John Crosbie’s presentation of the AIMS Silver Piggy Bank award to Premier Brian Tobin recognizes the successful efforts to improve the province’s financial situation.
The award is well-earned, but an Atlantic Institute for Market Studies report (“Debtor’s Prison II: Shortening the Sentence”) released the same day shows the province’s finances are still precarious.
In the past 10 years, Newfoundland has put its financial house into some semblance of order. Of course, we had little choice. After the profligate 1970s and ’80s, when massive deficits were the order of the day, the province would have collapsed under its enormous debt load unless action was taken.
Since the mid-1990s, there has been significant improvement in the province’s financial position. Four of the five last budgets have been balanced.
At the same time, the province has endured the loss of thousands of people, something which has significantly increased the per capita debt load in the province. Newfoundlanders who leave take their expensive education and training with them, while they leave behind their share of the provincial debt. According to the AIMS report, about $625 million in debt was “stranded” as 40,000 people left the province.
The other Atlantic provinces have suffered similar “injustices and oversights” during the past several decades, which the report recommends be corrected. It suggested Ottawa cut taxes and undertake a “millennium debt program” to refinance the Atlantic region’s debt burden to place it on a sustainable footing.
The lesson from the AIMS report is that the good fiscal stewardship will have to continue indefinitely if Newfoundland is to enjoy financial independence.
Consider the debt load. Newfoundland carries a total debt load of $8.62 billion, an amount equal to almost 75 per cent of its annual gross domestic product (GDP, which is the market value of goods produced). By contrast, Nova Scotia’s debt-to-GDP ratio is 50 per cent, New Brunswick’s ratio is 36 per cent, and P.E.I.’s is 29 per cent. It means that each Newfoundlander owes almost $16,000 in provincial debt compared to $6,500 for each Prince Edward Islander. Just paying the interest on this debt is crippling.
AIMS also awarded Newfoundland second place, up from third place five years ago. However, we are still behind P.E.I., partially by default. In Nova Scotia and New Brunswick, recent budgets have come with hefty deficits. The minority Liberal government in Nova Scotia spent like drunken sailors and even the New Brunswick government has run into difficulties in the post-Frank McKenna era.
But AIMS warns that even though Newfoundland has received two credit upgrades, it will have to keep up its belt tightening for years to come. The economy will have to grow constantly and the province will have to run surpluses if it is ever to lower its debt-to-GDP ratio to the Atlantic Canada average of about 45 per cent.
Newfoundland may have been awarded a silver piggy bank award, but little P.E.I. got the gold.