Hang on!
This is gonna be bad
“Let’s go down to the Newfoundland Hotel for a drink,” said the fellow with the collar to his companion. “It’s better than the sandwiches they’ll be serving up at the new place.”
“Any money left in the pit prop account, Richard?” the fellow with the limp said to his companion. “We could get a cab.”
The taller fellow shot the other a dirty look.
“Good budget,” the one said to the fellow with the collar, with a nod of approval borne of experience. “We couldn’t have done it better.”
“Yes, Fred,” his companion replied. “As I always said, borrow as much as you can and keep doing it for as long as you can.”
“As long as the banks will let you,” the portly fellow added with a chuckle.
The first thing to understand about bond rating agencies is that they are complete rubbish at making projections especially when it comes to megaprojects in Newfoundland and Labrador.
Go back through 20 years of these e-scribbles for the evidence.
They were all - without exception - entirely wrong about Muskrat Falls.
Full stop.
And despite plain evidence their rosy projections were garbage.
They are often easily and willingly conned.
The same is true now about the deal between Quebec and Newfoundland and Labrador. When Standard and Poor’s wrote this week that “the deal could generate considerable additional revenue for the province” the authors simply have no idea what they are talking about.
At best, even with the minor tweaks on the existing deal Tony Wakeham hopes to get, the provincial government will never see anything close to a billion dollars a year from this mess of a bad deal. Wouldn't matter anyway. We need three times that much just to balance the books this year and every year after. Paying down the crushing levels of public debt we keep piling on is impossible without that much more money on top if that and even then only after we stop adding more debt.
The second thing to understand is that all the bond raters - Typical and Meagre, Lucifer’s handmaiden, and Emotionally Unstable - all facilitated the current state of the government’s finances by writing rubbish assessments over the past 20 years that enabled politicians to pile upbmore and more debt.
Third, what people should understand, though, is that if even the gullible bond raters are now pointing out the nakedly obvious sad state of government finances, then there are problems ahead.
Big ones.
Newfoundland and Labrador swims in a limited pool of capital at the best of times. Its low credit rating makes the pool shallower. A lower rating even if only threatened or a negative trend drains the pool a bit more. S & P just pissed in the puddles left.
Opportunity Cost
Years ago, not long after the Liberals formed da guv’mint, Siobhan Coady said dey couldn’t stop Muskrat Falls ‘cause dey had too much money in ‘er. Gotta keep going, Coady said, or words to that effect.
As we noted a month ago, the first budget for the Pea Seas keep up the longstanding Liberal plan to use new debt as the major source of government income. Even with the temporary Iran war windfall, the Pea Seas would still run a cash deficit north of $2.0 billion this year just as every government going back to Danny’s time has done when they didn’t accidentally balance the books due to a one-off jump in oil prices. The planned deficit is $3.0 billion.
That’s the thing about this Iran thing. It is a one-off. A blip. An accident.
What is deliberate is spending more than you take in.
There is no plan for anything else.
No economic growth plan.
Nothing except keep on keeping on for as long as they can.
The Independent Review Committee told Tony Wakeham not only why the Quebec deal was fundamentally wrong but also how to do better.
He ignored them.
100% rejected their advice.
That’s why they didn’t show up for the newser to unveil their report.
Tony’s plan is to do exactly the same things the crowd before him did and pray for a different outcome. That’s either the definition of stupidity or of insanity. I am never sure which it is. Maybe it is both.
“Despite strong economic performance,” S&P said, the government has a “deteriorating fiscal position, with growing operating deficits.”
Even with the truth of that sentence the standardly poor assessment underestimates deficits - S & P relies on the nonsense of “net debt” rather than gross liabilities - and overestimates economic potential. There is no hydrogen potential or wind schemes under consideration, and certainly not without massive government subsidies that GNL cannot afford. There is no rate mitigation scheme for Muskrat Falls, either.
There are big warnings to all. Unfortunately, they are at the end of the S & P assessment and buried under poor writing.
The government’s course will bring the “debt burden to 313% of operating revenues by fiscal 2029.” That’s up from 212% in 2023, just as Andrew Furey plastered the walls with debt before running from office in 2025.
“The province’s interest burden remains above that of peers as well, averaging [nine percent] of operating revenues”… We “expect it could increase to more than 10% during the outlook horizon.” That understates the burden.
“The province has large contingent liabilities related to its utility company, NLH. We believe that Newfoundland and Labrador would provide support to NLH to meet its federally guaranteed debt obligations in a stress scenario, given the political and economic importance of the utility’s Muskrat Falls project.” After pointing out the provincial government's lousy financial position, the bond rater offers no idea on how they expect the provincial government to do that and at the same time find the $3 billion necessary to balance the books in any given year of the next decade
Bizarrely, S & P believes that “the risk of NLH requiring provincial support has diminished, thanks to the rate-mitigation agreements signed with the federal government in 2021 and 2022.” There’s no reason to believe that. None. There is no rate mitigation scheme financed beyond 2030. This is a matter of fact, not of opinion.
Ultimately, S & P thinks that it was a good thing for the province to take on debt in foreign currency, thereby adding currency value, fluctuations and complex hedging schemes to the provincial governments, obviously heavy financial burden.
Dead squirrels are right twice a day and S & P manages to get some things right in its assessments. But far too much of it is wrong - just not supported by facts - and so we crash forward until the money runs out. Not even what S & P calls Canada’s “provincial-federal institutional framework” can keep propping up this mess that S & P helped create and continues to enable.
The markets will get the underlying messages even if Tony Wakeham’s crowd don’t.
That means we are very likely to see the same sort of financial crisis we have seen in 2013, 2015, 2016, and 2020 as markets challenged by global events look at Newfoundland and Labrador now as they did in the 1930s.
The odds of us making it to 2034 without a repeat of events a century earlier grow poorer every day.
For my thoughts on talks to deliver the original Andrew Furey Churchill Falls agreement with a few minor tweaks, check out Issues and Answers this Sunday at 12:30 PM on NTV or at ntv.ca.
Increased revenue will not save us, as is proof from the last 20 plus years of spending increases. Controlling spending is what is needed. Given healthcare is our biggest budget line item, start there. Biggest opportunity to save is a more efficient healthcare system. Few Ideas:
EPIC is OK, but there are more technology solutions that are more efficient. A reduction in nurse admin time in particular would allow coverage of more patients per nurse unit.
It would also allow you to reduce or eliminate paperwork, which makes delivery more efficient. Train all nurses and doctors in school with the technology.
Use tech to triage people. Use AI to assist in risk scoring someone. Plug that AI right into the patient's MCP account. More efficient way to manage Emergency Rooms. Use score to determine if you need ER or doctors appointment. If you do need a doctors appointment soon, have a pool of docs who's only job is to provide TeleHealth.
Train more nurse practitioners/pharmacists who can do more of the doctors work more efficiently and at lower costs. If you have been on the same BP Meds for 20 years, and they have been working, and your BP is normal, you do not need to see a doctor for your renewal.