Monday Morning Money News
A little cold water on your face
The House of Assembly opens today.
This is your reminder that the provincial government is strategically in the worst financial position it has been in since the 1920s as the country then descended into political collapse.
Not financial collapse, although that’s the popular understanding of what happened in 1933. There was a financial mess but the driving force was political collapse.
And that happened about 10 years before the end when the elites decided we needed to give up self-government and convert to some sort of dictatorship that would protect *their* position.
Three things about today:
Number One: 70% of GNL income goes to two, fixed expenses - health and paying interest on debt
Let’s start with the image above. It shows the income on the left and the outcome on the right as set out in the government’s budget plan from last spring.
Total income: a shade under $8.0 billion.
Total outcome (spending): about $10.0 billion.
The deficit is not a couple of hundred million, as finance minister Siobhan Coady claimed last week. It is a couple of billion dollars. Continued, massive borrowing to cover massive, continued overspending. Overspending under Andrew Furey has been *worse* than before and it was bad before, dating back to Danny Williams.
Health care consumes every penny of taxation - income tax, HST, and the odds and sods others - and more besides. And that is *more than half* of government income, sucking in oil royalties to go with taxation. Slam it together with debt servicing and you have 70% of government income going to two things that the politicians think can only increase (health) and one that the lenders get upset if you try to cut back (debt servicing). They are politically or practically fixed.
Everything else government does, from policing to schools to roads comes from two main sources: federal handouts and borrowing and borrowing is the larger of the two.
We get near record levels of federal handouts, yet we borrow that much more again on top just to provide every service that isn’t health care and we fight for more handouts.
Number Two: The feds control 40% of GNL income.
We’ll come back to this on Wednesday but changes to the Atlantic Accord law that is coming to the House this fall - the parallel changes in Ottawa just went through the federal parliament - effectively gives the federal government control over the offshore and makes oil royalties an income stream that is even less dependable for Newfoundland and Labradot than it was before just based on the fact prices and production go up and down.
The feds can now shut off new development and effectively already have. There were no land parcels taken for exploration last year and there may be none this year as well. That means whatever is developed now is it. Even Bay du Nord is not dependably going to happen.
And under the Atlantic Accord changes Andrew Furey accepted in last December’s guce-away, one federal cabinet minister can shut down existing projects without so much as a nod to the Newfs.
That means that of the roughly $8.0 that is actual income, the federal government controls roughly 40%.
The goal of one Newfoundland and Labrador government after another from 1949 to 2003 was to get off the federal dole, to get out from federal control and dependence on federal handouts, to end the days when half of what government spent came by the grace of Uncle Ottawa. One day the sun will shine, said Brian Peckford. I cannot wait for the day we don’t get a penny, said Clyde Wells.
Well thanks to every Premier from Danny to Andrew we are right back where we started. 40 years of growth, development, prosperity. Gone. Thanks to blinding incompetence, stunning short-sightedness, and - to take a phrase from Andrew Furey himself - “next level thinking.”
It’s good to remember what his new top advisor told the Globe just before COVID about our problems back when she was hosting a cable television show and was - if memory serves - already advising Andrew Furey’s leadership campaign.
Melissa Royle, a lawyer and host of a politics talk show in St. John’s, says the challenges facing the province are daunting, and are likely discouraging a lot of good candidates who would otherwise enter the race to replace Mr. Ball.
“Maybe that’s part of the reason we aren’t seeing a lot of people throw their hats in the ring yet,” she said. “Newfoundland and Labrador has significant demographics problems. We have an aging, declining population. We have an insurmountable debt. And our economy hasn’t really recovered since the price of oil collapsed.”
Four years later, what was a debt too great to overcome according to Melissa Royle-Critch is now in four years of Fureyism larger by more than one single year’s government income, not including borrowing, all thanks to massive overspending by the Furey Liberals.
That’s one way to look at “next level.”
Next bigger level, but not in a good way.
Number Three: Our debt is way bigger than you think.
Lot’s of people were worried that in the financial update issued last week, something called “net debt” went up by a billion dollars. Well, that’s not really debt. It is just the part of what we owe that sticks up above whatever someone considers assets.
The total debt - as most people understand the word to mean what we collectively owe, what we are liable to pay - is not $17-odd billion “net debt” of the budget or even the $18-odd billion of last week’s update. Total debt is roughly $34 billion, as of the end of last March according to the province’s audited financial statements also issued last week.
Current population’s about 545,000 so that works out to about $63,000 a head.
A bit of perspective for you. Each of the 3,000 or so children born this year starts life with *that* hanging over their heads, if they stay here. Those of us born in 1962 started out owing $273 in public debt or roughly the equivalent of $2,766 today. A child born roughly 30 years ago - when the feds controlled half the government income - started life facing roughly $11,000 of public debt or the equivalent of $20,000 today.
That $34 billion in total liabilities is a shade under the size of the economy - roughly $40 billion - according to budget update released last week. That’s an important comparison because lenders look at total debt and the size of the economy when deciding whether or not to take more of our debt. And that influences what we pay in interest on the debt, which is one of those two fixed expenses that right now eat 70 percent of what government takes in, including the federal handouts.
That $34 billion isn’t actually everything we owe someone. By the time you tack on NALCOR and a few similar debts the Auditor General doesn’t include, we are around $50 billion in the hole. That’s the way the Premier’s economic advisors put it to him in 2021 in a report he dismissed out of hand when he got it.
And as far as the $40-ish billion economy goes be leery of that as well. After all, oil accounts for a chunk of it and the size of the economy goes up and down annually based on oil production and oil prices. Plus, the provincial government spending is roughly a third of that in total. That’s a huge impact on the economy and since that spending is based so heavily on borrowing and other money that we cannot influence, we can go very quickly from making ends meet to a financial meltdown in the blink of a global eye.
When you look at that and when you listen to the words coming from the House of Assembly, just remember two things:
The rosy picture painted by politicians isn’t real. They are already campaigning for your votes and they will tell you anything but the truth to get your vote.
In the early 1930s, the Newfoundland government’s financial position went from being tough but manageable to wrecked in about two years or less. The financial collapse did come but what was more important in the end of self-government was the *political* collapse that took place in the decade and a bit before that. We are already passed that this time.
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