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.”