Guest post written by JM

When it comes to
recognizing the fiscal imbalance, the political leadership of the province are
whistling pass the graveyard.  But
government inaction is not limited purely to the deficit.  They are failing to make concrete actions on many of the larger issues facing the province today. 

In a nutshell, they
default to the “politics of optimism”.  

Whether it is the revenues from Muskrat Fall’s or the vast untapped
wealth of the Newfoundland offshore, government policy and communications
are entrenched in positive hyperbole.  This
excerpt from the 2015 Speech From The Throne is an example: 
Our government is buoyed with optimism as our people begin to come
into their own, enjoying the highest levels of income ever in our history,
employment levels that are higher than a decade ago, and a vast array of
initiatives that enhance the lives of the oldest to the youngest among us. Our
government is managing the affairs of the province responsibly, progressively
and sustainably to ensure the incredible gains we have already achieved are
eclipsed only by the phenomenal gains that we are about to bring to fruition.
Newfoundland and Labrador is stronger today than it has ever been, and we are
on course to achieve goals that will benefit our people for generations to
come. Our government is filled with confidence and optimism that the prospects
for Newfoundland and Labrador, both in the short term and over the long term,
are incredibly bright. Ours is a future that knows no bounds, and we shall ever
remain resolute in defence of this province we so dearly love – Newfoundland
and Labrador, proud and strong

This is a speech,
and a theme, we have heard many times over the past 5 years.

Of course, the politics
of optimism is an easy road for any politician. 
Difficult issues require tough and politically unpalatable decisions.  It is much easier to talk about future
greatness; validating by default present day largesse.

Although we now experience
a fiscal imbalance, nurtured since 2006, it can be corrected with common sense,
discipline and the ordinary application of restraint. 

However, this
government have had their heads in the sand with even the bigger issues.  

They have not, for example, used the fiscal
liberty afforded by offshore wealth to address the single largest issue they inherited;
the province’s aging demographic. 
It is an issue
even more daunting than the fiscal imbalance.

The problem requires a plan that will span more than 1-2 election cycles;
it will also require a plan that must bridge partisan politics.
  Most importantly, it requires a plan which is
concrete and tangible.

Like the
provincial plan to return to balance budgets, the recently released “Population Strategy” does a tremendous disservice to the issue. 
As Figure 1 so
effectively demonstrates, the rural Newfoundland and Labrador we picture in our memories
is no more.
  Instead of young children
playing on the shore, or young families building a livelihood on the sea, rural areas will be by 2040 almost 50% populated by seniors.
  When you study the projection of youth (0-19)
and see how, in 2035, it is nearly the same as in 2016, you can’t help but
think that even this projection is optimistic.

Figure 1:  Population
of Rural Economic Zones

The servicing of
rural Newfoundland, and the fiscal imbalance we currently have are undeniably
linked. Both are unsustainable in the long term.  But the issue of our aging outports will inevitably
be a crisis within the next 20 years.  No
extent of government spending will avert this outcome in the majority of rural

Instead of
facing the clear reality of the future of rural Newfoundland and Labrador, our politicians
and many leaders default to the rhetoric of blind optimism as demonstrated in
the throne speech.  They do have their
heads firmly in the sand!

The crown prince
of the charlatans is none other than Nalcor’s CEO Ed Martin. 

The Nalcor head
does the province no favour’s when he refers to Newfoundland and Labrador as
the next North Sea.  Whether it is his claim to the “new
North Sea” or to the amount of revenue that Nalcor will one day provide to the
government of Newfoundland and Labrador, Ed Martin has a level of optimism which is not
shared by his peers in the industry.  
The problem is
that the politicians seem to believe him though his proclamations are made without challenge. 

Although I fully
support Nalcor’s work in deepwater exploration, we should not be making long
term policy on 2D seismic, and on exploration wells yet to be drilled.  

We need a more cautious approach.  



One ought to look to Greenland to understand
how a world class oil play can be put on ice after a couple of unsuccessful

When it comes to
fiscal planning in the current global oil environment, we need to err on the
side of caution.  

I suggest we should plan only for
the new Bay du Nord discovery and the Hebron oilfield, currently under construction.  Those two new offshore assets
might result in oil royalties of the magnitude earned during the period 2008 to 2012.  

If oil returns above 100$/barrel, we could
have an additional $2 billion in annual revenue in the period from 2025 to
2035.  Beyond this expectation, we should not be counting
on any new oil developments.  If they
happen: great! 

But they should not be the basis of our long term economic

The issue is
central to the question I raised in Part III of this Series: should we continue to borrow, and
inject economic stimulus from 2016 to 2023, the likely start date of
significant royalties from Hebron? 

The answer to
the “stimulus” question is clearly, NO! 

We need to
correct the fiscal imbalance now so that if and when the second “oil boom”
occurs in this province we will have the ability to build a true “generational’
fund for when the oil runs out.  

We must
learn from the mistakes we made in the period 2006 to 2010 in order to properly
plan for the next boom of 2025 to 2035.   

We must correct the current fiscal imbalance within
the next 5 years. That is the only way we can ensure that the royalties from a second oil boom are not used to simply maintain wage growth in the inflated
public service, and to service our ever increasing debt.  If we get this second chance, we should use
it for the “generational fund” that the current group of politicians love to
dream about. 

That said, when
you examine the aging demographic profile of the province, it is clear any
“generation fund” sourced from the second oil royalty boom (2025-2035) will not
be a fund in the conventional sense of the Norwegian endowment. Rather, it will have to be used to
implement a major resettlement program for the hundreds of rural towns in this province.  Any future generational fund will be simply
applied to correcting the impending demographic crisis in rural

By 2030, the
issue can’t be ignored any longer.  We
will need the massive oil royalties from Bay du Nord and Hebron to deal with
the humanitarian “crisis” which outport Newfoundland will become.  ‘Crisis’ is not too strong a word: I suggest
the government and the public are naive if they think otherwise.

We need to plan for
that crisis now.  We need to start
trading in reality.

The issues at stake are far bigger than partisan politics. 


 JM” is a researcher and writer.   He is a frequent contributor to Uncle Gnarley Blog offering analysis of the Muskrat Falls project and other issues, including the fiscal position of the Province. 

JM’s essays include: IN NALCOR WE TRUSTDelusion and Deception (Part III)and The Snow Job (Part I).  The very latest Posts, on the 2015-16 provincial Budget, include IT’S THE SPENDING STUPID and The Budget Colloquy (Part 1): Put Him In The Round Boat Til He’s Sober,  The Budget Colloquy (Part 2) Revenue Projections: Close Your Eyes, Make a Wish, Hope for the Best and The Budget Colloquy (Part 3) Whistling Past the Graveyard No More.  Having chosen to retain his anonymity, JM is prepared let his articles be judged on the research and argument each contains.  


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.


This is the most important set of negotiations we have engaged in since the Atlantic Accord and Hibernia. Despite being a small jurisdiction we proved to be smart and nimble enough to negotiate good deals on both. They have stood the test of time and have resulted in billions of dollars in royalties and created an industry which represents over a quarter of our economy. Will we prove to be smart and nimble enough to do the same with the Upper Churchill?