The crowd currently running the place are a queer lot.
One the one hand they are busily doing all sorts of very good things.
Last week, government announced construction of the replacement for the ancient prison by Quidi Vidi Lake would start soon. This follows on the heels of the replacement for the equally old Waterford Hospital. In May government asked for plans to replace four major computer programs, one of which dates from the 1960s. Pretty soon you will see tenders called to upgrade a few other registries and databases used by government. These are all old, cumbersome systems that are costly to maintain and run. They cost the government money to run and they cost the people who use them by being slow and ineffective.
On the other hand, they waste time on fluff. Change the name of a lake. Change a few words in the back end of an obscure bill about the provincial coat of arms. None of it addresses any issues that really matter to anyone in Newfoundland and Labrador, especially the Indigenous people who were supposedly thought these were the biggest problems they have.
What isn’t fluff is confused. What isn’t fluff is confused. Like doubling oil production and claiming they want to cut carbon emissions at the same time. Same as Andrew Furey’s messaging on his swan in Glasgow. Told the punters back home he went to sell local oil. Told the people in Glasgow – well, really only one reporter and his camera – that we had to ditch oil mucho pronto.
And what isn’t confused is a waste of time. Like the sugar tax. Failed everywhere else that’s tried it as a way to improve health. Failed as a way to make money. All the evidence is clear: it’s a bad idea. Yet they did it anyway.
Then there’s the other two, the law that requires a balanced budget and another proposed law to set up something called the Future Fund. Both came from the Premier’s Economic Recovery Team report:
Government needs to bring rigor to its spending. Other jurisdictions have used balanced budget legislation to bring discipline to governments. The province today places all oil and gas royalties into its current revenues. A Future Fund needs to be established, similar to that in Norway. Fifty per cent of volatile oil and gas revenues should be placed in this fund, as well as all revenues from any asset sales. The Future Fund would only be used to pay down debt or to fund the green economy transition.
The thing about financial discipline - as the PERT bunch called it – is that this is something governments can just do. They don’t need a law to say they have to do it. They can Nike up: Just do it. They can tell people about their goal and then explain when they hit their targets and why they don’t hit their targets. It’s called accountability. It’s about being responsible for your actions. It’s what governments are supposed to do.
If there’s a bill to create a law that says the budget must be balanced you can count on one thing: the new law will have a raft of ways to let government *not* balance the budget. You can see it in all the other places that have these kinds of laws.
They might say they only have to balance the books using accrual accounting. That lets them run cash deficits. They might limit the balance to the operating budget, which lets them run deficits on capital accounts.
Or they may say the government only needs to balance the budget over a four or five year span. That lets other bits of wiggle go to work. Sensible plans allow for natural disasters and other emergencies. Well, those can happen quite a bit. So, the government can reset the start date to figure out when they need to balance the budget.
You don’t have to look far to see how this works. The current crowd started with a plan in 2016 to balance the budget in seven years. They ditched the plan in 2017 but kept telling everyone they were sticking to it, even as they kept running big deficits.
The first thing Premier Dwight Ball does is send a panicked letter to the Prime Minister that he was broke. Think about that. After five years of telling everyone we were on the road to recovery and the tough times were going away, his *first* action I the pandemic was to admit the place was close to the rocks.
Then there’s that accrual versus cash accounting thing. The budget deficit is down from the forecast in the spring. Big news last week.
That’s down on an accrual basis.
But on the cash side, the deficit is still massive.
This year, the government will borrow about $1.5 billion – more than double the forecast accrual deficit – just to make ends meet. They need another half a billion to cover other cash needs to manage the debt.
$2.0 billion, cash.
Not the $600 million or so reported last week.
The government needed a law to borrow money this year. It’s called the Loan Act, 2021. It covers $1.5 billion. The rest of it comes from the Loan Act, 2020 that – with an amendment - let the government borrow up to $3.0 billion. The government didn’t borrow all that money in 2020 so they had some extra borrowing room in 2021 that you wouldn’t notice unless you followed closely. They used that wiggle room to under-report the borrowing in 2021. Legally, they are fine, but the communications were less than transparent.
Actions always speak plainer than words. Lawyers like to talk about how past actions are good predictors of future behaviour. So, if you want to see what value there is in balanced budget legislation, just look at what already goes on. You can see pretty quickly how useless it is.
