“Budget decisions can lead us to a more hopeful future:” David Thompson

BC-based independent economist David Thompson/photo submitted

Like the rest of us, you’ve been hearing about the economic troubles here in Newfoundland and Labrador. The story goes that we have no choice but to cut budgets and jobs and increase fees. But economist David Thompson says we can tell a different kind of story about the economy here in Newfoundland and Labrador. In fact, he believes that if we told different stories about our economy, we would be able to find different solutions than the ones that are commonly offered up. He said that “doom and gloom” stories prevent us from seeing the real, viable solutions in front of us. We don’t have to run ourselves off a “fiscal cliff.”: we can turn ourselves around at any point.

Thompson is an economist and a founder of PolicyLink Research Consulting, a B.C. organization providing advice to governments, labour organizations, and the private sector on economic and resource management issues. Thompson came to Newfoundland and Labrador to talk with Finance Minister Tom Osborne about Newfoundland and Labrador’s economy with the NL Federation of Labour. I caught up with him for The Independent just as he was about to board a plane for Vancouver and here’s what he had to say.

“The big picture is that there’s been an awful lot of doom and gloom in the discussions about the economy and it’s not really supported by the data. You know there’s been an incomplete coverage of the information that is available. And it’s led the conversation into this doom and gloom area that also leads you to certain policy conclusions that I think are also unwarranted.

“We do have there is an appetite for sensational sound bites but I think you also have to do that thing follow the money and see who benefits from doom and gloom stories. And the people who benefit from doom and gloom stories are people who are urging us every single time, no matter what the news is, to cut, cut, cut. So we’re spending too much and it’s out of control so we’ve got to cut spending. Who are the people saying that? You can trace it back and it’s the same people giving the doom and gloom story. And you know who they are better than I do, locally. So I think that they’ve been fomenting this disaster scenario and saying therefore we must cut.”

“I think the first thing is to look at the existing budget and to look at what conclusions we can draw about it and what needs to change. So you’ve seen all the news stories about and all the government commentators and stories about how Newfoundland has this disastrous spending problem and it’s leading us into this financial armageddon and all of that. So we had a look at the numbers and I’m not going to contest anybody else’s numbers. But I will say that the ones that I’ve seen in discussions don’t paint a very complete picture.

“I don’t know if it’s a habit of thought or if we’ve been trained into it but the reaction to challenge seems to be despair as opposed to find the policy solutions that are going to fix this. And I think that we need to retrain ourselves to think, okay I see the precarity, okay what are the solutions to precarity? Another thing that we’re looking at out in BC is precarious work and I’m a precarious worker myself. And I mean I’m a very fortunate precarious worker compared to a lot of precarious workers, no doubt about that. But ubiquitous now. I mean the official statistics don’t even begin to cover what it is because we don’t even have a measure for it. Right we have these proxy indicators like part-time work, low-paid work, contract work, temp work, but none of it fully captures precarity.”

The people who benefit from doom and gloom stories are people who are urging us every single time, no matter what the news is, to cut, cut, cut.

Newfoundland and Labrador is not the spendiest province. On a per GDP basis it’s the second-lowest spending province in the Atlantic and middle of the pack in Canada. And when it comes to employment of civil servants in that province it’s got the lowest on a per GDP basis and second lowest on a per capita basis in the Atlantic. So that’s very different from what’s being said and different measures are being used. Some other commentators are using a weird measure. The number of civil servants per employed private sector worker. And they’re saying, ooh that’s the worst ratio, and they’re kind of reaching for bad numbers. when you see them expressed that way.

“So anyways we wanted to present a different picture on the spending and when you take a bigger picture and say okay so relative to Canada maybe we’re middle of the pack on some of these things. Where does Canada stand? In terms of social spending Canada is near the bottom of the pack of developed countries, So in the OECD we’re 8th or 10th from the bottom of the pack from the economy. So comparing where you are to other provinces, you’re not the most expensive in Canada. And Canada is so far from being the most expensive of industrialized countries.”

“There’s revenue options the government has that it hasn’t fully explored and there is a wide range of them. Before we get there, we have to look at the government’s own forecast and the government is forecasting that they’re going to be returning to a balanced budget by 2022. That’s even without these revenue options. So you know it’s not the kind of armageddon that you might expect.

“The top personal income tax bracket in Newfoundland and Labrador actually has the lowest tax rate in Atlantic Canada. Now I don’t know why anybody thinks that’s a good idea. And the corporate income tax rate is also low compared to the rest of Atlantic Canada. So there’s a couple of places where revenues can go up. And I mentioned the carbon tax rate which are actually quite a bit larger going up.”

“At this point in the conversation Muskrat Falls always comes up. So you know we had a little bit of a look at the data around Muskrat Falls. I don’t think there’s anybody in the province who would say that it turned out well with the big overruns and that sort of thing. But we crunched the numbers and had a look at the government numbers and what the government’s forecasting is that given the current costs the electricity rates would double to 22 or 23 cents per kilowatt hour. Big jump for this province. That being said, that still isn’t the highest price in North America. Electricity rates are going up by more than the rate of inflation all across Canada. People in BC, people in Manitoba, people in Ontario are very worried about where electric rates are going.

“Now the government has an option to do what they call rate mitigation, which is fancy talk for basically just giving money to Nalcor so Nalcor doesn’t raise the rates that much. They’re talking about maybe bringing the rates down to 17 cents, which is what was forecast when Muskrat Falls was first approved. I think it’s also forecast to be the Atlantic Average. So they can do that and it’s going to cost less money than the government is going to bring in through the federal carbon tax. Like significantly less money. Like a 100-150 million dollars less. So you know nobody’s happy about Muskrat Falls and where the numbers turned out there, but it’s also not going to send us over the cliff into bankruptcy. It’s easily managed within the scope of the carbon tax revenues that are coming. And you know whether Newfoundland wants the revenues or not, they’re coming.”

