In this week’s Point/Counterpoint, our opinions editor gives the case for and against assigning blame to the Liberals for our province’s current financial woes
This February, Newfoundland and Labrador premier Dwight Ball revealed that he would consider breaking election promises about how his government would manage the province’s finances. This announcement follows much speculation that these vows would be nixed: indeed, Ball’s pledges to hike spending in several areas and not cut public service jobs have long struck many as unrealistic given the province’s tenuous financial situation. In addressing the provincial government’s roughly $2-billion deficit, Ball and his finance minister have admitted that no option is beyond consideration.
It is fortunate that the Premier has finally put his fanciful election promises aside and accepted the realities of Newfoundland and Labrador’s financial situation. But we must hold Ball and the Liberals accountable for their failure to propose a realistic plan to the province so that no party will see deceptive promises as a way to win office again.
Although the province’s financial position has become even direr since Ball took office last December, he surely knew during the election campaign that the province was in deep trouble. Oil prices had been much lower than would be required for a balanced budget for over a year, and the government’s royalty revenue was drying up as investment and production in offshore oil slowed. Additionally, many major projects in the province were winding up, removing other sources of provincial tax revenue. And even before taking office, Ball and the Liberals knew the deficit was estimated at over a billion dollars; they promoted an effective tax cut and major new spending items regardless.
The Liberals used economic voodoo to justify their actions. Without any detailed description of his plans and without citing economic evidence, Dwight Ball asserted that his plan to “diversify” our province’s economy would accelerate real economic growth to an unbelievably high four percent, despite every respectable projection concerning our economy—including from those of Canada’s major banks and that from our own provincial government—foreseeing economic contraction for the next few years.
Many of Ball’s other campaign promises, too, were embarrassingly chimerical. Job cuts wouldn’t be necessary to restore fiscal balance, he promised, because the combination of growth and waste reduction would be enough. The Liberals also cancelled a modest increase in the harmonised sales tax, calling it a “job killer” without providing any evidence that it would endanger jobs when compared with the alternative choice of running a larger deficit at a time when the province was already losing the trust of lenders.
A critic of this argument may point out that the Liberals did not know their plans were unworkable. This is hardly an adequate defence when the Department of Finance, economists, and even the previous government repeatedly warned of the difficult fiscal terrain the Liberals would be forced to negotiate upon winning government. The Liberals effectively closed their ears to these warning calls and pleaded to the public that their voodoo would solve the province’s woes.
These promises, we must realise, are more than points over which politically inclined Newfoundlanders and Labradorians should have polite arguments. The Liberals’ commitments have prevented their government from quickly and democratically responding to the immense challenges our province faces. Indeed, instead of implementing a thoughtful plan to ensure deficit reduction does the least harm to the public, the Liberals may now have to scramble to cut public services upon receiving notice that Bay Street won’t otherwise give us the money we need for our government’s very functioning.
Especially disappointing is that last year’s election could have provided an excellent opportunity for a province-wide discussion of which public services and tax rates to focus on in the inevitable fiscal tightening. Indeed, the election seems like an opportunity wasted with the winners’ promises already abandoned.
For those depending on health care services to see the next day, spending decisions can be a matter of life and death. For families whose wage earners may be left without jobs, personnel decision can prompt personal financial ruin and psychological trauma. The human costs of policy cuts may be high. The Liberals should have grappled with these tough decisions and thought hard about how to minimize the harms of cuts.
Additionally, Ball’s indifferent attitude toward our fiscal balance may have also worsened our position in financial markets. Recently, the government announced that it was having trouble taking on long-term debt, a sign that creditors do not fully trust the government to repay its loans. This isn’t unreasonable: despite a large structural deficit, Ball had long dismissed the deficit as a serious concern, offering little assurance to markets that the government had a plan for repaying its debts.
Now, it seems, our fiscal and political future is held in the hands of the investors who will decide whether to renew our debt, which rolls over each three months. Without their funds, we would not have the cash on hand to fund our most basic services. Our fiscal situation has hence threatened our political self-determination.
Certainly, Ball and the Liberals are not entirely to blame. The fiscal recklessness of the previous Progressive Conservative government, in large part, created the mess with which the Liberals must now address. But, in their own way, the Liberals’ irresponsible promises and failure to prepare a realistic plan for sparing their compatriots from a financial disaster has endangered our future and our democracy.
Fiscal woes sparked by resource crises are common episodes in Newfoundland and Labrador’s history, and it seems that premier Dwight Ball’s Liberal government is the latest to inherit a financial mess owing to overspending in good times. The current situation, in fact, seems eerily reminiscent of the 1930s, when overconfidence followed by weakness in resource markets sent Newfoundland’s fledgling democracy into so much debt that our British overlords were forced to end our experiment with self-rule. Unlike the 1930s, however, Newfoundland and Labrador is relatively prosperous, in a position to fix its financial issues, and resuming regular levels of borrowing.
We cannot blame the Liberals for this fixable mess, nor should we shame them for delaying their promises in order to deal with an unfortunate episode for which the previous government was largely responsible. After all, we elect politicians not just to enact policies, but respond to unexpected challenges. It seems that the Liberals are doing just that by taking time to fix our worse-than-expected finances before moving forward with their election-year vows.
Allow me to begin in earnest by contending that many popular claims concerning the magnitude of the provincial government’s fiscal troubles are exaggerations. Indeed, the new Liberal provincial government inherited a large and growing deficit. But we have plenty of room to operate in addressing the deficit. Our income tax rates, for instance, are among the lowest in the country and our spending per capita is the very highest. Even with some moderate tax hikes and spending cuts, Newfoundlanders and Labradorians will remain better treated by their provincial government than many other Canadians.
Our task, also, is not to eliminate the deficit but to reduce it to sustainable levels. Our existing debt relative to the size of our economy essentially shrinks overtime due to growth and inflation, so a budget surplus isn’t necessary to stabilise our financial position. Additionally, interest rates are low and not expected to increase anytime soon, so we can borrow cheaply in normal times. The one factor that can prevent us from borrowing easily is doubt among would-be creditors that we will be able to repay our debts. But once we prove that we can manage our debt by increasing revenues and decreasing expenses, we should have the same problems in taking out debt that the other provinces do: just about none.
There is little denying that Newfoundland and Labrador’s financial prospects have worsened significantly since the election; perhaps the policies espoused by Ball’s party would have been feasible by the end of his term. The difference that a full extra billion dollars on the deficit can do should not be understated.
It may also be that Ball can essentially follow through on his promises by correcting deviations from his commitments later in his term. Resource prices are notoriously volatile, and many experts believe they are near their nadir. We can reasonably expect oil prices to rise again soon, given the inevitable growth in the developing world’s demand for gasoline and suggestions by Russia and Saudi Arabia that these countries will restrict their supply.
Even if some of Ball’s promises seemed unrealistic, elections can serve a valuable role in identifying the longer-term goals of the public. Although the Liberals now must deal with unexpected challenges, we should not shame them for casting a vision for the province that they will work to achieve once fixing our finances. The time to shame the Liberals, instead, is if they fail to bring us closer to their envisioned province before the end of their time in government.