THE “MYTH” OF DEFICIT (It’s “reality” PERT can’t face)

Hark! The People’s Economic Recovery Team (PERT) have spoken.
This is the self-styled group of academics, labour organizations and
non-profits who present themselves as an “alternative” to Moya Greene’s
economic recovery committee. Based on news reports, they are supported not just
by the Federation of Labour, but also by the doyen of moonlighting consultants,
the Memorial University of Newfoundland Faculty Association (MUNFA).

PERT does their group — and the Province — a disservice,
having delivered what amounts to a “tract” on taxation that doesn’t even reflect the details contained in the Budget Estimates. PERT states: “
The premier has noted that (the deficit is) about $800 million; others have put it at about $1 billion.” This is their idea of research? Furey might have said that the deficit is $300 million, had it helped win the election. Presumably PERT would have agreed. 

The correct figure is $1.84 billion. A group ostensibly engaged in research can’t even open up the “Budget Estimates”. 

Premier Andrew Furey must rue the day that he asked Moya
Greene to examine the Province’s dreadful financial condition. The Finance Minister
embraced PERT when she ought to have delivered them a stern lecture. Eager
for fiscal change at the start, the Premier, too, is sounding more like his guileless
predecessor.

In the PERT world as in Furey’s, what counts is mutual
self-interest. Short-term will do — for now.

For a group whose day job is, ostensibly, preoccupied with
empirical methods — proofs — the Minister of Finance might have proposed “peer
review” of PERT’s analysis; instead the group throws out tax and revenue forecasts lacking either the sophistication or the rigor of BINGO. 

How much additional revenue can be generated by PERT’s proposed “wealth” tax, “luxury”
tax, “carbon tax”, enhanced “capital gains” tax, increased “fines”, and higher HST? Amongst the verbiage we are assured of $800 million. 
The latter even captures low incomers. 

I don’t think that a $15 minimum wage is going to be nearly enough.

Angela Carter (PERT) Photo Credit: CBC


What PERT wants to obscure is the truth; this instalment of an NDP rant will do nothing to facilitate a sober analysis of our fiscal crisis. Yet the problem is of a magnitude where not a grab bag of fees, fines and taxes of undetermined merit will suffice, but 20% across-the-board
increases in taxes, combined with a decrease of thousands of public sector workers may
have to be considered. This is serious biz! 

When “wartime” focus on the problem is warranted, the labour and academic communities are playing tax and spend games with fewer taxpayers than are held in the HMS Pen!

Minimally, I would have expected MUNFA to consult one of their
own — Dr. Wade Locke — who might have thought the exercise blessed relief from
the influence of Nalcor’s censors. It is unlikely, however, that even he would
have shared PERT’s characterization of the spending problem as a “myth”.

It is bad enough, too, that the group is co-led by a political
scientist when a far more plausible fit is someone in the theatre arts. Indeed, I might have found relief had the serious
academics obtained peer review from the leader of the NDP, who is an
economist, has plenty of time on her hands, and enjoys bombast too.

It is hard to take such tripe seriously, as you can see. 

Related:

PERT Revenue Options Paper

On The Trail of the Real Provincial Debt

The remainder of this item is more serious and is presented for the benefit of PERT, Premier
Furey, Siobhan Coady, Dame Moya Greene and the members of her Committee. It offers a grim view of reality: one that depicts the
extent to which a sense of “responsibility” is manifestly absent from all our
institutions: academic, business and labour. It was prepared by
a person of enormous qualification. He suggested that many pieces — including my own — are missing the nub of the fiscal problem. Perhaps, he is right.

I offer one caution though: if your preference is to stay drunk on the
vapours emitted from the Budget addresses of successive Finance Ministers — and
increasingly from Premier Furey, and now from PERT — the efficacy of this vaccine
has not been tested nor has the research been peer-reviewed. However, on the balance
of probabilities, it is bound to cause a reaction.

