BUDGET 2014-15: FISCAL PRUDENCE vs. IRRESPONSIBILITY

Budget 2014 has
been handed down. Taxpayers’ money has been liberally sprinkled by a Tory Government
determined to avoid a repeat of last year’s Budget fiasco.
 

The media
describes it an “election budget”.  That
is an all too familiar code for fiscal irresponsibility.  Boosters of full-time kindergarten, student
grants, lower small business tax and a plethora of other programs and
initiatives have been placated. 

Everyone got
something; a new Premier will arrive soon, too. 
Why would anyone speak of ‘change’ when the good times are rolling
again?  Why would anyone expect Tom
Marshall or Frank Coleman to represent better government?

What about
the awful government that has been upsetting voters? 

Why would
anyone ask?  Don’t you understand that
was Dunderdale’s fault.  It was not her policies either; it was simply her inability to communicate. And, besides, the wicked witch is dead! 

You know we
are a society with problems when, following such an unwise Budget, even Opposition
politicians jostle for position placing claim to having inspired a particular initiative.
But then, not a solitary soul – union leader or community head, could be heard to gripe.

Perhaps,
myopic union leaders enjoy having the deficit in the public service pension
plan differentiated from the other debt obligations of the Government; as if pensions were a lesser obligation than money owed the Bond market.   If I were a public servant, I would not
embrace the inference.

An ‘election’
Budget might be understandable if it possessed signs of a government attempting
to reform itself and bent on demonstrating a modicum of fiscal prudence; but this Budget demonstrates no such hallmarks.  
Reporters
recited the spin doctors’ carefully selected highlights; Debbie gushed over
the Finance Minister’s new shoes (pumps, she judiciously noted).  Such careful scrutiny did not extend to the
Government’s forecast surplus for 2015-16 of a highly questionable $28.5
million and in 2016-17 an equally doubtful $32.3 million.  Did it not occur to anyone that these figures
are so razor thin, in the context of an $8 billion Budget, that they constitute
a rounding error?  Might they be manufactured?
We’ll come back to this point.

Is a passive
public asking: what’s $807.6 million added to the public debt anyway?
Why should we worry if Nalcor receives another $552.7 million equity infusion
this year, in addition to the revenues it presently gets from equity
investments in oil – compliments of prior donations from the public purse,
monies that would normally be sent to Confederation Building to offset one
social program or another?

What does it
matter that the Budget does not even explain exactly to what projects or
purposes and in what amounts the money will be applied?  We must not stress Nalcor CEO Ed Martin by looking
for an accounting of our money, must we!

Should we be concerned that the public debt is forecast at $9.8 billion?

What if the key underpinning of government revenues (offshore oil) is fully
priced in, at $105.00/barrel; that the Budget gives no quarter to the
uncertainties of the world commodities market and the prospect that even
temporary shrinking demand caused by economic contraction could see oil prices tumble,
resulting in serious deficit? 



Indeed, these are all serious questions but who is taking them seriously when the Government, Opposition Parties and the media are ambivalent about the state of our fiscal mess. 


It is truly tough to blame the public for expecting the good times to keep on rolling.  

Still, notwithstanding the approach dull Opposition leaders take to the Budget, the euphoria of interest
groups (even if a few are legitimately sated) or even the shallow analysis of
disinterested media scribes, no one should forget that Budget Day it is supposed to
be the Government’s day. 

It is an occasion
for a public exhibition of leadership, an exposition of its intellectual
heft, its planning skills, its regard, not just for the immediate needs of a
society, but of its future. 

As it
stands, we cannot get as much as a frank and honest statement about the condition
of the public purse, or a truthful update about cost overruns at Muskrat Falls!

The Budget
Speech places great claim to “strong fiscal management”.  This should have been a clue to reporters to put
the issue under a spotlight.

Perhaps, it was those pumps the Minister was wearing.  The media did seem distracted.

Let’s take a
look at just two examples of the Government’s claim.
Compared
with the Budget Revenues of 2013-14 (Revised) the Government
reported increased revenue of $233 million for 2014-15. 

In addition,
the 2015-16 Budget reflects a revenue
increase of $791 million over the 2014-15 Budget figure.  In other words, over a period of just one year the Government has come up with additional
revenues of $1.024 billion. Yes, that’s a windfall of over $1 billion. 

What does it
plan to do?  

It plans to spend
it all – notwithstanding the debt, the condition of the public sector pension
plan or the razor thin $28 million forecast surplus; that rounding error
referred to earlier.  

Do you
really think that forecast surplus number or that for 2016 (which suggests a
similarly slim surplus of $32 million) is credible?  If either of them are, do they really
constitute an affirmation of prudent fiscal management? 

Now let me take
you to page 8 of the Budget Speech. What does it say?  The Finance Minister states:  “Strong
fiscal management by our government since 2003 is reflected by the fact that
growth in net program expenses (83.6 per cent) continues to be less than growth
in revenue (89.1 per cent).”

