The blame for the state of our economy isn’t on us resilient hardworkers, our visionary entrepreneurs, nor our resource-rich province. We can blame our leaders for leading us into this mess, with poor planning, spending, and saving.
Our Undiversified Economy Leaves Us Too Susceptible to the Finicky Price of Oil
Our 2016 budget reflects more than a decade of built up warnings that our leaders were making short-sighted financial decisions; among them was putting all eggs in the one oil basket. A basket that broke, leaving us broke, because our undiversified economy relies too heavily, and too hopefully, on a single source of mega money.
Our economy should be fuelled by more numerous industries, and should never let one industry account for about a third of our income. Or else, when things get tough in that one industry – this case oil, previously the fishery – we’ll be paying this dearly with program and job cuts, multiple forms of tax hikes, and 300+ fee bumps.
What we should have done, was use that oil boom money to stimulate other industries to grow our economy — Tourism, The Arts, Aquaculture, whatever. Or hell, put it in the bank!
How’d We Get Here? Poor Financial Mismanagement. And An Election.
Blame politics: no one gets elected on promises the people don’t wanna hear, so we force our politicians to benefit us NOW, in the moment. Back in 2008, oil hit a record high at $147 a barrel. Our bank account was gushing money, but those dollars were being misspent, giddily, without regard for the future, or the unpredictability of oil’s value year to year.
2007’s budget was released an election year; it was no coincidence the Tories were touting record numbers for spending. Their rate of spending was financially unwise by anyone’s standards.
If You Think Tax Hikes Hurt Now, Blame Tax Cuts from Then
That same budget touted tax cuts. In the decade after 2004, tax breaks totalled $4.2 billion – that amounts to a loss of $744 million, every year, for our province.
That’s $744 million a year we could have been sinking into other industries in our province. Or putting in the bank for hard years like these.
Another decision back in oil’s heyday, was the decision to cut a Retail Sales Tax on insurance premiums. That decision cost roughly $75 million a year.
Letting the Rich Get Richer Hurt Us
In 2008, top income earners with an excess of a $250,000 a year averaged an extra $24,490 thanks to the way the income tax cuts were structured to favour the rich. People making $250,000 or more saw a whopping 26% increase in their incomes between 2006-2008. Yet their contributions to the provincial kitty only increased by a disproportionate 2%.
If top bracket income earners were to have continued paying 2006’s income tax rates, the 2009 deficit, it has been reported, wouldn’t have happened. Mary Shortall, president of Newfoundland and Labrador Federation of Labour president, has said, “More corporate profits as a percentage of GDP leave this province than anywhere else in Canada.”
We Overspent by More Than 10 Billion Between 2003-2014
A 2015 report by the Canadian Federation of Independent Business says:
From 2003 to 2014, the Government of Newfoundland and Labrador has generated revenue growth unprecedented in its history. However, related to that growth has been an increase in government spending. In this time period, the government has overspent by $11 billion. In 2014, provincial government overspending cost the Newfoundland and Labrador taxpayer $1.6 billion, or $3,120 per person.
Austerity Measures Aren’t Necessarily the Answer to Bail Us Out of This Mess
Huge and numerous cuts paired with tax hikes might be the simplest way to balance books, but that doesn’t make it the wisest. There are plenty of economists who warn us that austerity can disastrously stagnate an economy, which would lock our province in a perpetual have-not status.
By putting the brakes on so many things, we’ve, well, put the brakes on so many things that could stimulate and grow our economy. Massive cuts, when paired with tax hikes, can suffocate the broader economy, thereby limiting tax revenue for our province.
Cuts to anything will hinder economic development, and any cuts that result in job losses – like we’re seeing – immediately impact the economic potential of a province. Broke people break the economy by not spending money.
Not to compare apples to oranges, but our neighbours across the sea in the United Kingdom won the 2009 election on the promise of an austerity budget to balance their budget. It didn’t work so well.
Greece tried austerity too, and it deadlocked them in a poor economy. As a result, they’ve needed multiple bail-outs totalling billions of dollars. The initial Greek Austerity budget caused GDP to fall by nearly 30%, and pushed 1/3rd of Grecians beneath the poverty line. The future of Greece, their youth, started leaving the country because youth unemployment soared beyond 50%.
Extreme and Numerous Austerity Measures Actually Aren’t “The Only Option”
Austerity isn’t the only option in dire times. Proper counter cyclical spending would have been nice, or hell, some governing bodies – like the United States – opt for the opposite: stimulus packages that pour money into stimulating the economy, instead of stagnating it. Not saying that is the answer, just, there are alternatives.
