It’s time for serious talk about the NL fiscal bail-out

in Featured/Opinion by

The news is full of prognostications of doom and gloom these days. Province set to go bankrupt, unassailable debt, unpayable power bills. What are we to do?

For one, we need to start talking seriously about what a bail-out of this province’s crippled finances would look like, if it happens. More and more people (such as the economist cited in this CBC story) think it’s likely to happen. A country like Canada, which espouses to first-world status, does not simply allow an entire province to go bankrupt and shut down.

What we should be focusing serious public discussion about, is not if there will be a bailout, but what the terms and conditions of that bailout will be, and how it will happen. On whose terms, and with what end-goal in mind.

We need to be having that discussion now, and it is deeply troubling the government has not made any indication it’s preparing for the strong likelihood of an eventual bailout. The time for action is now—before the situation gets so out of control that there is no negotiating space or room to manoeuvre left. When you realize you’re irremediably in debt, you should seek out financial aid and advice at the earliest possible opportunity, not wait until the collection agency is knocking at your door and the bank pulling up outside to repossess your house.

There are stark and compelling reasons for the provincial government to get the ball rolling as soon as possible on negotiating a reasonable and principled ‘bailout’, before the situation gets worse. Seeking aid while we still have some liquidity in provincial finances enhances our ability to deploy policies to get ourselves back on our feet. This should comprise two strategies: first, engaging the federal government around debt restructuring and the fiscal gap between revenue and expenses required to operate a province like NL; and second, engaging the other provinces for a strengthening of national federally-funded social programs. Here are some of the premises on which this strategy ought to be based.

Federal government bears responsibility for NL’s debt

First of all, it is important that we not allow the province to be painted as bearing sole responsibility for its current situation. It’s important to remember that this province is not exclusively to blame for the situation in which it finds itself.

It is as much a victim of the federal government’s broader lack of due diligence and overzealous pursuit of federal energy policy as of its own poor governance.

The federal government was a key catalyst to the project’s moving forward by issuing the Muskrat Falls loan guarantee. In doing so, not only did the federal government become an active partner in facilitating the project (the over-arching source of provincial debt), but it also failed in its own fiduciary duty to review the feasibility of the project and due diligence the federal government has the resources and expertise to do.

This is, remember, the federal government that has already issued threatening statements against British Columbia for early signs it may be rethinking an energy project of its own. As CBC reported:

Prime Minister Justin Trudeau pledged Thursday to do whatever it takes to get the Kinder Morgan pipeline from Alberta to British Columbia built.

“We’re going to ensure that pipeline gets built because it is in the national interest,” Trudeau told reporters in San Francisco, California during the second day of his Western U.S. tour.

It’s in our province’s interest to consider the argument that the federal government was so eager for Muskrat Falls to proceed that it ignored its fiduciary responsibility to due diligence because that venture furthered the aims of the federal government: making Canada an energy power-house at all costs (even the cost of the fiscal self-destruction of its most easterly province).

Moreover, the federal government was complicit in quashing local grassroots initiatives to stop or slow down the project. By permitting federal police (RCMP) to move against Land Protectors attempting to stop the project, and by permitting federal military support to federal RCMP squads, the federal government went beyond simply aiding and abetting the project at a financial level and became a backroom enforcer of the project.

This is not to deny that there are Newfoundlanders (and Labradorians) who bear responsibility and blame for the project (and the ensuing, possibly crippling debtload). But it is to emphasize that that responsibility is borne as well by the federal government. Insofar as the federal government has greater resources and expertise, which it either deliberately or by omission failed to bring to bear to the project, the degree of federal responsibility is at least equal to that of the province, if not greater.

The point of this is not to deflect blame from the province, but to acknowledge the shared blame of both provincial and federal leaderships. Acknowledging this shared blame is key to accepting that any solution will require federal help, and that such help is not an act of mercy but the righting of a collective failure in leadership.

