'Big reset' called for debt-ridden N.L. with release of ground-shaking economic report
Long-awaited report offers 6-year plan for province to recover from ‘perilous situation'
A no-holds-barred report that lays out a five- to six-year plan to re-imagine Newfoundland and Labrador in order to avoid a "perilous situation" and prepare for the future was revealed in St. John's on Thursday.
As expected, Moya Greene, chair of the premier's economic recovery team, delivered a ground-shaking plan — proposing everything from tax increases and deep spending cuts to a streamlining of the public service and privatization — to reverse a course that threatens to send the province into insolvency.
She described the province's debt and spending practices as a "fiscal crisis" and said "immediate changes are required," but acknowledged 2021-22 should be "a planning year."
"What happens when we can no longer borrow? What if interest rates rise? What if we have to quickly and chaotically shut down services? What is the future like under these circumstances?" Greene posed these sobering questions while describing the contents of her report to the media.
Cuts to health, post-secondary grants
In order to rein in a soaring public debt and end the long pattern of deficit spending, Greene recommended a five per cent reduction in core government spending, and that operating grants for Memorial University and the College of the North Atlantic be slashed by 30 per cent, at a rate of five per cent annually.
Some of her sharpest points were directed at the health system, which accounts for 37 per cent of public spending. The province also spends 24 per cent more per capita on heath than the Canadian average.
Greene questioned the need for four health authorities and proposed that operating grants to those authorities be cut by 25 per cent. She said health officials tasked with making such deep cuts "will have to figure out how best to manage within a financial envelope."
According to Greene, the province's paltry record on health outcomes is proof that "money is not the answer, or we would have the best outcomes."
She also recommended the abolishment of Nalcor, the province's energy corporation and the entity that oversees the controversial Muskrat Falls hydroelectric project.
"The current operations model for Nalcor is expensive and includes duplication in many areas," she said. "The organization's size and complexity does not reflect the small size of this province."
Greene said neither Muskrat Falls, which is billions over budget, nor the pandemic are responsible for the province's problems.
"Our predicament is the result of years of overspending; [government] spending about 25 per cent more than it takes in every year," she said, noting that expenditures soared by 80 per cent over a 15-year period "regardless of changes downward in our revenues."
Since the province has one of the largest public sectors in the country on a per capita basis, Greene recommended it re-examine its relationship with unions.
"The compensation and benefits paid to many public sector employees are higher than those received by people doing the same jobs in the private sector workforce," she said.
The team considered options such as salary freezes, four-day work weeks and privatization of some services to save money, but she said those decisions should be negotiated by government and the unions and if progress is not made, the province should legislate changes.
"Given that public sector salaries and benefits are 41 per cent of expenditures, it does seem there's an opportunity for good and productive discussion to be had," she said.
Greene is not recommending spending cuts for the K-12 education system, instead saying the system needs a shakeup so today's generation can be better prepared for a new economy that is built on technology and low-carbon industries.
She said the province has the most teachers-per-student in the country, "but the structures appear unable to adapt" to the changing needs of students.
"Our children have to be prepared to contribute more that the previous generation," she said in reference to a birth rate that is the lowest in the country.
Taxes, fees should go up
On the revenue side, Greene's report recommends a "modest" one per cent increase in the personal income tax rate, but with safeguards to protect low-income earners.
"We do not want the least able to be asked to shoulder more of the burden," she said.
Corporate income taxes, currently at their lowest rate in more than a dozen years, should increase by two percentage points, she said, and the 15 per cent harmonized sales tax should grow to 16 per cent.
The report also recommends that fees for government services, such as motor registration, should increase by 15 per cent, and that those with second properties or luxury vehicles pay higher taxes.
Green transition, debt payment
Greene also called for the creation of a future fund, with perhaps 50 per cent of oil and gas revenues and carbon tax revenues being funnelled into it. She said the fund should be used exclusively to transition to a green economy and pay down debt.
She said privatization and sell-offs should not be ruled out, noting that "the public sector does not have to do everything. Times have changes and ways of doing things should also change."
Singling out the Newfoundland and Labrador Liquor Corporation and the province's equity stake in the Hebron offshore oilfield, Greene said experts should be consulted to determine their value.
Greene said her plan, named The Big Reset, is a gradual and deliberate strategy for the province, which has the highest per capita revenues, expenditures, deficit and net debt in Canada. The plan would see the province return to a surplus by 2025-26.
According to Greene's report, the province also has the oldest population, highest unemployment, highest per capita health-care spending and the poorest health outcomes in the country.
Without action, she said their fear is that people "will find it's better to move away and raise their families in other parts of the country as generations have done before them."
As such, she said every dollar spent needs to be scrutinized.
Cultural change needed
Greene said the current governance culture — one that views budgets as "notional" and deficits as something that don't matter — has to end. She said the overall debt sits at more than $47 billion in a province of just over 500,000 residents.
Premier Andrew Furey told reporters he's going to need time to digest the full report, having received it at the same time as the public on Thursday. He said he will have more to say in a public address next week.
"I think the take home message is the absolute numbers. $47 billion worth of debt is sobering," Furey said. "But there is an optimistic path forward. We see that we have an abundance of green energy here, and we can capitalize on investments around the world and Newfoundland and Labrador can be a leader in the green transition that's occurring globally."
Furey said he acknowledges there may be some anxiety swirling, given the bluntness of the team's findings, and reiterated the report is not government policy but a list of recommendations that will make their way through public consultations.
While the Liberals hold a slim majority government in N.L., Furey said the province's issues are beyond politics, and added he's looking forward to working with opposition parties to right the ship.
"This is bigger than any political party. This is bigger than any one government. This is a problem that faces the future of Newfoundland and Labrador and we need to put political differences aside, recognize the problem as it's defined and come up with solutions," he said.
'We wanted ideas'
"We're lucky to have a report that has many solutions. We may not take them all. Of course we're not going to take them all. We've said from the beginning that we wanted ideas. Ideas that were outside of the status quo, that were outside the walls of the Confederation Building or the legislature."
Meanwhile, interim PC leader David Brazil told reporters he was "shocked" by some of the recommendations, and has fears of the impact they will have on the province's residents if implemented. He said cutting the way out of debt isn't the right move.
"This is not about asking Newfoundlanders and Labradorians to modify their lifestyle. In some cases here it's asking them to give up their lifestyle," he said. "We're very wary of how these will be implemented."
WATCH | Greene discusses her report:
NDP Leader Alison Coffin said the report has an "awful lot of cuts" listed as recommendations — something she said Furey had been adamant against. But, Coffin added, there are some good ideas, though she maintains she has concerns about potential cuts.
"Things like making the wealthy pay their fare share — that's a really important thing, something that's very near and dear to New Democrats' hearts," she said. "However, it does not leave a lot of hope for the people of Newfoundland and Labrador."
Greene said the belief that the federal government will save the province is misplaced and that if Newfoundland and Labrador needs outside help "we are fearful the feds will have to put measures in place and enforce changes; not the ones we would make, but would be forced on us by bond rating agencies."
When Nalcor's costs are factored in, she said the debt servicing charges, what it costs to repay that debt, are now above $1.5 billion annually, which is twice the amount spent on K-12 education.
She said the province risks not being able to pay salaries, operate hospitals and other public services, or even pay pensions to retired public sector workers.