Nfld. & Labrador·Opinion

Austerity doesn't work: We cannot cut our way to prosperity

Since 2015, much political economy analysis has come to the conclusion that austerity does not work. It generally hurts the working class the most, even though it is the elite political class that creates our financial problems, writes Lori Lee Oates.

In times of economic distress, governments need to put disposable income into the hands of the working-class

The last auditor general's report, released in December, stated Newfoundland and Labrador is not 'living within its means.' This is very much advocating for an austerity approach, which ignores the realities of governing a widespread population that is aging, writes Lori Lee Oates. (Submitted)

This column is an opinion by Lori Lee Oates, a lecturer at Memorial University and a member of the Podco political podcast. For more information about CBC's Opinion section, please see the FAQ.


Like other provinces, Newfoundland and Labrador is currently looking to the federal government for financial assistance. Unlike other provinces, our debt-to-GDP ratio is approximately 85 per cent. That is largely unprecedented for a sub-national jurisdiction.

"We can't cut and tax our way out of this, as this would have a devastating effect on the people of the province and on our prospects for economic recovery." said Finance Minister Tom Osborne, as he gave the province's dreaded financial update on June 4.

This is an astonishing admission from a political leader after almost a decade of cuts, on the part of four different governments and two different parties.

When the last auditor general's report was released, in December, she stated that Newfoundland and Labrador is not "living within its means." This is very much advocating for an austerity approach, which ignores the realities of governing a widespread population that is aging.

Austerity: neoliberalism by another name

Austerity can be defined as a series of policy initiatives that seek to reduce deficits through tax increases and spending cuts.

Certainly since 2015, much political economy analysis has come to the conclusion that austerity does not work. It generally hurts the working class the most, even though it is the elite political class that creates our financial problems.

It is a neoliberal idea. Even the International Monetary Fund has said for some time it does not work.

Austerity takes away the spending power of people who need to go out and buy if there is going to be an economic recovery. It imposes fees and consumption taxes on those who can least afford to pay them.

In times of economic distress, governments need to put disposable income into the hands of working-and-middle-class people. Note that our provincial government has cut welfare payments to those receiving CERB, the Canada Emergency Response Benefit.

Public service cuts haven't worked yet

Because Newfoundland and Labrador has not developed into the global service economy, most of the jobs in this province are in government sectors, be it provincial, federal, municipal, health care, or education.

In 2013, the Dunderdale government cut 1,200 public service jobs. In 2015, the Davis government delivered what was called "one of the most austere budgets in recent times." It included $1.1 billion in deficit spending, a plan to shrink 1,400 government jobs, and tax increases for those in the highest brackets.

Everyone remembers the provincial budget of 2016 with its fee increases and consumption taxes. It was one of the least popular budgets in the province's history.

Some of its impacts have been reversed but it was followed by job cuts, mostly at the management level of the public service.

Because Newfoundland and Labrador has not developed into the global service economy, most of the jobs in this province are in government sectors, be it provincial, federal, municipal, health care, or education, writes Oates. (Mark Cumby/CBC)

The Ball government has also realigned government departments.

The province used to have separate departments of Business; Tourism, Culture, and Recreation; Innovation, Trade and Rural Development. Those are now the single Department of Tourism, Culture, Industry, and Innovation. Who needs rural development in a mostly rural province?

There used to be the Department of Municipal Affairs, and the Department of Environment and Conservation. They are now the Department of Municipal Affairs and Environment. Who needs a conservation branch when there is a global climate crisis coming over the next 10 years? It is hardly a wonder that our leaders have been so bad at preparing for it.

If you think public service jobs are bad for the economy, wait until you see what natural disasters, record levels of climate refugees, and a crashing oil industry does to the province.

There are very real costs to cutting investment in public policy. There are few things that are more costly than years of bad planning.

We must acknowledge that with so few options to achieve professional level employment in this province, people who are cut from the public service almost inevitably leave the province for other jurisdictions.

Cuts to public services lead to lower quality of life, which is another motivation for leaving. This in turn leads to cuts in federal transfer money that are based on population.

Austerity is a very dangerous downward spiral. We have been caught in that spiral for some time.

Healthy society, healthy economy

The province has long failed to invest in technology, cultural industries, renewable energy and development of our tourism product. Instead, we have continued to rely largely on natural resource sectors, while service sectors have been the dominant sectors for growth globally.

As we move closer to a climate crisis, it is becoming increasingly clear that natural resources sectors will have to change and even disappear.

As the world moves closer to a climate crisis, it is becoming increasingly clear that natural resources sectors will have to change and even disappear, writes Oates. (Paul Daly/Canadian Press)

Our province has not developed sectors to replace royalty revenue. Depending on natural resources for economic development has had mixed results at best. We have known about the "resource curse" since at least the 1990s.

What our province needs most, as we manoeuvre through this financial crisis, is leadership that understands the need to put money into the hands of the working and middle classes. One of the best ways to do that over the long term would be to create jobs outside of government.

There is going to be a lot of focus on GDP growth as we go forward because we absolutely need the economy to grow. However, GDP can no longer be our only measure of effective governance.

Economists have argued that the COVID-19 recovery, in particular, will require funded daycare because women have been very hard hit by this crisis.

Our economic recovery must be grounded in the well-being of citizens and our natural environment. We need to look to the Wellbeing Economy Alliance for guidance on how to pursue more sustainable public policies.

If 2020 has taught us anything it is this: You cannot have a healthy economy without healthy citizens and a healthy environment.

Read more from CBC Newfoundland and Labrador

About the Author

Lori Lee Oates

Contributor

Lori Lee Oates, Ph.D. is a lecturer in the M.Phil. (Humanities) program at Memorial University and has worked in the senior levels of the provincial and federal governments.

now