Even instating fewer austerity measures, namely sticking with ONLY raising HST, corporate taxes, and income taxes, would generate enough new deficit-offsetting revenue; it’d just take a little longer.
If we start imposing a Carbon Tax on corporations causing climate change (while plundering our province), we’d make a hundred million more a year — 4/5ths of Canadians live somewhere that forces a Carbon Tax on corporations operating in their jurisdiction. Why don’t we?
A Solution or Not: Budget 2016 is as Bland as it is Bleak
Here is perhaps the biggest fact of the year in local politics: The majority of Newfoundlanders & Labradorians have voted in a political party that has broken its major campaign promises – like no layoffs or HST spikes, and avoiding privatization where they can – in under a year.
That they can get away with that goes beyond our current economic crisis and begs questions about flaws in our political system: we’re being governed by people who didn’t listen to what the majority of us voted for, while being told to swallow this austerity pill whether we think it’s the cure or not.
It’s easy for the Liberals to blame their predecessors, but the Liberals likely wouldn’t have acted any differently, and saying “we didn’t realize how bad it was” is like saying “we don’t do our homework.”
All that money The Liberals spent to collect financial suggestions from the public was clearly not used. There was nothing innovative, progressive, or brilliant about their austerity budget. It was just the simplest, least thoughtful solution. Although, whether it’ll prove to be a solution is yet to be seen.
To quote Gerry Rogers, “[This] budget has done NOTHING to improve the fiscal situation in NL. It has made our situation worse. They have not stimulated the economy at all. They have not created a single job, they have not invested, or planned for any diversification. They have not propelled us forward. They are grinding our economy to a halt.”
Government (any government) cannot create wealth. Period. All money the government controls (spends) comes from it’s citizenry with a small amount coming from international tariffs or some sort of aid from other countries. When you allow government to control resources and their revenues, you are taking assets from the citizenry and discouraging proper resource management (see Venezuela). You cannot spend your way into prosperity. Blanket “tax cuts” without concern for the economic development they could encourage are meaningless. Centralized disbursement is impossible to reconcile; what’s good for one is not good for all. Trying to apply one policy to a diverse nation is foolhardy. If you really want change, and are willing to work for it, you should decentralize the government. If each province were responsible for the government of their citizens and the federal government was in charge of the country’s business, free markets and prosperity could flourish and provincial governments would be more responsive (and responsible) to the needs of it’s own citizens.
And everyone would move to the rich areas … wait that already happens.
T his is the most uninformative article I’ve read on the budget. And to compare NL’s situation to Greece’s? Misleading and stupid. It’s time to stop acting like children not getting their own way, behave like mature adults and be responsible so our kids are not handed an untenable situation. How much money are we spending to service this debt??
Blaming our elected leaders for our mistakes over a ten year period (while handing those leaders a strong majority in 2007 and 2011) is a bit foolish. NL got a bit of oil money and went mad with it, all with the support of the majority. We knew it couldn’t last but no one was calling for saving or investing it (with exception being those wanting muskrat falls developed and I’m not sure many would think that was such a smart investment now). The theme for the last decade was simply where else could the PCs blow it. Teachers’ pensions, civil service job increases, lower taxes. Let’s not pretend the perks of the last ten years all went into the pockets of the 1%.
Austerity, despite being the favourite catchphrase of the 21st century left, has worked in the countries that actually applied it. Namely Ireland (I should know since I’ve lived in Ireland since the start of the start of the recession) and the U.K. (which has seen growth relatively greater than most of its EU partners). It failed in Latin nations that dabbled with it before abandoning it due to political pressure and in Greece. Although I don’t blame Greece completely since no cuts humanly possible would have saved them from their current situation since it was so hopeless to begin with. Their choice was either leave the EU and spend a generation on the edge of being a failed state or the option they went with which is sadly to be the local basket case, living on the scraps given to it by Brussels.
As for Rogers’ critique of the current budget, just what would her party do different? We’ve been ‘stimulating the economy’ for over ten years and all it did was run up a huge deficit that NLers are currently saddled with. Bennett is handing out an ‘austerity’ budget because a combination of the loss of oil revenue and poor management of the PCs (all with the blessing of the electorate) have left her with no other option. The NL govt spends more than it makes, owes a heck of a lot of money for half a million people to pay back, and we have too many people on the govt payroll relative to the amount of private workers who are expected to pay for them. The PCs were able to ignore these facts by throwing oil money at them but those days are over. And all the airy fairy talk of progressive policy, job creation, and other such nonsense from the left cannot alter our reality. NL is in a hole dug by our leaders all while we cheered them on and even handed them the shovel. Now we have to do the tough bit and climb out.
