Nfld. & Labrador

Cochrane | A deficit that was a decade in the making

The governing Tories can take little credit for gigantic surpluses of the past that had far more to do with luck than planning, writes David Cochrane.

Ask any member of the provincial government to discuss their fiscal record and they will boast of gigantic surpluses and regale you with tales of the Progressive Conservatives rebuilding a near-bankrupt province.

It will be the tale of a province on the cusp of ruin after decades of inept Liberal rule only to be propelled into a Golden Age of prosperity through the wise stewardship and economic savvy of the PC government. These truly are the good ole days.

Like all myths, there is a kernel of truth to this one.

The PCs have put together a string of massive surpluses. Many of the year-end windfalls over the past decade have been staggering. Government revenues have exploded to levels never before seen in Newfoundland and Labrador. This province has been the envy of nearly every other province in Canada. That is all true.

But here's something else that's true: the Tories had almost nothing to do with it. Those gigantic surpluses had far more to do with luck than planning.

Expectations rarely met results

If you go back through the budgets this government has tabled since 2004, you only find three projected surpluses. Those were in 2006, 2007 and 2008. In every other year the government projected, tabled, and approved deficit budgets that would have added more than $2-billion dollars to the provincial debt.

Premier Kathy Dunderdale has defended her government's management of its finances. (CBC)

Clearly, the government outperformed its projections. Enormous spikes in oil prices and production led to gigantic windfalls that wiped away that red ink and allowed the Tories to craft their fiscal myth.

But the government can take no credit for that. It doesn't control oil prices. It doesn't control oil production. Those are all part of that "global volatility" that has now taken a turn for the worse and handed the government a projected deficit of $1.6-billion for the upcoming fiscal year.

If this record shortfall is due to a series of negative factors that are beyond the government's control, then surely those record surpluses are simply the other side of that same coin.

If you deserve no blame for the downside, can you really claim credit for the upside?

More than just oil

Admittedly this current shortfall is due to more than a drop in oil prices and production. There are no more payments coming under the Atlantic Accord, which punches a significant hole in the fiscal plan. Newfoundland and Labrador is now a "have" province, so there are no more equalization payments.

These factors are all true.

But they are also factors that have been known for quite some time and should have been planned for. In fact, the jump to "have" province was such a source of pride that former Premier Danny Williams even considered a one-time province-wide holiday (or at least school closure) to celebrate the momentous occasion. 

It was scrapped when the government realized it might look unseemly to hold an equalization party while huge sectors of the Ontario auto industry were on the verge of collapse and pulling Ontario into have-not status. None of this was a surprise.

What has been a surprise is the government's failure to pay more than a passing nod to the principles of fiscal conservatism. It was there in surplus quantities right after the 2003 election victory, when the province was facing a $1-billion deficit, oil was trading at a paltry $30 a barrel and people such as Beth Marshall and Loyola Sullivan sat around the cabinet table.

But after former Premier Danny Williams secured a new Atlantic Accord and the price of oil tripled (due to that pesky global volatility), things changed.

The Conservatives became unrepentant spenders. The size of government expanded at a blistering pace. The core civil service grew from 6,900 people to more than 9,000 - and that doesn't even include government agencies, school boards or hospital boards. On top of that hiring spree, the government handed the public sector the single biggest pay increase in the province's history.

As revenues grew, expenditures grew with them. The provincial budget doubled from about $4-billion a year to more than $8-billion. It took less than a decade.

Why there was a spike in spending

There is an argument to be made for almost all of that spending. The civil service deserved a raise after years of freezes and clawbacks. There was pent-up public demand for expanded services. Infrastructure had been neglected for decades. Government MHAs argue that they had to "rebuild" the province.

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But this year, they start the process of tearing some of it down. This isn't just a revenue problem. It is also a spending problem, and one of the government's own making.

Hundreds of civil servants will lose their jobs before this current round of downsizing is over. Hundreds more may opt to take early retirement. Those left behind will be facing a reduced civil service, the likelihood of a multi-year wage freeze and the imminent threat of increased pension premiums to deal with the pension fund shortfall.

The public will be facing a reduction in services and the possibility of tax hikes. Those surpluses of ages past mean very little in this new emerging era of austerity.

This was the dominant topic of question period when the house of assembly opened for the spring session this week.

The government tried to deflect from the restraint measures it was implementing by reminding everyone of the mess they inherited from the Liberals — even though it has now been 10 years, three elections and two Progressive Conservative premiers since the last Liberal budget.

As the opposition parties prosecuted the government's fiscal record, Premier Kathy Dunderdale boasted that her government was "responsible for one of the most booming economies in the country."

Her caucus cheered and thumped their desks. Meanwhile, 98 civil servants were cleaning out their desks on Thursday, the latest wave of public employees to lose their jobs.

During that same question period, Finance Minister Jerome Kennedy announced that the upcoming budget will include a "sustainability plan" that will guide the province back to surplus.

This "sustainability plan" will arrive nine years after the first PC budget, several years after the province has passed peak oil production and exhausted most of an oil revenue windfall that could only be dreamt of in years past.

A sustainability plan is a good idea. The reality is that it is long overdue.