“We had a really good meeting with the minister. It was very respectful. There was a lot of curiosity and engagement on the issues. He was really into the conversation which i thought was great.

“We went through deficit, revenues, spending, Muskrat Falls, and then talked about creating a more positive hopeful vision for the future. and how we can work towards that and how budget decisions can lead us to a more hopeful future. So that’s kind of like a big picture overview of it.”

“We said Kudos [to the minister] for publicly rejecting that doom and gloom story. I think the finance minister a few weeks ago said that calls for deep deep cuts would send the economy into a tailspin. So he was kind of happy to hear us acknowledging him. I think he was kind of expecting we’d be coming in there all critical. You know sometimes we were, but sometimes we saying good on you, and good on you for keeping a sort of a steady hand on the rudder and steering through some challenging waters without going completely sideways.

“You know we’re still in a recession here. No real economist would say that is the time to be cutting and balancing the budget. I mean you ride out recessions with public spending and you stabilize the economy. And then when the economy recovers, that’s when you make up your fiscal balance.

“He totally gets we need to give people hope and not just because it’s the nice thing to do. The messages that the government gives to young workers and young families matter in terms of their decisions. So if it’s doom and gloom all the time that’s going to have an impact on business investment and people’s willingness to stay here versus running away to another place.”

“In terms of what the government should be watching out for I’d say the most glaring one is unemployment which is approaching 15% and will top 16∞ next year and if you brought in all the people that aren’t captured in the official employment rate so all the people for instance who have given up looking for jobs you’re looking at over 20% or 1 in 5 Newfoundlanders and Labradorians. And that is a true crisis. That is an emergency that needs the government’s full attention.

The first principal of the hippocratic oath that doctors have to subscribe to is first, do no harm. And so you know if you want high employment levels don’t cut jobs. And let’s diversify our economic sectors a little bit, try to steer the economy towards small, locally owned businesses that tend to generate more jobs and much more economic activity locally than big multinationals do and let’s make sure that we’re getting the full amount of resources that we do extract both renewable and non-renewable when we sell them.”

“And I think related to unemployment is of course the gender wage gap. Poverty levels are on the rise now after having gone down in this province for many years. They rose in 2015 and when we see the 2016/2017 data they’re going to be rising a lot more. It’s also it happens to be the most unequal province in all of Atlantic Canada. I saw some troubling statistics about women and poverty being overrepresented in poverty, particularly single women parents whose children face a 75% poverty rate. So there’s lots that needs to be done about poverty and inequality as well as unemployment and you know some of the folks who can most afford to chip in to help cover that would be corporations and folks in the top income bracket.”

“At the other end of the income scale we need to be doing a better job on minimum wage. The government has talked about loosening it and indexing it, but probably the majority of Canadians now, I think about 60-65% of Canadians, now are going to be in provinces with $15 minimum wage. And that’s just a start. I mean $15 minimum wage is still a poverty level wage in Newfoundland and there needs to be a movement toward a living wage.

“I can get into doom and gloom as well but. I don’t get into doom and gloom over a deficit that’s going to fall down to zero in four years. I get into doom and gloom over things like automation and what that’s going to do in the world of work. The researchers who’ve studied it and major consultancies and economic forecasters talk about automation affecting 30 to  50 percent of jobs. And that’s not eliminating 30-50 per cent of jobs, but affecting them and they will be eliminating some and probably quite a few. Now when you get that and you get people who are super pessimistic and anti-government and the prospect of high unemployment and you are looking at the rise of populism and the type of thing you see south of the border the type of thing you saw in Germany in the 1930s. You see things heading in a very bad direction. And I am actually really worried about that. It does keep me up at night. There are signs of hope though. There are people who are now pointing out that everybody from labour leaders to Bill Gates is pointing out that we can we’re not going to turn back the clock of time right, nobody’s going back to the mid-20th century but we can shape the future. So people have been talking about automation taxes. And so another thing we suggested to the minister actually is has Newfoundland started to develop its automation tax strategy yet. And no they haven’t but there are several ways you can structure. automation taxes to both slow down the loss of jobs and to provide money to backfill because as the jobs go you are going to be shrinking your tax base. And you’re going to be increasing your spending at the same time so there’s going to be a bit of a hole in the budget caused by automation  so automation tax can help fill that hole it can also help steer the development of technology and hopefully keep more jobs and keep them for longer. So that’s like an existential threat as I see it. We talk about it as if it’s going to be a long ways off and I don’t think it’s going to be a long ways off.

“I talk to people about this in all sorts of different contexts and everybody is up on this. I think that the automatic cars and trucks have really made it concrete for people. That’s what brought me in. I was actually seeking distraction when I started reading up about this stuff and I thought oh my God this is leading me right back to work.”

“There’s that bumper sticker ‘When the people lead, the leaders will follow’ and I wouldn’t expect anybody to take care of this for us I think we have to fight for it. The leaders didn’t bring about the end of slavery and they didn’t bring the vote to women. Other people did that.”

Get our weekly newsletter for in-depth reporting and analysis delivered straight to your inbox. You can unsubscribe from the newsletter at any time. Have a question? Contact us or review our privacy policy for more information.


Sign up for our weekly Indygestion newsletter


Sign up for the Indygestion newsletter

Each Saturday, we'll deliver a recap of all our in-depth reporting and analysis from the week.

Our donors make it possible.

Newfoundland and Labrador’s premiere outlet for progressive ideas is only possible with your support. Will you join us?

This site uses cookies to provide you with a great user experience. By continuing to use this website, you consent to the use of cookies in accordance with our privacy policy.

Scroll to Top