Best and most educated response I have seen.
I thank you sir.
Sincerely.
Mark
Ken said we should ask our political members some tough questions . That is like pissing up a pole on a windy day all it does is blow back in your face. There was never a politician yet or ever will there be one who will tell the truth. The one,s in there now top the list at stabbing the people that elected right in the back
Again, I see an article that blames the politicians and makes no mention to the people who elected those officials. Where were the people of NFLD when all this spending was happening from 2003 up to 2014? Where is the civilian oversight that is our responsiblity as democracy? It’s great to have a target to throw the rhetoric bombs at to make ourselves feel good and wash our hands of any ownership of responsibility. But if you want to get a good look at who is responsible for the mess that we are in, you should walk for the hall and take a good look in the mirror. A Democratic society requires participation from its people and that does not mean just showing up to vote. It means holding our politicians to task. Asking them tough questions and not being satisfied with sound bites that sound smart but have no substance. It means understanding and being engaged in the actions our elected representatives are taking to make certain that those decisions support the public good and reflect the will of the people. A public disengage from the political process cannot complain when the political process fails them.
First of all, Cathy and Dwight, along with their partners in crime, only took a pay cut to their cabinet position salaries - that little extra they get for being a cabinet minister. They did not take a cut to their regular MHA salary.
This budget does nothing to place any extra burden on the wealthiest of individuals, let alone the corporate world. 1% increase - Whoop -dee- doo! What we need do now is boycott Cathy’s Rotten Ronnies, or McD’s as some call it, and stay away from Dwight’s pill shops. Let them start to feel a little pinch. As for Cathy’s history with Nalcor and related business ties, a full inquiry should be initiated.
Also, let’s get some disclosure as to what part of those massive salaries at Nalcor were actually “performance” bonuses. After all, keeping us well lit ( Dark NL) and keeping Muskrat on time and on budget (2 years behind, 5 billion over budget) certainly demands recognition by the way of performance bonuses.
When the public constantly elects so called “self-made” rich people, what can we expect? I have no problem with anyone out there trying to earn as many bucks as humanly possible, but rich people spend much differently than average earners. So when you give them control on the public coffers, they spend that cash the same way they spend their own. Cathy Bennett has a net worth of 41 million, god only knows how much Dwight or ol’ Danny is worth, I’ve heard figures as high as 250 million for Danny - though I’m not sure how accurate that may be, good luck finding Dwight’s net worth online. Even if they did start from the bottom, money changes people - like it or not. We middle-classers strive to be like the “elite”, so we throw support behind them because we believe that they will somehow help us get to their level. Now we have Cathy and Dwight earning massive six figure salaries, looking for a pat on the back for taking a 10% pay cut. Ed Martin makes more far more than the US president, but hey, you have to pay top talent top wages right? So I guess that means it’s the so called “top talent” that got us to the bottom of this hole we find ourselves in - I guess they weren’t really worth the money after all. And their answer to this mess? Front line cuts, “full-time equivalent” - which really means 2 part timers for every full timer. Bottom line, public office should not be a part of anybody’s “get rich” schemes, but how can they resist when we make it so easy?
I agree, why do we laugh at the Danny Dumaresque’s of the world? When his predictions are all coming through but no one believed him.
I’m not aware of Danny D’s financial situation, but if you put him side by side with Danny W, with all that Danny W has acquired, people think to themselves “jeez, Danny W clearly knows what he’s doing, just look at how rich he is!”. The same thing is happening in the US right now with Trump, un-informed voters are voting on him based on his personal success, thinking he will be able to transfer that to national success. But it simply doesn’t work that way.
I couldn’t believe that he wasn’t elected. What a voice we’d have now,
THERE ARE WAY TOO MANY TYPOS IN THIS ARTICLE, NONETHELESS, GOOD POINTS.
If more spending was the cure to Newfoundland’s financial woes, wouldn’t the $11 billion in overspending from 2003-2014 have already prevented this?
If I could go back in time, I would assassinate John Maynard Keynes and save the western world a lot of poor financial decisions.
That would depend on what you’re spending it on. The previous governments were handing out boutique tax credits and social programs as a vote grab. As in they were skipping the electric bill to pay the cable bill, not realizing that the luxury of cable relies on the utility of the electricity.