Minister, Tom Osborne, depicts a government continuing to lead the public over
a steep fiscal cliff.
announced, is not in dispute. But his press statement to the effect that the
Budget surplus for 2019-20 has been reduced by $368.7 million is
transparently not true. The Government is running a seriously large deficit –
not a surplus.
Accord agreement with the Federal Government in which fixed cash installments
totalling $2.5 billion will be received from 2019 until 2056. The Speech notes
that in 2019, “we will receive $134.9
million from the first installment.” (Bold added) The Minister is
attempting to create the illusion of budget surplus by assuming that the entire
sum of $2.5 billion has been received.
Osborne is delusional in others areas. His Budget uses the most
favourable construction possible in allowing oil royalty forecasts that make no margin for error. He ought to know that natural resources
revenues, especially from oil, are only a best guess anyway. Prudent fiscal
management would employ a highly discounted forecast measure; but prudence is
not something with which we can characterize this Administration or any other
in the past decade.
2019-20 Budget and the Update:
and August caused an estimated deferral of $185 million in revenue for this fiscal
year.” To begin with, this is not
deferred revenue. Deferred revenue is money received in advance of having earned it. It cannot be treated as income under generally accepted accounting
rules. This is lost revenue that may or may not be recovered
depending on whether the Hibernia reservoir is fully drained at some distant
time in the future. His Finance officials know the difference.
Hibernia is the third production platform to cease production for a period in
little more than a year. It’s just that Osborne’s Budget refuses to account for
such anticipated occurrences.
expected to reduce revenues by $46
million”. This, too, surprises the
Finance Minister, when it shouldn’t. As to the likelihood of continued
fluctuations, the Minister need only open his office door and ask anyone who
has oil and gas securities in an RRSP.
(Statement 1, page iv), exceeds revenues by $1.86 billion. With the Minister’s
Update telling us he will receive $368.7 million less, the “real” cash deficit
– Capital and Operating Expenditures – is now therefore $2.23 billion.
A 2019-20 $2.23 billion “gross cash requirement”, AFTER having received the $134.9 million Atlantic Accord funding, might just lead one to ask: what aspect of the Budget is under control?
For those on Twitter who raised the subject over the last few days as
to the severity of the province’s debt problem, I thought it worthwhile to take
another look at this issue, too.
Government’s “Gross cash requirements” for each of the last five years set out
in the Report of DBRS – an agency that rates the Government’s Bond issues. The
“cash” deficit is actually the amount that the Government will have to borrow
to meet its forecast expenditures. It is the amount by which the debt is
increased. The only positive thing we can say is that the problem predates the current Administration. But, as you will
see below, this Finance Minister has made no move to fix the problem.
the Government’s cash deficit for the most recent Budgets, according to DBRS:
The Provincial Debt is yet another of the Finance Minister’s fictions.
His Budget Update puts the Provincial Debt at $13.95 billion up from $13.77
billion in April. In contrast, DBRS, the Bond Rating Agency, calculates
province’s “self-supported debt” at $19.194 billion. (This is, in part, because DBRS includes
the unfunded pension liability in its “self-supported debt”
numbers, something that the Government won’t.)
of “Hydro Debt” (which includes provincially guaranteed debt of NL Hydro and
federally guaranteed debt of Muskrat Falls). Of course, we know that the
Muskrat Falls debt must be “mitigated” by someone other than the ratepayer – which makes it “taxpayer-supported” debt.
province is on the hook is $28.5 billion + $368.7 million (the drop in revenue
contained in the Budget Update) or just short of $29 billion (recognizing a substantial write down of the Muskrat Falls asset).
return to surplus in 2022-23…”
(Note: The Provincial Budget for this year reported the Total Public Sector Debt as $22,857.7 billion but Note 3, Appendix III, Public Sector Debt, warns that the figure “does not include payables and accruals, or unfunded liabilities related to pensions, severance or post-retirement benefits.”) It is reasonable to conclude that DBRS has no vested interest in low-balling this Province’s debt position.