Politicians who are serious about looking after your money responsibly just Nike up. They just do it.
Everything else is bullshit.
Then there is the Future Fund.
Sell oil and rather than spend it, put it away for a rainy day. Invest some of it so it earns money.
A great idea 15 years ago when the provincial government had lots of money and lots of oil money coming. That was before a combination of overspending and the idiotic Muskrat Falls project blew the future away.
Speaking of Muskrat Falls, the project is still nowhere near finished. The independent consultant keeping an eye on things for the public utilities board reported earlier this month on how bad things are.
Notice three issues in particular:
The General Electric software is still no where close to finished. Nalcor Says the new date to have it done is March 2022. Liberty says that “Nalcor’s date already takes completion to the end of the winter; history and the continuation of critical bug discovery and clearing suggest that Nalcor’s date is too optimistic. “
The synchronous condenser problem is working but it’s just patched up. “The modifications made to address vibrations have diminished the vibration levels to within limits, as so far monitored. They do not, however, alter the resonant frequency of the foundation and they have altered the dynamics of the shaft and its alignment. Factors like these, which appear still to raise questions to Nalcor’s outside expert, raise possible implications for long-term operation.”
Key agreements with Hydro-Quebec are stalled. And there’s no indication when the HQ and NALCOR-Hydro will finish them. MPPA is the Multi-Party Pooling Agreement. It’s about water management on the Churchill River. IOA is the Interconnection Operators Agreement. The IOA “establishes the terms regarding safety, reliability and operability of the interconnection between the Newfoundland and Labrador and Nova Scotia bulk energy systems.” It also “provides for an Interconnection Operators Committee to implement the provisions of the Agreement [and] provides the framework for agreements on reserve sharing, emergency energy and regional generation adequacy reviews.’
The IOA lets NACLOR-Hydro ship electricity to NOVA Scotia and beyond *and* lets NALCOR-Hydro import electricity when it needs to. Importing cheap electricity has always been part of NALCOR-Hydro’s plan either because Muskrat Falls electricity is crazy expensive or to fill in a gap if the link from Labrador goes down.
Well, “that parties to the agreement (and therefore presumably their rights and obligations thereunder) remain in contention does not support optimism in meeting this date.” A clumsy sentence. Translation: although NALCOR-Hydro said the only thing left to sort out was some technical detail, the fact that basic issues are still not settled means NALCOR-Hydro’s forecast date to have the deals settled isn’t likely to hold up.
Back to the Future Fund.
Great idea before most of the oil was gone. In 2013, Bond Papers did a little thought experiment. What if the government had put some of the oil and minerals money to each of four pots: paying down debt, covering capital costs, salting away investments (the Future Fund), and daily spending. Started in 2006. By 2013, the government would have increased spending every year but also would have had half of all oil money in the bank.
In 2016, we carried on the projections. If the government had kept going, then it would have only started to see some financial issues when oil prices dropped in 2015-2016. Compare that to what actually happened in 2009, 2013, and 2015.
You get the idea.
These days are on the other side of peak oil production offshore Newfoundland. We are about to see the start of a long slide down to nothing. If the world moves away from oil like it seems to be doing, then even as oil prices rise, the lower production will mean a big drop in government income from oil.
That $2.0 billion in borrowing this year is basically what oil money used to cover. This year’s budget expects to get about a billion from oil. The PERT idea for the future fund is to take half of oil money we do get and shift that to the Future Fund, where it will, pay down debt or fund green technology. That just increases the deficit since we don’t have enough money to cover the bills as it is.
In that sense, the Future Fund isn’t really a pot of magic cash we can put aside for a rainy day. It is just a shift in spending. We don’t need a special law to create Future Fund. We need government to tell us what they will spend money on and – most importantly – what they *won’t* be spending money on.
Again, that’s accountability. It’s also transparency.
A decade ago, the Future Fund was an interesting idea. These days, the Future Fund is a distraction.
Some people will roll their eyes and moan about how things don’t change. That just misses the real point, which is how much they have changed.
After all, the same politicians who do all the fluffy stuff are doing a whole bunch of practical good that politicians before them just didn’t do. Not for a long time.
These politicians are doing lots of things that aren’t photo-op sexy. We need more of that.