requirement” to borrow to pay for the Lower Churchill.
It is only a requirement because the provincial government already made the decision to add another $4.0 to $6.0 billion to the public debt. They don’t absolutely have to do it and, frankly, the deal as laid out currently is one that doesn’t make any sense. It would be a huge risk for any government or private sector company that had a healthy balance sheet. Even with a federal loan guarantee, it is sheer foolishness for the province with the biggest per capita debt load in the country.
Upside: admitting there’s a problem could mean that Tom Marshall and his colleagues will start sorting out the mess they’ve made.
Downside: Tom’s admitted to some or all of this in the past in the pre-budget consultations only to bring down a budget each time that did exactly the opposite of what was needed to fix the problems. Only Danny’s gone: the rest of the people responsible for seven years of unsustainable public spending and unsound management of the public purse are still in charge.
We can hope for the best but experience tells us all to expect the worst.
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As at 19 March 2010, the EMS identified that 56 (12.0%) of the 465 recreational vehicles were missing. We also found that 49 of the 56 missing recreational vehicles were assigned to the Department of Natural Resources.
Yes folks, Premier Kathy Dunderdale’s former department lost 49 snowmobiles and all-terrain vehicles and that accounted for 87.5% of the government’s inventory of missing ATVs.
We note that the 2006 Report referred to 80 missing recreational vehicles and indicated that "To have this number of machines unaccounted [for] is unacceptable and increased monitoring of both ATVs and snow machines is strongly recommended.” The Report noted that 67 of the 80 missing recreational vehicles were assigned to the Department of Natural Resources and the Department of Fisheries and Aquaculture.
If it wasn’t for oil prices, the provincial Conservatives wouldn’t have anything to crow about when it comes to public finances.
And since they have no control over the price of oil, you don’t need to be a rocket scientist to understand that building their budget plans on oil prices is something bordering on insane.
You can see that insanity by looking at a chart from the Auditor General’s recent report showing the provincial government’s budget surpluses and deficits.
Three things:
Take 2007, for example. According to the budget for that year, Tom Marshall planned to come up short by $1.2 billion. The year before he actually came up short on cash by $707 million.
While you’re at it, these charts also explode the latest bullshit bomb finance minister Tom Marshall’s been spreading now that the Auditor general’s report is on the street. According to Tom there was a plan, tons of fiscal responsibility and then temporary deficits to make sure the nasty old recession stayed away from our shores.
If you reflect on the actual budget history of the Williams administration, you will see that only real difference between 2009 and all the years before isn’t that 2009 was a year of “stimulus”. It actually follows the established pattern of planned overspending.
What changed was the world price of oil. In 2009, the provincial government’s budget forecast and the actual average turned out to be pretty much the same number. 2010 might not be far off that experience, at least as far as cash flow goes.
And that “stimulus” spending? Well about half of it was actually stuff the provincial government just couldn’t deliver two or three years before when they first promised it. The packaged it up and called it “stimulus” but it as really something a lot less impressive than it sounded. It was, however, a typical Fernando announcement: it looked a lot better than it actually was.
The provincial government has spent the last seven years spending public money.
Lots of it.
At umpteen times the rate of inflation.
And they started unsustainable spending long before the world went into a recession.
If they had a plan, it certainly wasn’t to spend responsibly, reduce the public debt and generally look after things for future generations. In fact, if you look at how much they spent and what they spent it on, it looks like old-fashioned pork-barrelling on steroids.
All that puts the current provincial administration is an especially hard spot. Politically, they won’t be able to start fixing the problems they’ve created. There’s the election and then, if they win in October, they’ll have to settle the leadership thing. They can really only carry on with the spendthrift ways they’ve followed for the past seven years.
At the same time, politically, the public is now clued in to the problem, wise to the government torque and looking for the sort of serious leadership decisions that the Conservatives can’t really deliver.
Not exactly the greatest situation to be in with an election coming in a few months time, is it?
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"It would be a travesty if we don't use this windfall we have, this oil — which will be gone one day — if we don't use that to get rid of this massive debt that our people and our governments have accumulated."
That was finance minister Tom Marshall late last year when he released the provincial government’s financial update for Fiscal Year 2010. He made the comment to CBC’s Jeff Gilhooley during a live interview.
Auditor General John Noseworthy’s most recent report on the public accounts (for Fiscal Year 2009) pretty much demolishes Marshall’s claims that he and his fellow Conservatives have been managing the province’s finances in a sound way.
The chart shows debt expenses by fiscal year over the past decade. Incidentally, just to make sure you don’t get screwed up in this and subsequent posts, notice that the Auditor General mislabels every fiscal year. The period covered in this chart is from 1999 to 2009. That’s the way your humble e-scribbler will refer to the dates.
This chart shows just exactly how much money the provincial government spends every year to service the public debt. Very little of that is actually going to pay off a debt. The overwhelming majority of that money goes just to pay the interest that comes due every year.
Take a good look at those numbers.
In 2009, the provincial government spent the better part of a billion dollars doing nothing but paying interest on outstanding debt.
Those figures also tell you that what the province’s finance minister and even the Auditor General call “net debt” isn’t really the measure of public debt that you should be fixed on. After all, if the provincial government really had reduced public debt by almost three or four billion dollars, we wouldn’t be back paying debt servicing costs the likes of which the government hasn’t seen since 2001.
The number you need to look at is gross debt, or, as the Auditor General labels it in the chart below: “liabilities”
That shows the total amount owed now and in the future by the government and its corporations and agencies. When it comes to figuring out interest payments and so on, that’s the figure the banks and other creditors look at. Think about it for a second: if you have a mortgage on your house, the bank doesn’t check every year to see how much cash you have in the bank or anything else to figure out the interest payments you need to make on the loan. They just know how much you borrowed and what rate of interest they are going to apply.
So when you look at that line called “liabilities” you will see that the provincial government had $13.733 billion in 2004 – the first full year the Conservatives were in power – and owed $12.559 billion five years later. Not surprisingly, the debt servicing costs in 2009 were not far off what they were way back before Tom Marshall, Jerome Kennedy and the rest of the provincial Conservatives worked their supposed financial miracles.
Take a look at these two charts and you’ll know why your humble e-scribbler has been harping on this point for pretty well the whole span of Bond Papers. Paul Oram’s resignation in the fall of 2009 - note the year! -just highlighted the issue.
Take a look at those numbers and you’ll understand why Tom Marshall simply has no credibility when he talks about his administration’s management of public finances.
And if you look at those figures you’ll understand that, even if the Muskrat Falls deal was brilliant – and it isn’t – the provincial government has far more pressing issues to deal with rather than build someone’s political legacy. That deal would take the gross debt from $12.5 billion to between $17 and $18 billion.
Tom Marshall’s already given us a judgment of his own performance as finance minister: a travesty. They haven’t reduced the public debt to any appreciable degree.
So what would it be if the same guy and his cabinet colleagues then increased the public debt by another 50%?
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