How a Newfoundland and Labrador legacy fund could work

Plus: Stephen Harper’s Typology of Promises!

So the federal loan guarantee for Muskrat Falls was announced last week. Or at least, there was an announcement about it. Essentially, the announcement was that Stephen Harper would stick by his election promise to provide a loan guarantee. Full details will be negotiated and announced by November 30.

I’m a bit puzzled why the big press conference when most details won’t be forthcoming for another three months, but perhaps the federal Conservatives consider it a bit of a newsworthy event if they fulfill an election promise (or at least, if they aren’t breaking it). And, of course, the upcoming provincial election probably had something to do with it. Harper’s already bladed out Dunderdale enough times that they probably decided to give her some good press going into the election.

Basically, the loan guarantee is sort of like a federal post-election promise doubling as a provincial pre-election promise, but it’s more like a pre-promise since the details will be worked out post-election.
(In other words: pre-post-erous!)

But reflecting on this, it occurred to me that when we all got upset with Harper for allegedly breaking his word on the Atlantic Accord, we really just didn’t understand him properly. You see, we can’t assume everybody has the same take on the world, and that ideas and notions (like, you know, “promise”) mean the same thing to everybody. Just as there are some people who think the world is flat and that the moon landing never happened; and just as there are some Mormons who believe that Adam and Eve came from outer space and other Mormons who don’t, there are also some people who believe that a promise is a promise (most of the world) and others who adopt a more nuanced interpretation of the term (Stephen Harper). And given that his government felt the need to hold a press conference to essentially announce that he doesn’t plan on breaking his promise (yet), it occurs to me that we could (if we were, you know, university sociologists or some such) develop a typology of promises to understand him by.

Here is, as best I can tell, the Stephen Harper Typology of Promises:

Grade 1 Promise:
Purpose: win elections, silence complainers
Method of delivery: oral
Will be kept: No

Grade 2 Promise
Purpose: win elections, regain alienated former supporters, especially provincial conservatives
Method of delivery: oral
Will be kept: maybe, but only if he’s feted to his liking at a televised rally of cheering supporters

Grade 3 Promise:
Purpose: help allies win elections
Method of delivery: press conference
Will be kept: yes but not necessarily the way you think it will be

Grade 4 Promise:
Purpose: prove to media his government doesn’t break promises all the time
Method of delivery: written
Will be kept: yes, as circumstances permit

So you see, the way to live with a federal Conservative government is simply making sure you understand in advance what sort of a promise you’re being given. The Atlantic Accord commitment, for instance, was clearly a Grade 1 Promise. The federal loan guarantee started off as Grade 2 and has now been upgraded to Grade 3. If all goes well (i.e., Conservatives win the provincial election, I suppose), there’s a good chance it’ll be upgraded to a Grade 4 promise and come through.

So it all makes sense.

The moon landing, on the other hand…

Legacy Fund: a logistical proposal

After my previous column on why Newfoundland and Labrador urgently needs to create a natural resource legacy fund, I received a lot of emails from people who agreed, but also a lot seeking more information on how such a fund would work. Given that the new Liberal party leader gave his commitment to fight for such a fund during the Liberal leadership town hall, it’s becoming more of a reality every day. I’ve spoken to several NDP campaigners who have also been very supportive of the idea. It’s hard to imagine the PC’s being the only party holding out on making a sensible long-term fiscal commitment to the economic stability of the province.

But how would a legacy fund work? Typically, legacy funds are established when a country/province which is heavily dependent on natural resource revenue (like us) realizes that one day those resources will run out, and invests a fixed percentage of revenues from those resources into an investment fund which will grow over time. For instance, Norway created a fund in 1990 in which to invest part of its oil revenue, and that fund is now worth over $500 billion. That’s just 20 years of investing. Now, we would not be able to invest the same amounts of money as Norway, but that doesn’t mean it’s not worth doing. The important thing is that we start some sort of long-term investment of our natural resource revenue. For the past three years, we’ve been bringing in $2 to $2.5 billion in offshore royalties. If we invest merely 10% of those revenues annually (continuing to spend the rest) into an investment fund that brings in 4% return, then in 10 years we’d have a fund worth almost $4 billion. If we double the rate of investment, in 10 years we’d have a fund that exceeds the current total amount of provincial and federal revenue sources for the province combined.

Now I’m a writer, not a mathematician or economist, so I take no responsibility for either these figures, or the global financial situation and the price of oil. However, I think this is a quick and dirty reflection of how a properly managed legacy fund could pay off major benefits to the province down the road.