A need to engage provincial governments

Second, to ensure this situation doesn’t get out of hand, the provincial government needs to engage nationally with the federal government and other provincial governments to strengthen the country’s federally funded social programs. If our highest costs are health care and education, our premier needs to be in Toronto and Vancouver and Winnipeg rallying other provincial governments to strengthen federal funding for health care, education and other social programs and restore that funding levels to what they were thirty or forty years ago. The best way to cut expenses for this province is to strengthen the federal role in funding social programs. That’s why we decided to join this country in the first place, remember?

It’s an appalling abdication of the provincial government’s responsibility that they are not waging an energetic national crusade to strengthen the country’s social programs and restore federal funding for health and education. Instead, they turn to us—the poorest people in the country, and their own constituents—and try to squeeze more money while providing less service. It’s a lazy, irresponsible, and mind-bogglingly short-sighted approach to what should be one of their primary responsibilities.

And there are possible allies out there. Several provinces are bringing in $15 minimum wages; Ontario universities are starting to eliminate international student differential fees; NDP governments are boosting investments in health care and childcare. All of these would benefit tremendously from increased federal funding to public services and social programs. There are tremendous opportunities to forge an alliance of provinces around these issues, if approached the right way. Given that health care and education are two of the province’s highest areas of expenditure, every bit of additional federal support helps alleviate our stressed finances. It ought to be pitched not as bailing out NL, but as restoring the country’s federally funded social programs to a sustainable level again.

The time to act is now

The longer we wait, the worse the situation becomes. This is precisely the situation countries like Greece have found themselves in in recent years. They dithered and dallied until the scale of their fiscal problem was undeniable, and by that point had so little liquidity left they had to accept whatever desperate measures they could get European financiers to offer. The terms set by European bankers involved crippling loans coupled with horrific public policy demands (sale and privatization of public services, mass layoffs, cuts to public services and pensions, etc). The European bankers ‘bailing out’ Greece sold it to their own constituents (other European countries) as a form of punishment for Greece’s bad decision-making, and took advantage of the situation to fleece the country and cut short any legitimate possibility for getting itself back on its feet.

We must avoid outcomes like that when it comes to our own inevitable bailout. The time to act is before things reach rock bottom. Building on the principle that the federal government shares significant responsibility for this province’s Muskrat Falls debt, we ought to seek a restructuring of that debt. If and when other provinces complain about NL receiving special treatment, we can remind them that by guaranteeing our loans, sending in federal police and military support to quash protests, and encouraging this energy project, the federal government became a partner with the province in the whole sordid affair. Helping us to write off and restructure our debt, and/or renegotiate the bad contracts in which we’ve become entangled, is not about giving this province special treatment but about strengthening a responsible partnership between NL and Ottawa. Ultimately, it benefits no one for this province to be mired in poverty and third-world conditions.

Narratives to resist

There are already certain narratives circulating that are designed to set the stage for a punitive bail-out. These slanted narratives serve to benefit the irresponsible elites responsible for this mess, and ought to be strongly refuted and resisted.

First, the province’s primary problem is not public spending. We do not spend lavishly on public services. Health care, education, and other social services have been largely stripped to the bone. There are still certain areas of irresponsible spending—management salaries and consultants’ contracts, for instance—which ought to be reined in, but for the most part spending on the services themselves has been stripped to the bone. Nurses are working exhausting round the clock shifts and can’t get time off to recover and recuperate; there are wait times for most medical procedures; K-12 classrooms are overcrowded and underresourced; per-course instructors at the post-secondary level are underpaid and those relying on social services receive less than is necessary to survive well and in dignity on a day to day basis.

With the exception of, again, consultants’ contracts and management salaries—which ought to be reined in—there is no more room to cut. Blaming the problem on public servants, public services and everyday NL’ers is a common tactic of governments seeking to avoid the blame they deserve. As progressive economist Yanis Varoufakis described in his native Greek context, it is a “policy of victimizing the depression’s victims in order to teach the Greek citizenry that it was to blame for the nation’s implosion.”

