Summary
The PERT Report, titled the “Big Reset”, authored
by Moya Greene, has been already greeted with derision by labour and others in denial. A public debt of nearly $50 billion seems still insufficient proof that the economy can never thrive by “spending our way to prosperity”.
Let’s face facts. NL is effectively insolvent. Greene’s proposal to lower
spending by around $1.4 billion is a best case
scenario – not the likely one; the likely one is far worse. When the challenge is so large, and the options so few, any plan of repair is devastating.
Moya Greene can’t be faulted for this; any deficit of her making lies in the fact that she wrote 338 pages and another 67 pages of
executive summary to convey the team’s ideas. Five pages of straight
talk might have been more effective. As it is, the focus of the Report is diverse;
some important issues are not addressed clearly enough.
I think the main message of this Report is this: NL, you have to fix your own problem. There is NO evidence of support for “rate mitigation” for the Muskrat Falls project; NO evidence of Federal support of any other kind. Essentially it states: you have some assets, especially on the Churchill River. Sell them. Otherwise, stop spending beyond your means.
Many members of the public still expect the Feds to ride in – possibly on a horse – and “fix” the whole problem, to the exclusion of challenges suffered by other Provinces, which have been more fiscally prudent than us.
The Furey Government, unfortunately, has reinforced
this denial of reality even commenting in the recent Speech from the Throne: “Newfoundland and Labrador will not be
left to solve its problems alone“, adding that the Government of
Canada will offer unspecified assistance. The PERT Report’s recommendation for a major asset sale – especially our “real” legacy assets, the two-thirds of the Upper Churchill –
is confirmation that the Feds have no such intention.
A $50 billion public debt. It is as hard to fathom as the overwhelming incompetence of recent successive Governments.
Delaying remedy for another year, as the Furey Administration
proposes, will only make the “fix” worse.
Now, is less a time for public
discussion than it is an occasion for action. The options are few and the cupboard is bare.
We need strong leadership to get out of this mess; we need to stop whining and to support most of the changes that PERT proposes. One exception: any asset sales contemplated on the Churchill River must, first, be subject to public debate.
My assessment is that, tough as it will be, we can endure the $1.4 billion cut from Government’s program and capital expenditures. Tough but doable. The biggest challenge is the unfinished Muskrat Falls Project. “Rate mitigation” will require massive subsidy, possibly more than $700 million, unless we agree to big rate increases on top of the proposed tax increases and public sector cutbacks. The figure is an annual one and will grow.
If we can deal with the Muskrat Falls debacle, we can make it. If we have to cover “rate mitigation”, too, I am a lot less certain.
We should tell the Feds that this issue is not finished, remembering that Ottawa was complicit in the Muskrat debacle along with Danny Williams and Ed Martin.
Like or not, NL is in a fight for its economic – and political – survival. Our best hope is to be constructive, supportive of the Furey Government as long as it is honest, and demand that the pain of cut backs is equally shared. As it stands, I do not believe that the Furey Government is being honest over the prospects of rate mitigation.
The longer dissertation, below, may be helpful.
– Des Sullivan
 |
| Dame Moya Greene |
Additional Commentary
The PERT Report, entitled the “Big Reset”,
authored by Moya Greene with advice from a team of 11 professional people,
attempts to tackle a crushing $47 billion public debt, the enormity of which is
only partly reflected in the need to pare expenses and increase revenues in an
amount roughly equal to 20% of what the Government spends annually. It is a kind of fiscal roadmap, but not a tight one, meaning the Government retains some small flexibility.
PERT does not address whether the leadership –
political or otherwise – is ready to tackle insolvency – nor should it have –
but WE will need to. The Report, however, ought to have informed us of our options.
No one will be pleased; it will not be
easy to roll back a decade of overspending. Already labour, including NAPE and NLTA, have
indicated they do not wish to share any part of the burden.
Perhaps, they are waiting to be told – IMF style.
The International Monetary Fund lends to insolvent nations on the condition
that they will accept the IMF’s often arbitrary demands to stop their wasteful and
destructive ways. Those unions would not like the IMF.
In this context, if any of them think that strong arming the Government to defeat address of our
debt will enrich their membership, they will be doing them untold
harm.
As noted, the PERT Report is flawed but it gets a lot right. A key achievement is simply confirmation of the size of
our debt: $47.3 billion; $182, 000 for every worker; $215,000 for every
household. That is one way of saying the problem is big
and there are no painless choices.
The Green Economy
PERT exhibits too much confidence
that Government can influence the direction of the economy. The Team prescribes
a brave new economic world – based on “green”, and a workforce composed of IT “geeks”.
