No magical solution to protect ratepayers from Muskrat Falls debt, says researcher
Many questions remain according to Ed Hollett, a senior research fellow at AIMS
A promise by Premier Dwight Ball that ratepayers won't have to shoulder the burden for Muskrat Falls debt came as a relief to many people across the province, but one prominent policy expert says just like Harry Potter, so far that's just a fantasy.
"From what I heard yesterday, all three political leaders in the province, Ron, Harry and Hermione, think that there's an elder wand buried in Joe Smallwood's graveyard and somehow they can magically go to Ottawa, who will produce a resurrection stone and make all this problem go away," said Ed Hollett, the Newfoundland and Labrador representative for the Atlantic Institute of Market Studies, a public policy think tank.
"Well, that might have been a wonderful movie, but it's not reality."
Where will the money come from?
Ball's announcement came Wednesday at a campaign launch for Liberal candidate Paul Antle in Cathy Bennett's recently vacated Windsor Lake district.
"The Muskrat Falls debt is not a ratepayer issue. It's a debt issue, and we will deal with that debt like we've dealt with other government debt," the premier said Wednesday.
Hollett said he was flummoxed by the announcement, wondering where the money to pay off Muskrat Falls will come from if power rates and taxes don't increase.
"The fact that the government had no details just makes it that much worse for them.… What does this mean and how is it going to work?" he asked. "I know people in government are working on this, but I don't think anybody has got an answer yet."
Premier short on specifics
Ball has said that answer is still being determined, which Hollett thinks won't exactly inspire confidence in those who invested in the Muskrat Falls project.
"If I was one of the bondholders and I had $7 billion that you had promised to pay me, and you said you're not going to pay me the way you said, my first question is, how are you going to pay me? Unless I get a good answer, I'm probably going to get really nervous today."
Originally greenlit at a price tag of $7.2 billion, the estimated cost of the project has ballooned to $12.7 billion. First power won't be delivered to Newfoundland until 2020.
One estimate says that in 2021, the province will have up to $800 million in annual Muskrat Falls costs.
In order to raise that amount of money from taxes, Hollett said, the government will have to increase income taxes by 50 per cent.
"Anybody who talks about taking this on just as a matter of taxation means they automatically want to double our public debt today, and it goes up every single year from here on out.
"You're talking about massive consequences, and if you don't like what happened in 2016 with your taxes and layoffs in the public service, try doubling the public debt and having that grow, grow, grow and grow farther into the future."
Anybody who talks about taking this on just as a matter of taxation means they automatically want to double our public debt today.- Ed Hollett
The big question looming over the Muskrat Falls debt is if the federal government might pitch in and help. Ball referenced Ottawa in his statement on Wednesday, and said his government would leave "no stone unturned."
The province's Department of Natural Resources released a statement on Thursday, saying, "Any discussions on the financial issues surrounding Muskrat Falls would include the federal government and we continue to look forward to having these conversations."
With files from Terry Roberts.