Growth in
expenses vs. growth in revenue: now that’s a self-serving metric.  Let’s use a more objective one, say growth in
expenses compared with inflation. 

If you
calculate said inflation (based upon the Consumer Price Index (CPI) prepared by Statistics Canada) the result is that the CPI increased by exactly 20 per cent in the period (2003-2013)
to which the Minister refers.  Prudence would suggest program expenditures might have grown by roughly the
same rate.  They did not.  In fact, program
expenditures, since 2003, increased, in real terms, by a whopping 63.6%! 

The
Government is congratulating themselves when revenues have gone up and they
have spent it all!  Their expenditures
have actually chased revenues – they have failed to control their profligacy
using a more sensible metric of inflation; they have locked themselves into a
pattern from which, politically, there is no escape.  They
have proven that they will find a way to spend every dime that arrives as
revenue from the offshore.  This is prudent
fiscal management?   

Meanwhile the Minister of Finance states that
by 2016-17, unfunded pension liabilities will account for 85 per cent of the
Province’s net debt – almost $9 billion. The Minister did not say this is
the tenth consecutive year a Tory Administration has failed
to deal with the matter.

If I were a
public servant, I wouldn’t give Carol Furlong or Wayne Lucas a moment’s peace
until my pension benefits were safely out of the clutches of this and any
future Provincial Government.

Fiscal
prudence? 
Don’t be daft. 


The Government can’t differentiate prudence from irresponsibility!
Des Sullivan
Des Sullivan
St. John's, Newfoundland and Labrador, Canada Uncle Gnarley is hosted by Des Sullivan, of St. John's. He is a businessman engaged over three decades in real estate management and development companies and in retail. He is currently a Director of Dorset Investments Limited and Donovan Holdings Limited. During his early career he served as Executive Assistant to Premier's Frank D. Moores (1975-1979) and Brian Peckford (1979-1985). He also served as a Part-Time Board Member on the Canada-Newfoundland Labrador Offshore Petroleum Board (C-NLOPB). Uncle Gnarley appears on the masthead representing serious and unambiguous positions on NL politics and public policy. Uncle Gnarley is a fiscal conservative possessing distinctly liberal values and a non-partisan persusasion. Those values and opinions underlie this writer's views on NL's politics, economy and society. Uncle Gnarley publishes Monday mornings and more often when events warrant.

NALCOR (Masquerading as ‘Hydro’)LIVES IN AN UPSIDE DOWN WORLD

If a Big Mac costs McDonalds $10 to produce and it is sold for $1.50, McDonalds will go out of business. They would not declare a profit!

REMEMBERING BILL MARSHALL

Bill left public life shortly after the signing of the Atlantic Accord and became a member of the Court of Appeal until his retirement in 2003. During his time on the court he was involved in a number of successful appeals which overturned wrongful convictions, for which he was recognized by Innocence Canada. Bill had a special place in his heart for the underdog.

Churchill Falls Explainer (Coles Notes version)

If CFLCo is required to maximize its profit, then CFLCo should sell its electricity to the highest bidder(s) on the most advantageous terms available.

3 COMMENTS

  1. There is 2 startling stats from the budget. First 36.5% of our revenue comes from oil. This is absolutely scary. Second is that 3 Billion is spent on health care. For 200,000 workers this equates to 15,000 dollars each.

    The problem with this government is twofold. Their spending is out of control. But what is worse, and perhaps more concerning is that their spending seems to be without plan. Reactionary.

    But this budget is very, very concerning.

    But we always live in the present. It is a character flaw of Newfoundlanders in general. Any I am one.

  2. A true fiscal conservative government would be shouting from the mountain tops how this is NOT a fiscal conservative budget. It fact I'm sure it stops short of the extreme's a socialist would be so happy to want to take the public coffers to such extremes. The most shocking example of irresponsible fiscal management of this budget is the oil forecast of $105/barrel. Was this # arrived at after very careful forecasting with wall street futures traders? They do know about the shale gas revolution that will take the US away from a oil import dependency and drive the price of oil for years to come. Maybe they don't pay attention to global energy markets and declines of GDP in China and other emerging markets.

    Any true fiscal conservative would be ashamed to be part of such drunken spending.

  3. What surprised me in the budget was a major tax grab with no real explanation provided. The province is reducing the dividend tax credit on eligible dividends so that the top marginal tax rate will go to 30% from 22.5%. Eligible dividends are those paid by publicly traded corps as well as dividends paid out of private company earnings that are over the $500,000 small business threshold.
    Surprisingly, this change was not mentioned in the budget speech but my accountant alerted me last week.
    The government has prided itself on low income tax rates, second lowest next to Alberta, enabled of course by our resource revenues. I think this change in dividend treatment is the thin edge of the wedge. We will be seeing higher rates on other incomes including salaries in due course.