Properly examined, it amounts to generalizations and an over use of the “green” word.
They ought to have stuck with the very precise job
of fiscal repair. Stopping the hemorrhaging
of money is a faster solution than anything else government might influence.
It is, therefore, not worth getting too worked
up about PERT’s “Industrial Revolution 5.0”.
I presume the expectation is that this new
frontier is one where young entrepreneurs will find the most liberally – and federally
– sprinkled money. It is also the sector to which many of our best and
brightest will gravitate.
Places like Too Good Arm may yet be found by New
York and Beijing as a haven of universal contentment – and internet connectivity.
Then, too, Verafin is not just an IT success story, it is an inspiration – and
not the only one. Bluedrop, Kraken and Notus and a host of others are old hands in the IT business; still new start ups will create critical mass.
PERT might have been more careful, however, giving
encouragement to government involvement in an area where locals attract more
global “IT” investment than traditional industries ever could. Justifying public servants to process grants, politicians picking winner and losers, is
sure to kill a good thing.
In the end, it is among PERT’s support for the
“Premier’s Task Force on Improving Educational Outcomes”, and its recommendations
that include teacher training and the need for improved math and reading
skills, as well as those that relate to improvements postsecondary, that will
influence the future economy most.
Most likely, the time and space given to the subject is PERT’s way of saying there is hope, amidst a sea of despair.
Still, there is no more negative influence on business investment – IT or any other kind – than the reputation of an insolvent province.
In reporting the debt as $47.3 billion, PERT
states: “The province has other financial obligations and exposures totaling
$5.2 billion or more, which cannot yet be recorded in the financial statements
as liabilities.”
This represents the commitment to P3s by Premier
Ball – knowing, as he did, that the province had no fiscal capacity to pay for
them.
$47.3 billion debt in a province with a population
of just 520,000 is staggering as much for its size as for the level of
irresponsibility it represents. The figure, on a scale never before mentioned, in Budgets or in A-G Reports to the House of Assembly, is a reminder that Deputy Ministers should never be permitted to become Auditors
General, auditing their own performance!
On a higher level, the figure may well exceed our ability to repay.
I had reasonably expected of PERT a request that the
Government of Canada (GoC) assuage some of the worst effects of achieving budget
balance, if only temporarily. There are good reasons for this suggestion.
PERT’s six year plan is based on the optimistic
assumption that $2.14 billion of new tax and other revenue will be collected
during the period – in addition to $3.55 billion of expenditure reductions. Tax increases of all kinds are proposed and, put against the alternative, they are necessary. But they risk causing, especially among rotational workers, hard to reverse residency changes.
A far larger concern though is that the balanced budget assumptions are
based upon only a modest deficit benchmark (2021-22) of $1.36 billion, if no repair
initiative is taken.
In contrast, last year (2020-21), the Total
Budgetary Cash Requirement (the “deficit”) was $2.2 billion. In 2019-2020 it
was $1.67 billion. PERT is not using the average deficit of the last five
years, so don’t be surprised – all things being equal – if our climb back to fiscal balance contains a few
more rungs.
A large component of fiscal repair represents the
reduction of expenditures on healthcare. This category of savings is dealt with
far too generally in the PERT Report. This is because a group, headed by Dr.
Pat Parfrey and Sister Elizabeth Davis, has a mandate to “reimagine” the
healthcare system. Yet, the pair have made clear that their focus is on “health
outcomes”, not on cutting costs.
The healthcare system is a jungle of
self-interests, notwithstanding its essential role in our society. Not just
strong unions, an overwhelming sense of entitlement on the part of every group,
doctors especially, is compounded by the shackles of the Canada Health Act, not to mention a culture resistant to change that takes service availability for granted.
The waste in the system has been acknowledged by
virtually everyone for years. PERT recommends a 4.15% per year cut in operating
grants – which makes sense. Now…who will make the decision to reduce some
health services and shutter others? The existing medical establishment? Politicians? It will represent one of the greatest challenges to our political maturity.
The
Doubtful and the Obscure
Every person in this province knows that the
Muskrat Falls project – without “Rate Mitigation” – hangs over us like the
sword of Damocles. Yet, PERT is silent on its status. Premier Ball persisted in
letting us think that the Feds would lift this economic yoke, saving the
Province from energy poverty represented by 23 cent per KWh power – or worse.
Though more than triple the cost of Premier Ball’s
P3s, there is no accounting for the risk it poses; the lack of Federal support will
most certainly throw the six-year plan of Budget balance completely off the
rails.