It’s a simple truism that offering modern public services in a place like Newfoundland and Labrador, with its small population, challenging climate and sprawling geography, will cost more. We will always be at the most expensive end of the spectrum in the country. It’s silly to compare our expenses to those of mainland provinces and then act as if we’re doing something wrong. People who think we should be spending at levels equivalent to a centralized urban industrial province like Ontario ought to be making policy in Ontario, not here. The same conditions and public policy solutions do not apply.

How will we undertake this?

When you go into negotiations, you need cards up your sleeve. We have few, but we have some. The Muskrat Falls Inquiry is going to acquire serious political power because it will be undertaking its work just as bail-out discussions are going to start intensifying. It needs to be open and forthright in identifying the federal government’s failures as well. The project is an affront to sustainability and environmental principles, and also to principles of Reconciliation and Indigenous sovereignty. Canada has international obligations on all these fronts which are undermined by the project and which could be used as leverage to secure federal cooperation in a reasonable debt restructuring strategy. As well, Indigenous-led communities have put up some of the strongest resistance to Muskrat Falls. Instead of fighting them, or trying to co-opt them, the provincial government needs to seek their aid in developing a united front to underscore the many ways in which Muskrat Falls violates principles of Reconciliation and Indigenous sovereignty—more reasons why the federal government has an obligation to intervene and help the province’s communities get back on their feet. Labrador’s Indigenous-led communities will be doubly punished by the project: first by its actual imposition on their lands, and second by the fiscal consequences of the debt it has incurred. For years the provincial government has treated Indigenous peoples and Labradorians with disrespect and as the enemy. Yet those same peoples may be the ones best situated to get this province out of its mess. But it will require a new attitude from the provincial government, an acknowledgement of past wrongs, and a willingness to cede greater resources, revenue shares, sovereignty and political self-determination to those Indigenous-led and Labrador communities.

The provincial government must be willing to accept change in return for a reasonable bailout. Not concessions that undermine the province’s democratic self-determination or future growth (as happened in places like Greece under bailout terms), but change that will improve both those things and help us to avoid the mistakes of our past. This could involve stronger reinforcement of democratic governance, weakening Executive power (the Premier and Cabinet) and strengthening citizen watchdog entities like the Public Utilities Board (and creating more of these empowered watchdog groups). Democratic reform would help as well. Greater self-government and resource-sharing for Labrador should also be part of any debt restructuring, to avoid Island elites making bad decisions affecting Labrador communities ever again. A substantively renewed relationship with the province’s Indigenous peoples should be part of the bailout conditions—not the sort of fake chump-change-for-photo-shoots that has hitherto constituted provincial-Indigenous relationships, but genuine resource-sharing, investment and self-governance. A balance must be struck between reducing ruinous corporate and elite private-sector self-interest and influence in political decision-making, while at the same time empowering and encouraging actual small business growth. These are commitments the provincial government needs to take seriously in exchange for any fiscal bail-out from the federal level.

We must avoid letting pride raise its ugly head in this process—no self-dfeating sentiments such as the notion that it is we who have a spending problem, or that we ought to solve our problems on our own. Nonsense. There’s too much at stake for ourselves and future generations for us to engage in that sort of old-fashioned pride. Governments that have made poor choices, or failed to adequately tackle them, must not be afraid to admit they were wrong and seek help. Swallowing their pride is a much better alternative to mass poverty, starvation and seniors freezing to death in their own homes.

The federal government has the resources to help this province get back on its feet, and the political power to reshape some of the commitments and agreements Nalcor has embroiled us in. Together, we can reverse the grim future prognosis. But we need to start discussing this now, and developing a coherent negotiating strategy that does not involve us begging hat in hand, but engaging in firm and principled negotiations with a partner that helped get us into this mess and is perhaps the only one that can help get us out.

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