For anyone interested in politics, 2020 has been little more than psychological water torture. Everything is bad, and it’s getting worse. Into this mess the Government of Newfoundland and Labrador has decided to table a long-delayed budget: “Today. Tomorrow. Together.”
I hope a consultant wasn’t paid for that title.
This year’s budget is a bit of a non-event in policy terms. There is almost nothing in it in the way of new policy announcements other than $25/day childcare, which is clearly driven by the Federal Government—so much so that the budget documents didn’t even estimate what it will cost when the Liberals roll it out in next year’s budget. If the government wins the next election. Protip: that’s a hint.
There is very little in the way of new program announcements. Public spending is basically flat. There are no significant new taxes or fees. Lots of glossy pages today to so little purpose. Basically, for my journalist colleagues in the adjacent room for the budget lockup—they don’t let curmudgeonly academics in the main room—it was kind of “nothing burger” for news.
However, it’s not a “nothing burger” if you are interested in political economy. As a status update on just how bad the situation is in the province, you should pay attention.
Minister of Finance Siobhan Coady worked hard to upsell the positives: it’s good* news the deficit is only $1.84 Billion (a few months ago they thought it might be $2 Billion!). It’s also good* news that we aren’t so dependent on oil revenue this year, given the collapse in oil royalties. We’re diversifying!
The truth is, as you all know, things are really bad. So bad, they make me sound like I work for the Fraser Institute half the time. NL Budgets, I hate that you make me feel that way.
Look, the truth is even simpler than it was last year. The province, despite seven years of austerity, is even closer to financial ruin that it was in 2019 (when we needed federal assistance to calm financial markets). Since Premier Ball wrote his plea to the federal government announcing that we were eating our belts—having since retired to enjoy his lifetime supply of moose—things have only gotten worse. It’s a little odd to sit in the lockup and hear the minister claim that things are “better than we thought.”
The deficit is actually %^&*^% huge—it’s a little less than ¼ of total government spending. We are not coming out of this pit, we are climbing further in.
On a cash basis, debt servicing costs, despite historically low interest rates, are now three times larger than oil and gas royalties. You are not reading that wrong.
Program spending is not out of control. It’s hardly grown for years—despite inflation and despite all the Covid-related spending provided by the federal government.
Last year’s surprise surplus has been downgraded from $1.9 Billion to $1.1 Billion. This seems to relate to declines in oil and gas revenue. It may also have to do with the strange alchemy of how the provincial government is using federal government money promised last year in the revised Atlantic Accord Agreements to create a slush fund for the oil and gas industry. But answers were a bit thin on these issues. Public money for energy megaprojects is just good.
It’s a “pandemic budget.” Stick to the script.
Despite having just ploughed $100s of millions in taxpayers’ money into the offshore oil and gas industry, the government estimates that our oil is going to be worth less than $40 a barrel—a price that made even Charlene Johnson of NOIA a bit sheepish.
Net debt is shrinking, they say. Though both net debt and gross debt as a percentage of GDP are increasing. Another protip: focus on gross debt. These things are often only of interest to bond rating agencies and the like; the kind of people that increasingly dominate NL politics. But it is important to remember that the net debt numbers all rely on your belief that Muskrat Falls and our equity stakes in things like the recently suspended White Rose Projects are worth what we paid. I can’t judge this, but would you buy that dam for what we are saying it is worth?
Perhaps most revealing, this is the first time the provincial government has released a budget without ANY projection of future budgets. Where will we be next year, or the year after? Who can say? Well… normally, finance officials. There is a whole office dedicated to it. Worryingly, while the minister says this cannot be done because of Covid, she apparently has spoken to bond rating agencies about the absence of a forecast for future years. “Minister Coady, report to the principal’s office!”
Senior finance officials seem unconcerned. We aren’t allowed to tell you what they said, but it doesn’t matter—they won’t say much. You might want to reread what government officials had to say about their “successful” oversight of Nalcor during the Muskrat Falls Inquiry; I see more conversations like that coming in the future. I’m not confident that public officials are doing a great job of protecting the public interest at the moment. Apologies to them, but “it is what it is.”
The Politics of the End Times
While NL’s political elite seem blasé about the situation, politically, the province already looks less like a province and more like a ward of the federal government. This budget says it all. This is a pre-election budget. But—strangely invisible for a budget day—Premier Andrew Furey, currently readying himself to go to the polls, can only announce vague federal initiatives at some future date as he has no ability to launch larger responses to the Covid crisis and/or other economic calamities.
The province desperately needs larger federal transfers to support growing health care costs. But provinces are all built differently, and Ottawa is a non-committal partner. Federalism remains the best game of whack-a-mole in Canada.
The province also needs to announce a gradual program of tax increases—but that is another story. It’s an election year.
The Finance Minister and others are quick to find apologies for themselves, in this case emphasizing that this is a “pandemic budget.” They have no shared long-standing responsibility for the mistakes they made in leading us to this place, apparently. Covid is the cherry on top, not the sundae. You have to ask yourself: if this is a “pandemic budget,” where are the policy announcements that respond to Covid? Many sectors have been harder hit than the oil and gas industry. Some schools have no busing. And access to affordable childcare, which we can now all finally recognize as vital to the modern economy, is still a paper fantasy depending on whether or not the federal government will pay for it.
I feel like a broken record. Our future is no longer ours. We are on the edge of financial ruin. There is a pandemic, a climate crisis, and a federal government that may not be there for us—and the minster announced a cut to the gas tax today. A small cut, but it’s a cut that says a lot about what the government thinks about the public’s understanding of the situation we are in.
We’re not idiots. We know things are not getting better.
It does make me happy when a sequestered room full of journalists laugh at things the government says. It’s a “Pandemic Budget”—everybody drink! It just doesn’t fill me with confidence about the future.
Photo by Alex Spracklin.
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