This is one illustration of the sheer magnitude of what
abolishing GNL’s $1,840 million annual deficit would involve:

2019/2020 GNL Own-source Revenues totalled $5,793 million, but
GNL ‘controllable’ Own-source Revenues were $4,836 million

(after excluding $957 million of oil royalties because oil
production rates and existing oil royalty regimes are beyond GNL control)

Using GNL ‘controllable’ Own-source Revenues:

 Step 1

Apply and collect:

20% increase in “personal income tax”

AND 20% increase in “corporate income tax”

 AND 20% increase in “HST and other taxes”

 AND 20% increase in “all other revenues from charges, fees,
etc.”

Which, in total, yields $967 million [$4,836 million x 0.2],
leaving $873 million [$1,840 million – $967 million] more to be cut.

Step 2 

@ $70,000 per public employee (50,000 public servants costing
$3.5 billion), 
terminate the employment of 12,4701 (i.e. 25%)
public servants, and annually save $873 million [$70,000 x 12,470],

leaving $0 (a balanced budget).

Reduced to a tweet-sized 140 characters:

Eliminating NL’s $1.84 billion deficit requires 20% increase
to all NL sales tax, income tax and other charges AND all NL public servants to
decrease their costs by 25%.
 

The analysis is sobering. It is but a single illustration. Others might have performed some combination of wage rollbacks with smaller reductions in employment along with larger tax increases than even 20%. It is easier, however, to be cynical and propose a “yacht tax” or one on “leased BMWs”. But it doesn’t solve the problem. We have simply let the deficit get totally out of hand.  

It is why the PERT response is little more than a distraction, contributing to the prevailing view that “hope” and “PM Justin Trudeau” will relieve us of being responsible citizens. It is why the Premier’s increasingly glib handling of fiscal matters must stop.

Finally, I am compelled to bring to your attention that NONE
of those figures, their tax and job implications, include any recognition of
the cost of “rate mitigation” associated with the Muskrat Falls Project. Nor do
they account for the possibility of long term depressed “oil royalties” or for
the knock-on economic effects associated with any fiscal measures eventually taken. They do not account for the cost of $1.5 billion Public Private Partnerships (P3s) soon to be a line item on the Current Account.

Do you still think, as does PERT, that overspending by the
Provincial Government is a “myth”?

_______________________________

1.     1.  At the top of page 28 of her REPORT TO THE HOUSE
OF ASSEMBLY On the Audit of the Financial Statements of the Province of
Newfoundland and Labrador For the Year Ended 31 March 2019, then Auditor
General Julia Mullalley said: “48.0 per cent, or $3.5 billion, was spent
on salaries and employee benefits”; hence the choice of $3.5 billion as
the total amount its public servants cost GNL.
 

A rough estimate of the size of the NL public
service being 50,000 can be derived using Stats Canada Table: 36-10-0489-01
[49,490 = 6,740 (Provincial and territorial public administration) + 6,630
(universities) + 12,475 (educational other than universities) + 12,415
(hospitals) + 5,905 (nursing and residential care facilities) + 5,325 (others)].

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.

OPINION POLL OVER-RATES INEFFECTIVE TORY OPPOSITION

Having survived in spite of themselves, in Opposition the Tories have been lazy and uninspiring.  The fact that it is summer, and the House of Assembly is closed, admittedly makes their job tougher, except that the Party’s manifest weakness is not a seasonal problem.

REMEMBERING CABOT MARTIN (1944-2022)

He was an exceptional person. A gifted intellect for sure; irascible and argumentative, too. What endeared him to many was not just that he was analytical and insightful, but that he was honest and forthright. He was a public policy wonk; resource policy interested him most. He loved to travel and read; people, with something to say, were always important.

GNL RUSHING INTO ANOTHER “SCHEME”: CABOT MARTIN

I must say that after the Muskrat Falls fiasco, I thought our government had finally learnt its lesson and would not to rush into another such scheme where calling it “green” was enough to suspend all critical analysis.