An Elephant in the Room: ‘the Economy’ in NL’s 2021 Election

“The one thing citizens deserve is a more honest assessment of what the future in the province holds, and what each of these parties would do differently.”

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Frustrated by a provincial election light on substantive economic platforms, local computer programmer Michael Murphy-Burton took it upon himself to summarize Newfoundland and Labrador’s fiscal situation.

His analysis, which is based on publicly available figures from recent budget reports, explores current provincial revenues and expenditures—and turns some conventional wisdom on its head.

“A lot of people like to say we’re overspending on rural regions. I can definitely attest that that’s not true, at least for the regions I’m familiar with,” Murphy-Burton, who grew up in La Scie, told the Independent. 

“So, I just wanted to have the numbers in front of me. And the reason why I put this article in particular together was that there was very little concrete information coming forth in the campaign.”

Citizen Economics

Murphy-Burton compared spending percentages in areas such as education and healthcare to those in Ontario and Alberta. 

He found that Newfoundland and Labrador spends a much lower percentage of total revenue on education than those provinces, and a comparable amount on healthcare (39 percent in both Ontario and Newfoundland and Labrador, and 41.3 percent in Alberta).

He determined that the primary difference in provincial finances is interest payments, with Newfoundland and Labrador’s accounting for 18 percent of total expenditures compared to Ontario’s 8 percent. 

As for where the money comes from, the 2019-2020 budget estimates indicate that 14.7 percent of Newfoundland and Labrador’s revenue comes from the federal government. That figure is similar in Ontario (16.5 percent) and Alberta (16 percent). 

Newfoundland and Labrador’s other revenue streams include: personal income tax (23.4 percent); sales tax (18.6 percent); offshore royalties from the oil and gas industry (17.6 percent); corporate income tax (4.3 percent); gasoline tax (3.0 percent); the Newfoundland and Labrador Liquor Corporation (3.0 percent); tobacco tax (2.2 percent); and other provincial sources (13.2 percent). 

Murphy-Burton highlights in his analysis that nearly double the amount spent on communities is given to Nalcor.

“I think we spend a lot of money on projects that are vainglorious,” said Murphy-Burton. “In particular the money that we give to Nalcor, which is nominally a Crown corporation and shouldn’t be financed directly from tax revenues. Particularly as it is adjacent to what is theoretically one of the economic engines of our province [the oil and gas industry].” 

He stresses that his analysis is not the be-all end-all, but hopes that it offers a concrete starting point for people to figure out what they want to hear during the provincial election. 

A Province on the Brink

Russell Williams is an Associate Professor in Memorial University’s Department of Political Science, with expertise in international political economy and public policy. 

He says that three events within the past year signal how deep the economic crisis facing the province truly is.

The first event came in March 2020 when the province tried to issue bonds and was initially unable to sell them. 

“Which is a bad sign, right? It usually means your level of debt is becoming worrisome to creditors,” explained Williams.

At the time, the Bank of Canada was engaged in monetary policy in order to mitigate the worst effects of Covid. As a result, they bought up provincial bonds which helped the province in the short term. 

The second event was in December 2020, when the provincial government found itself in a situation where Nalcor was due to make an $850 million interest payment on Muskrat Falls and didn’t have the money to do so.

The provincial government went to the federal government. The feds waived the payment, with the possibility of taking equity in Muskrat Falls in the future as compensation. 

“So, that’s a big issue in and of itself that’s not being talked about much in this election,” said Williams. “Essentially, it sounds like we’re selling parts of Nalcor’s assets in order to pay interest on the money that Nalcor owes. Which just means bad things.” 

“In the future, these things that we’ve invested a lot of money in are not going to be paying back benefits to the province. They’re simply not the assets they once were.”

The third event came in the lead-up to the 2021 election when the government made a flurry of funding announcements to support jobs in the oil and gas industry—an acknowledgement of how hard hit the industry has been.  

Newfoundland and Labrador now has a roughly two billion dollar deficit and a limited ability to borrow money. 

“I would say that the province is at a real impasse,” said Williams.

The government formed the Provincial Economic Recovery Team (PERT) in the fall of 2020 ostensibly to address these issues.

“[The province] has a limited ability to borrow more money and they are clearly hatching plans on what they’re going to do about that,” Williams explained. “Plans that we’re not privy to, that we’re simply not going to be told during this election.”

Mixed Messaging and Campaign Narratives

Since the election was called on January 15, a number of announcements have been made by party leaders.

The Liberals have focused on optimistic messaging, announcing programs focused on telehealth services, expanding technology and entrepreneurship education, and creating an online investment portal to facilitate entrepreneurship in the province. 

“That stands in really clear contrast to all the economic analysis the government has made this year. The government has been telling us to freak out: things are really bad. And now they’re running an election where they’re saying, well things are really good so let’s not talk too much about reality,” said Williams.

For their part, the PCs have announced payroll tax cuts. At the same time, PC leader Ches Crosbie has also stressed his intention to re-address issues like equalization payments with the federal government

“They’re the ones that are basically saying the province is in a real mess and we’re going to need major assistance. But, of course, that stands in contrast to their announcement about tax cuts to try and stimulate job growth. It’s not really clear what the Conservative economic platform is,” said Williams.

The NDP announced that they would cut the three percent tax on small businesses in order to help small, local businesses in our province. The NDP have also promised to increase the minimum wage to $15/hour by 2022 to address looming financial difficulties and an increasing cost of living.

“The NDP is doing what the NDP does, which is try to turn the discussion of economics upside down and talk about the aspects of economics that impact people in their day to day lives,” said Williams. “So talking about people’s access to healthcare. Talking about the minimum wage. They’re trying to connect with those lived experience issues in the province.”

Calls for Transparency

There has been much attention around the Liberals calling the election prior to the release of the PERT report. However, both Williams and Murphy-Burton stress the need for all parties to have a realistic reckoning with Newfoundland and Labrador’s economic situation.   

“I don’t think any of the leaders have indicated anything particularly concrete about what they plan to do, the hard realities they plan to face,” said Murphy-Burton.

Williams says that a lack of substantive engagement is not unexpected in elections, but that the province is in a difficult—and unprecedented—situation. 

“The one thing that citizens deserve in the province is a more honest assessment of what the future holds, and what each of these parties would do differently to meet the challenges of that future.” 

Murphy-Burton echoes this sentiment: “I want people to recognize that the parties have a responsibility to present an honest case to us. And they haven’t been doing it for years.”

“If I, as a private citizen, can sit down and read the budgets and the annual reports and put together a basic picture of our province in a day or two, surely the political and economic staffers at one of our three major parties can put something together in the course of a campaign, and in the year leading up to this campaign.”

Williams stresses that it is still fairly early in the campaign period and that more substantive policy announcements may yet come.

Murphy-Burton hopes that is the case. 

“But so far I’m not seeing it, and not from any of them. And that’s really disappointing.”

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