The incoming Progressive Conservatives have few conservative credentials.
Will they be up to needed government finance and income tax reforms?

By Peter Fenwick

Today’s provincial election in Newfoundland and Labrador is a slam dunk for the Progressive Conservative party led by Danny Williams. His lead over the governing Liberals in the latest opinion poll was 24 points and growing.

Nothing short of a miracle will prevent him from becoming Newfoundland and Labrador’s eighth premier.

In the two-and-a-half years Mr. Williams has led the Newfoundland PCs, he has criticized Liberal initiatives, especially the deal to start the INCO-owned Voisey’s Bay mine on the coast of Labrador, but he has said little about his own plans for Canada’s poorest province.

Unlike former premiers Joey Smallwood, Brian Tobin and Brian Peckford, Mr. Williams is not a professional politician. Like Frank Moores, he is a wealthy businessman-lawyer who came to politics late in life. Like Mr. Moores, he will end a lengthy period of Liberal rule.

Mr. Williams’ law firm represented many of the abused altar boys and orphans who sued the Roman Catholic Church, the Christian Brothers and the province for damages. Settlements were in the tens of millions. Mr. Williams was also the principal owner of the province’s largest cable company, until he sold out to Rogers Communications Inc. for several hundred million dollars. In latter years, he expanded into golf courses and tourism resorts, and is president of an offshore supply company.

All this presents something of a problem for the putative premier. In the populist tradition of the province, the only epithet worse than “Water street merchant” is “Townie lawyer.” Williams is both.

In this election campaign, his handlers have carefully played down his wealth and avoided a conservative, business-friendly program. That, and the presence of so many “red Tories” in his caucus has blunted the conservative thrust of the party.

Mr. Williams’ most conservative promise is to balance the budget within four years while reducing the debt-to-GDP ratio by a third. But the new administration will have its hands full achieving those goals. Despite Newfoundland’s spectacular GDP growth in the last five years (leading the country for three of them), the province’s treasury benefited little. Wages, employment levels and housing prices have risen, but the modest royalties on oil production, the equalization clawback and the ability of oil companies to defer corporate income tax payments has saddled the provincial government with the costs of an oil boom without attendant revenues.

Worse still, the modest oil revenues are slated to decline precipitously at the end of the decade when the reservoirs start running dry. The two largest fields, Hibernia and Terra Nova, are at peak production and White Rose is in its construction phase, but no other field is ready for development. The fourth oil field was supposed to be Hebron-Ben Nevis, but even a promise to reduce royalties by the current Premier, Roger Grimes, was unable to entice its partners to move forward.

The oil-driven spurt in GDP growth has lowered the province’s debt/GDP ratio from more than 80% to 67% in the last six years, encouraging the bond-rating agencies to raise the province’s credit rating. Yet that ratio is still the highest in Canada. If GDP growth stalls or declines at the end of the decade, the debt-to-GDP ratio is likely to rise dramatically.

Government finances should have been the key issue in the election campaign. They weren’t. The governing Liberals committed to a grab bag of new initiatives ranging from lower school costs and tax breaks for new grads to government aid for Alzheimer drugs, deferring for at least five years their long-range plans to balance the budget. They forecast continuing deficits of $300-million to $600-million.

The PCs’ modest commitment to eliminate civil servant positions as people retired — a sensible initiative under the circumstances — was pounced on by the Liberals and built into a threat of 10,000 layoffs. That the only truly conservative plank in the platform drew the most fire says volumes about the province’s political leanings.

The PCs did promise to reduce personal income tax for low-income taxpayers, capping the cost at $5-million per year. They will do little to reduce the extremely high provincial income tax rates for middle- and high-income earners, failing to endorse even the income tax reductions begun by Brian Tobin in the late ’90s, but suspended for lack of funds.

In truth, the incoming PCs have few conservative credentials. They supported the recent price regulation of gasoline and home heating fuels, even though they attacked the commissioner as a Liberal hack. They have even proposed the creation of a new government-owned Petro-Newfoundland to invest in offshore oil development, and to buy the federal government’s stake in the Hibernia oil field.

For a province with massive financial problems and a moribund traditional economy, the PC agenda is a major disappointment. Although the commitment to balanced budgets is encouraging, and the promise to take out some of the bloat in the bureaucracy is welcome, the lack of effective tax cuts, and the promise of business as usual, means the Newfoundland economy’s structural problems will not be addressed.

Peter Fenwick is a research fellow with the Atlantic Institute for Market Studies.