Budget 2021: Good News, Bad News, & Confusion About NL’s Future

This budget got better because the economy got better, and Moya Greene was overly pessimistic about the province’s situation.

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Budget 2021—“Change Starts Here”—was perhaps not the policy event that many thought it would be. The government, fresh from an election from hell, and armed with the Greene Report’s politically-toxic recommendations for massive cuts in health care spending and a suite of tax increases, has chosen “decisive indecision.” No one is really sure what they plan to do about the province’s finances.

The government brought down what might be seen as a “good news” budget, but surrounded that budget with a lot of vague doom and gloom “bad news” announcements about possible spending cuts in the years ahead. Essentially, they “stepped on their own message” of positivity and optimism for the future by scaring lots of people about what they are planning for next year.

If you are confused, so am I. Are we “doing” the Greene Report, or not?

Part of this confusion can be traced directly to the mixed messages the Liberals have sent about what the purpose of the Greene Report was, and what they think of Moya Greene’s proposals. The whole province has been talking about the bleak picture painted by Greene Report and what the alternative to that plan might be. Suspiciously absent from that conversation has been… the government. Cornered by their decision to run a secretive task force on the future of the province, and the subsequent promise to not implement the findings of that task force until they “consult” the public, the government cannot really tell us much about what they plan to do. Or at least, not without looking like they just sought a mandate to implement radical changes to Newfoundland and Labradorians’ relationship with public services without having mentioned those plans in their election platform.

Understandably, the financial crisis facing the province is a minefield for any government. There are only hard choices. But this government has unquestionably made the situation more complicated by being unable to clearly say what they plan to do, despite their commitment to radical “change.”

However, the confusion isn’t simply about communications. Budget 2021 is a bit of a problem for a government that seems to want to hug the Greene Report tightly, but can’t produce a fiscal crisis dire enough to warrant the adventure planned in that Report.

The Budget versus Moya Greene

This IS a “good news” budget in large part because Moya Greene has just told us that the situation is much worse than it appears to be. Without doing anything—no across the board tax increases, no 35% cut in health care expenditures, Budget 2021 cut several hundred million off of last year’s deficit (the government was too pessimistic about revenues during Covid) and projects a deficit of $820 million for 2021. That’s a big number, but its less than half of last year, and 40% less than Moya Green projected it would be. Greene, presumably based on briefings she received from finance officials, projected a deficit of almost $1.4 Billion without action to implement her plan.

Budget 2021 paints a very different picture—deficits are projected to fall rapidly in the years ahead as the province recovers from Covid. Bearing in mind that the last “clean” budget the province had in 2019—“clean” in the sense that there weren’t very unusual circumstances surrounding the fiscal balance—the deficit was about $600 million. This budget is unquestionably telling us the fiscal challenge facing the province is much smaller than many voices have been saying. These are not budgets where the province is spending 25% more than it takes in, as Greene claimed. We’re in rough shape, but these are manageable deficits.

Certainly, the government has rolled out some new measures that have improved this balance, but it is more symbolic than substantive. For example, many are talking about the increases in the top income tax rates—but these are not the revenue measures Moya Greene recommended. For most taxpayers impacted by those changes, the increase is a half of a percent. And it’s a small number of taxpayers. Moya Greene recommended almost $400 million in tax increases. The income tax increase has delivered approximately $15 million.

This budget got better because the economy got better, and Moya Greene was overly pessimistic about the province’s situation. If your goal is to make those huge cuts, this budget is a problem. It doesn’t fit the narrative and the weight of changes proposed by Greene.

Rolling Out the Greene Report

Despite the improvement in the province’s financial situation, make no mistake about it, the communication surrounding Budget 2021 suggests the government is already rolling out the Greene Report. Whatever they learn in their superficial consultations and engagement with the public, the government is already pledging to come up with massive spending cuts next year (the premier has said $900 million, but these numbers mean next to nothing until they’re in a budget—$900 million from what, exactly?). The government has announced it is going to implement the Greene Report recommendations in terms of cutting the regional health boards and eliminate the English Language School District. There are vague statements about changes to how ferry services are delivered—assume privatization is on the table. (Though, ironically, Greene didn’t recommend that.)

Most substantively, Memorial University was handed a massive cut yesterday. I may be biased for obvious reasons, but the cut to the University is particularly interesting—the government just ran a massive review of post-secondary education full of consultations that made a host of recommendations and which they are now going to ignore. It also doesn’t matter what people think of the Greene Report’s vague ideas about education and the University—the government is just going with it. It strikes me as an odd “balance” that the resulting tuition increases will raise almost four times as much money as the income tax increases, but the government is clearly banking on the idea that students don’t matter politically.

Austerity Hasn’t Been Delayed; We Are Seven Years Into It

Finally, many voices around the budget are unimpressed with the vagueness of the government’s plans for cuts. They want deep cuts and they want them now—they have been calling for them for years. Of course, that would be a bad idea for a province still recovering from Covid, but it is also based on mythology that the government is unable to make cuts.

I know it’s impossible to convince the people at the Newfoundland and Labrador Employer’s Council that this is the case, but the government has been cutting. Public sector spending on programs and capital projects has been effectively frozen since 2014. Each year the cost of everything from asphalt to medicines increases; inflation is a thing. Holding the line on public spending in real terms for seven years actually means that you have to makes millions in cuts—attrition plans, layoffs and efficiencies are things the government has been doing. In Budget 2016, the Ball government rolled out an austerity plan which promised to freeze spending.

Budget 2021 highlights that the government has been awfully successful in sticking to those spending plans. Despite the Greene Report’s assertion that all powerful unions had undermined this austerity program, in 2020 total program spending in the province (that’s everything not including debt servicing costs) was $7.6 Billion—that’s $300 million less than it was in 2014. Despite the fact that 2020 was a “Covid budget” with all sorts of unique and unplanned demands on government, spending was only $200 million more than the Ball government had planned back in 2016.

This is what austerity is. The government has been doing it.

While many are pointing to the government’s plans for 2021, claiming “spending is going up,” this is largely rhetoric. Almost all of that increased spending is due to federal government rescue funds for the oil and gas industry which show up as both increased revenue and spending in the provincial budget. Its not an increase in spending on provincial government programs, or public service salaries, or wherever people think money is disappearing. This is a status quo budget. Spending is not “out of control.”

Maybe Things are Getting Better

Cutting through all the confusion about these numbers and what they mean, this is the essential truth: Government spending has been going down on an inflationary basis since 2014. The province does have a lot of debt. Muskrat Falls remains an unmitigated disaster, but outside of Covid and the sudden collapse in oil prices, the province’s financial situation has been improving. Our situation is manageable with relatively small and moderate changes. Those that are unhappy that this budget doesn’t make more drastic cuts want the situation to be worse than it is.

Politically, the question is really whether the government will pander to those voices, or whether they will remain decisively indecisive.

Honestly, I’m confused about what the government’s plans are. That’s bad. But the situation is much better than many would like it to be. That’s good.

Onward through the fog we go.

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