Atlantic Institute for Market Studies
Hidden behind the mountain of extra federal money in Newfoundland and Labrador’s budget is the awful truth that the provincial government plans to keep piling more and more debt upon the taxpayers of the province at close to half a billion dollars a year for the foreseeable future. The highest indebted taxpayers in the country will become even more crippled by the mountain of debt being piled upon them.
Not only is that financial plan a recipe for disaster, in the coming years, when petro-dollars start drying up, the province will be even worse off than it is today. The budget signifies a drastic departure from the fiscally prudent path the Williams government started last year in its first budget. A four to five hundred million dollar deficit being added to the provincial debt each year for the next few years, is a horrendous prospect.
Yet the spending plans of the Williams government have been almost universally applauded by the legion of government financed constituents who rely on government largess to survive. The only criticism has come from groups wanting the government to spend more than it already has.
When the Williams government came to power eighteen months ago, it was faced with a bare cupboard. Not only was there not enough revenue to meet current expenditures, the revenue levels were dropping as the one-time nest eggs devoured by former premiers Tobin and Grimes were consumed. The lesson that Williams and his finance minister Sullivan learned was bitter: do not count on revenues from sources that are either one time, or from of a depleting resource.
But this budget does just that. Much of the extra revenue is oil-related dollars, which is swollen even more by the $55-a-barrel oil. A two billion dollar election gift from a hard pressed Paul Martin and new revenue from an improved transfer from the federal government to support health care has cut the projected $800 million deficit in half.
What Sullivan and Williams have forgotten is the huge variability of oil prices, and the plain fact that there is only so much oil offshore. Oil has to be treated as one-time revenue. If the price of oil were to drop substantially, and if no other oil fields are discovered, governments five years from now will find their fiscal hole even deeper.
And there were places where cuts could have been made. The province’s student-teacher ratio is still extremely generous. Allowing the teaching force to be reduced by the 220 that the formula called for would have forced school boards to tighten their belts and to reorganize their efforts, but it would not have been the disaster the teachers’ union claimed it would be. Study after study has shown that scholastic achievement is not directly related to class size.
And continuing on with the phased reduction in the civil service (originally 4000 over four years) would have only brought civil service numbers down to the average of other provinces. Since tabling the budget, Premier Williams has backed away from his government’s original plan, noting in media interviews that job reductions would amount to less than 2000. Now with fewer cuts, the province will continue to have among the highest public employee ratio to population in the country. Only PEI has more general public employees per 1000 of population.
There are also some extremely ill-advised new programs. The Rural Secretariat is another layer of indicative planning laid over the festering corpse of the Regional Development Boards. Soon there will be more civil servants helping entrepreneurs to develop the economy than there are entrepreneurs.
Over the years many jurisdictions have tried to plan their way to prosperity only to fail. The classic example is the Soviet Union, but other less extreme variations were tried in countries as capitalistic as France. Most countries ended these experiments when they failed to deliver any concrete results. Most often they actually hindered growth.
Reducing the size of government and cutting back on government expenditures is a proven formula for success that has been used by a succession of governments to allow their economies to recover. Whether it is Alberta, or Ireland, smaller governments have invariably allowed the private sector to take up the slack, either in laid off civil servants or in the use of funds that no longer have to be spent to shore up an overweening civil service.
With the abandonment of its frugal ways the Williams government has committed its taxpayers to a future of high deficits, a growing debt and high taxes to sustain it all, with little in growth to help finance it.
One had hoped for better.
Peter Fenwick is a Research Fellow with the Atlantic Institute for Market Studies. He operates the Inn at the Cape in Cape St. George, NL.