As the Norwegian government website explains:

The fund was set up to give the government room for manoeuvring in fiscal policy should oil prices drop or the mainland economy contract. It also served as a tool to manage the financial challenges of an ageing population and an expected drop in petroleum revenue. The fund was designed to be invested for the long term, but in a way that made it possible to draw on when required.

The fund was called the Petroleum Fund until 2006 when it was renamed the Government Pension Fund Global. The change highlighted the fund’s role in saving government revenue to finance an expected increase in future public pension costs. Despite its name, the fund has no formal pension liabilities. No political decision has been made as to when the fund may be used to cover future pension costs.

Legacy Fund: not just for oil

Second important point is that it wouldn’t need to just be offshore oil revenues. Mining advocacy groups have been recommending the provincial government create a legacy fund for mining revenues. In addition to which, if the Lower Churchill comes online, we can add a fixed percentage of hydroelectric revenues as well. In other words, this needs to be not just an oil legacy fund, but a natural resource legacy fund. A fixed percentage of oil, mining, hydroelectric – and any other natural resources we begin or expand development of over the years – can be added to the fund, further strengthening it. If we achieve greater-than-projected revenue in any given year, the additional revenue can go into further strengthening the fund as well.

How do we spend it? Well, Norway has a policy permitting a deficit no larger than the fixed rate of return on the fund. That’s one approach.

Or, we could set it up to pay off our provincial debt, either by a target date, or by allocating a fixed percentage of revenue from the fund into paying down the debt.

Or, we could go in another direction entirely. We could designate the fund to be used solely to fund social programs: health care and/or education, for instance. We could dedicate revenues toward the long-term elimination of all tuition fees in the province. We could apply it toward providing universal daycare, or use it as a lynchpin in a long-term pension scheme for the province’s pensioners.

I’m not trying to sound pie-in-the-sky here; we can’t do all of this. But we could aim to do any one of these things.

How would it be administered? Well in Norway the Ministry of Finance is in charge of the fund – meaning government can amend its mandate or management, thus ensuring democratic and public accountability – but the day-to-day handling of the fund is in the hands of the central bank.

As the Norwegian government website explains:

The fund follows the investment strategy laid down by the Ministry of Finance. The goal is to have diversified investments that will generate the highest possible return within moderate risk levels. Responsible management of the fund shall safeguard and build financial wealth for future generations.

We could pursue a similar set-up, or we could adopt a more tri-partite structure (a European-style approach which Newfoundland and Labrador has proven quite successful at), say by establishing a Fund Management Committee with representatives from government, business, labour, student and community groups to work with economists and financial advisors to ensure an appropriate and accountable management of the fund. Given the success of this model in Newfoundland and Labrador, and the fact that the governing party will in all likelihood change periodically throughout the life of the fund, a more made-at-home approach like this might prove more successful and receive greater popular support.

Either way, let’s plan for our future, for once in our history

Let us think of the future, not in terms of 4 or 8 years from now, but in terms of 20 or 30 years; of Newfoundland and Labrador half a century from now. What will life be like, if we fail to seize this opportunity today?

Will we be the Westmount of Canada? The place where only the wealthy can afford houses and retreats? With the price of real estate rising steadily, and formerly public swathes of beaches and coastline being bought up by Americans and Europeans to use as retirement homes or summer residences, we’re already on that path.

Will our people be spread throughout Alberta and Toronto and Korea and China, the outmigration which is now paused be resumed with even greater force to turn our people into a diaspora in its entirety? Natural resource development is our backup plan. Once it’s gone, what other option will we have?

Will the great, sparsely populated centre of the island; or the entirety of the Northern Peninsula say, be rented out to some great nation like China or Saudi Arabia, its own inhabitants forcibly resettled, and turned into agricultural fields to grow food for the successful wealthy nation that rents it, as is already happening in the poverty-stricken nations like Ethiopia and Sudan (as well as Indonesia, Thailand, and others)?

It’s hard to imagine Newfoundland and Labrador being chopped up and sold, or our once-great communities of Harbour Grace, Marystown, Clarenville or Grand Falls-Windsor abandoned as the hundreds of towns resettled in the 1960s now are. And I do not, as a whole, encourage pessimistic or hopeless thinking: it detracts our time and energy from addressing the challenges of the present.

But if we do NOT act, and if we do not address the future of Newfoundland and Labrador from a perspective that thinks not in terms of years and elections but in terms of decades and centuries, then such bleak predictions – such cruel betrayals and let-downs of the hopes and dreams of all those generations who came before us – could very well be the lot our children or grandchildren will one day face.

Let us work now to prevent that.

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