The Neverland Budget 2023

Keep these simple things in mind

Every Government of Newfoundland and Labrador since 2003 has left the place in worse financial shape than when it took office.

Every.

Single.

One.

You can see it clearly in the chart above. It shows the public debt, as presented in the Estimates, one of the key budget documents released in Newfoundland and Labrador each year. The Estimates are compiled using cash accounting, which means you can reliably compare every budget back to at least 1949.

Since 2003, the budget speech and the Public Accounts are presented using a different accounting method that obscures some key details. Getting rid of cash accounting would be a major blow to financial transparency in Newfoundland and Labrador at a time when the government is less and less clear about what it is doing.

The chart shows the growth of the public debt from about $8.5 billion in 2006 to more than $28 billion in just 15 years or so. There’s a small dip from 2008 to 2013 but that basically just cleared room for Muskrat Falls. As intended, that disastrous project doubled the public debt for all practical purposes in one shot in 2013. Then the debt kept climbing thanks to both Muskrat Falls and chronic and uncorrected overspending that started around 2006.

Look at the two numbers in red on the chart. They show the public debt divided among the 525,000 people in Newfoundland and Labrador. The population’s gone up or down slightly over the past 20 years but that number is as good as any for simple math. The debt per capita heading into the 2023 is three times what it was in 2007ish.

Per person debt.

Triple.

Total debt.

Triple.

In just 15 years.

So when finance minister Siobhan Coady told Mike Connors at NTV last weekend the debt has gone down since last year, that would be false.

Not true.

Not down.

Up.

A lot.

A staggering lot.

And set to go up yet again this year, in all likelihood, by the roughly 10% it’s been jumping every year for the past decade.

10% doesn’t seem like much but when your debt is 20-odd billion, you are talking serious cash.

How serious?

Well, the debt’s been jumping by about a couple of billion or so on average billion a year for the past decade and a half.

The total government income from all sources in 2005 was about $6.0 billion. Today it’s about $6.8 billion. Not much more than in 2005.

13% higher, actually.

Lucky 13.

Debt is more than *300%* higher in the same time.

No person, heck no government like Newfoundland and Labrador’s government, could keep going like that for long.

Coady was relying on net debt, one of the numbers every government since 2003 has relied on. In the process, though, government has misleading itself and everyone else into believing things are better than they are.

One of the great values of the Premier’s Economic Recovery Team was its brutally frank statement of the amount of money people of Newfoundland and Labrador owe through their government.

Connors used the team appointed by the Liberals under Andrew Furey to push back against Coady’s debt claims. That’s important because it shows that the current government is ignoring reports it commissioned.

Here’s what the PERT crowd said about net debt:

Net debt is total debt minus the book value of financial assets, including cash and investments. It is important to be aware that net debt includes the debt of its agencies, boards and commissions, but excludes the debts of its three government businesses : Nalcor, Newfoundland Liquor Corporation, and Atlantic Lottery Corporation. Rating agencies understand net debt, but the discussion around net debt really masks the true problem.

Some of the assets used to figure out what the net debt is cannot be easily turned into cash to pay the bills today, as PERT explained. That’s another version of the point SRBP made about net debt a decade ago. If you have a mortgage for $100,000 and $100,000 in assets, your mortgage payment is not zero even though your net debt in that case would be zero.

Yet there was Coady last week - just the latest of a string of finance ministers to say this sort of thing - talking about how the net debt was down and that was part of government’s wonderful strategy that included lowering the cost of borrowing. The week before, Coady was in London playing Wendy to Furey’s Premier Pan to announce the government planned to borrow even more expensive money supposedly to lower the cost of servicing the debt annually. She never explained how that would work, which is just as well since it cannot. What Coady is talking about is Neverland kinda stuff.

Borrowing in Canadian dollars will generally always be cheaper than in any desirable foreign currency. Even if the interest rate is lower on some other currency, you have to convert Canadian dollars to that other currency in order to settle up the interest payments. Desirable currencies take more Canadian dollars to buy One Euro, for example, costs a buck and a half to buy.

And that’s where foreign debt currency gets financially troublesome. More expensive, literally and figuratively. Currency values change all the time so you might think your debt serving costs will be one thing at budget time. But by the end of the year you could find yourself having paid more, overall, thanks to currency fluctuations.

The reality is Furey and Coady need to start borrowing in foreign currencies because the lenders in Canadian dollars are starting to choke on the provincial government’s debt. Everyone knows the federal government will ultimately bail the provincial government out but as the actual government debt grows to ridiculous proportions and the government shows every intention of driving it ever higher, without limit, the interest rates are climbing on top of inflation.

The available cash the provincial government desperately needs to keep going is never guaranteed to be there any more in Canadian dollars. That’s why the Newfoundland and Labrador government has run into difficulty on the markets in 2015 and again in 2020. Within the past 15 years, the government has seen major drops in its income four times. Two of those dates line up with difficulties in borrowing. That’s not a coincidence. So now they need cash and will try to get what they need in more expensive foreign money when Canadian dollars are too expensive.

Add up all the sources of its own sources of income the provincial government has, including oil royalties. That gets you from zero up to the red line in the chart above.

The blue line is how much the government spends every year on everything from roads to health care.

The government fills up the huge gap between the red and blue lines with borrowing and transfers from the federal government for health care and social services. Borrowing has been the largest source of income for the government for most of the past decade. More than income tax, sales tax, and federal transfers. That’s one reason why the debt keeps growing.

COVID caused the only serious dip in spending since 2015. Once that was over, the crowd currently running the place drove spending to heights its never been before. Ever.

Now notice the red line. Except for a couple of years, it's been consistently below $6 billion since 2006 even with oil. Look at that again. The budget numbers are real. Long neglect of economic development has taken its toll. Even with massive amounts of oil money, the government’s main sources of income from within the province have stagnated. The government's been substituting public spending for sustainable economic development all that time. That includes stuff like Muskrat Falls but it also includes miscellaneous giveaways, tax breaks, and other panicky efforts to avoid change. Used to be just economic development. Now they are doing it in health, which is not really odd since health spending in this province is as much about the economic impact of the jobs involved in a hospital as it is in, you know, actually caring for sick people.

The period of supposed government austerity is marked out in orange. Austerity means action to reduce government budget deficits with spending cuts, tax increases, or a combination of the two.

There are facts. There is what public sector unions, their front groups like the NDP, and their ideological allies say. Not the same thing. The period they call “austerity” has actually been the time when the Government of Newfoundland and Labrador has spent the most ever bit just in the province's history but Newfoundland the country's history.

The past two years - the Andrew Furey years - have been *even* higher than the first years the Liberals were in power after 2015.

The 2022 numbers are from the last budget. The staggering lot in the House of Assembly rushed through an interim supply bill last week. It shows spending will be about the same in 2023 as the past couple of years and has been pretty much as forecast in 2022.

Income might be up slightly but not by enough to close up that massive deficit. There are no signs the 2023 budget will be any different. There are no signs of any austerity, any substantial change from the direction the government and the province have been on for the past 20 years.

When Siobhan Coady unveils the budget this week, you’ll hear lots of claims about austerity from one corner, claims that the provincial government is financially healthier than ever from another, and all manner of demands for even more spending on top of the record spending the government has already decided on.

None of it is real.

None of it is true.

Then again, this is Neverland.

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