The free spending Progressive Conservative government's of the past decade have taken a cross-your fingers approach to fiscal planning coasting on the winds of good fortune.
Some of that good fortune, about $4 Billion can be found parked in various subheadings in the last provincial budget. Yet there is no Heritage or Sustainability fund.
That cross-your finger approach resulted in one heck of a projection in the 2012 opportunity budget which based government expenditures on a $120 barrel of oil. That oil is trading at $105 a barrel today and is likely to stay at the $100 a barrel level, or below, for the rest of the year!
Moody’s recently lowered its crude price assumptions to $90 for West
Texas Intermediate in 2012, with an additional expected decline in 2013
to $85. In London, Brent North Sea has crude cut below the US$100 level.
This will result in a $700 Million dollar deficit this year and $1 Billion deficit next year! Many people are scratching their heads wondering, with all the prosperity around us, how can we be drowning in a sea of red? What will happen in the future, if we can not make it now? Has this government been squandering Newfoundland and Labrador's wealth?
It looks like Lady Luck has abandoned Premier Dunderale. However there is still lots of time for Tsunami, or a war to break out in the Middle East!
Who determines which projection for the price of oil will be used for the budget process? How many independent projections were considered? Why was the overly optimistic figure of $120 a barell used instead of a more CONSERVATIVE number.
We now know how far off the province was with it's projection. It looks as if oil prices will stay in the $100 a barrel range for the next 18 months or so. That means a flash flood of red ink at the Confederation Building and lots of red faces at Treasury Board and Finance.
Trinidad and Tobago pegged oil prices at $75 a barrel in it's 2012 budget. Alberta, who has a great deal of experience at this, pegged oil prices at an optimistic $99.25 a barrel for the upcoming fiscal year. The Saskatchewan government based it's budget on a $100-a-barrel benchmark.
The provincial government is coping with
a triple whammy, the complete loss of royalties from two offshore
production facilities (for 1/4 of the year), a significant drop in royalties related to a
sharp decline in oil prices & the loss of $500 million from Ottawa through
the Atlantic Accord.
Why, than, did this province go with such a rosy prediction?
The public deserves a much better explanation, and understanding ,of the process by which government uses to peg oil prices. Surely we can do better!