PERT does not articulate the monumental
liabilities represented by 1) the project’s unfinished state and continuing
capital expenditures 2) $700+ million annual cost of financing and operation 3)
the elimination of the savings once represented the Holyrood Generating Station
– because it is needed as a “back-up” supply 4) accelerating financing costs
associated with the “Power Purchase Agreement” and the back-end loading terms
imposed on Hydro to make Muskrat appear attractive, and 5) the likelihood that
Muskrat power will never be an attractive source of “firm” power for any class
of customer considering the under-design of the LIL and other issues that
remain unresolved, including the state of the synchronous condensers, and largely
untested China-made turbines.
A professional person of Moya Greene’s caliber did not begin a task of this kind not having established all the sources of the
problem AND the status of any solutions which the Government has identified or which they claim to be working on.
I suggest that the Federal Government’s answer to
Premier Ball was given to him long before he resigned. Premier Furey’s appointment
of former Nalcor Chair, Brendan Paddock, to the file, from whom nothing has
been heard, is little more than a foil; the Feds having not changed their mind.
In short, I believe that the Government is not coming clean with the public, that little or no “rate
mitigation” is available from the Government of Canada.
This issue is fundamental. New figures not having been issued to account for continuing
increases in the cost of the Muskrat Falls project, we can safely assume that,
based the old ones, this is another $700 million/year problem; one that is “designed” to increase over time.
The issue ought to have been addressed by PERT for
two reasons.
One, Premier Furey said everything is on the
table. He has not lived up to his word.
Two, in the absence of Federal intervention, a default
by the Province on our Muskrat Falls Bond obligations is, virtually, a
certainty.
Realistically, the cuts cannot go deeper than PERT has already
proposed without causing major – major – economic and social fallout.
On any commercial basis, too, Nalcor’s financial
obligations ought to have been assessed in conjunction with our remaining
provincial debt.
Put a different way, the willingness of the public
to endure cutbacks and higher taxation in order to amortize a $47 billion debt
is our collective decision to make; it is not Moya Greene’s or PERT’s, or for
that matter, NAPE’s or the NLTA’s.
It should not be made piecemeal, either. Some even suggest that a referendum should be held to obtain the public’s view and support for how we should proceed.
In this context, the role of the
Government of Canada, acting like the International Monetary Fund (IMF) for
debtor countries, should not have been ignored.
Default on the Federal Loan
Guarantee for Muskrat Falls ought to have been put on the table as an option, even if a grim one.
In addition, Premier Furey should be told, not by PERT but by all of us, that if he thinks this Province can navigate around $47 billion of
indebtedness, without someone playing some serious hardball with Ottawa, he
should think again!
In the current political environment of
cozy Liberal Governments, no one should forget that Ottawa also played a major role
in the creation of the Muskrat Falls fiasco.
This is where groups like NAPE and the NLTA can
help the Government give clarity to the issues and, if necessary, an ultimatum to Ottawa, too. Several Seats are at stake in the forthcoming Gederal Election. If we have retained any survival instincts, this may be a good time to exercise them. First, however, unions will have to give more emphasis to the
“Big Picture” than to the consequences of the “Big Reset”.
If any confirmation is needed as to a reluctant Federal Government, the public should look to p. 84 of the PERT Report
and consider this recommendation by Greene:
“Package the Churchill River resources as a single
opportunity, including Muskrat Falls, Gull Island, and the 2041 contract on the
Upper Churchill, and seek federal government and private sector partners to
maximize the economic value and its renewable energy potential;”
Implicitly, the narrative reads: the Muskrat Falls problem is all yours; sell
your best asset – the Upper Churchill – if you have to. This is the Government of Canada’s written answer to “rate mitigation”.
Obviously, Moya forgot to add the line: have fun with Quebec!
Secondly, Furey has already indicated that no budgetary
leadership will occur this year. This is a bad sign, an excuse for delay –
especially having just received a mandate. In our political system, a failure
to act in years one and two of a Term is an assurance that no action will be
taken, at all.
If, as I fear, the Liberals will wimp out, just as did the Tories, you had better book rooms for the men/women from the Federal
Finance Department (our “IMF”) right now. It will be a good test to see if there is any fight left in us.
This Blog – to which PERT Member David Vardy has been
a frequent and valuable contributor – has long counselled Governments – Tory and
Liberal – to move forward with fiscal repair and have mercilessly lashed them for
their failure. We own him a debt of gratitude just as we do Moya Greene and the other Members of PERT.
Once again, rather than obstruct, we need to
demand that the Government will act.
Our job, as citizens, is to support them, to not
allow those serving only their own causes to drown earnest efforts to resolve
the financial mess we are in. PERT proposes many things, including doing away with Nalcor and Oil co.
We might ask one more time: If not now, when?