Tuesday, April 1, 2014


Unless we get very lucky with more oil, 
higher oil prices and a lower 
Canadian dollar, we could be 
well on our way to ruin – 
or as we used to say
 – have not.

Controversial Conservative Leadership Candidate Bill Barry has offered a blunt assessment of Budget 2014 and the current governments fiscal policies.

Here is what he posted on his facebook page today:

The Way I See It: Budget 2014-15

April 1, 2014 at 1:14pm
by Bill Barry

At first glance, Budget 2014-15 seems reasonable, with provision for investment in additional social programs and in some capital infrastructure projects - certainly some of these are needed.

The level of borrowing in the budget could be supported under normal circumstances with borrowing to finance capital programs. But it is a fundamental underpinning of the revenues which is more than problematic.

If our projections are overly optimistic and the world economy continues to stagnate, our financial situation will deteriorate. This, combined with the large, unfunded liability in public sector pension plans would result in a precarious situation, which would require either increased taxes or reduced services.

Some have described recent years in our province as a "Golden Era." In a sense that’s true, as the influx of Atlantic Accord monies and oil royalties did provide our government with an unprecedented financial capacity. This would have been an ideal time to right-size government, pay off our debt, and stabilize our public pension benefits system.

Unfortunately the Province went down a different path, which resulted in doubling the size of government, and leading us toward a doubling of our provincial debt.

While this was occurring, our unfunded pension liabilities soared and are now in excess of $8 billion. This has the potential of costing the taxpayers of Newfoundland and Labrador hundreds of millions of dollars annually. This must be corrected NOW, for the benefit of the pensioners and the taxpayers who are expected to fund the shortfall while enjoying much more meagre retirement options themselves.

Let's review where we are:

Newfoundland and Labrador is now reliant on government spending, which contributes to the creation of massive debt. Our Province requires about $8 billion to fund current and capital expenditures. Our revenues from all sources – provincial and federal – are about $6.5 billion. Oil royalties are projected to be about $2.4 billion.

Here is where my concern lies.  We are too dependent on oil revenues. We have no cushion if we are wrong, and our commitments to equity investment in Muskrat Falls and offshore oil are just ramping up.

We have based our future on the volume of oil we ‘guess’ we will produce and the highly unpredictable value of that oil in the marketplace.

For example, in 2014 we estimate that Brent Crude will average $105 US per barrel. However, many observers see dis-inflation and slow or no growth in the global economy. Cautious observers are now predicting that the price of Brent may dip into the $90's by year-end and in 2015 the $80-barrel is possible. It would be unfortunate for the Newfoundland and Labrador economy if this should unfold. 

Even with Budget 2014-15 and its optimistic projections about future trends, our Province is borrowing $1 billion and projecting a deficit of about another half billion dollars. What if, as I suspect, our optimism is not well founded? In such a case our economy would be in big trouble very soon.

Combine this potential plight with a decline in global commodity prices affecting both iron ore and nickel and our prospects look even less stable. The two main resource drivers of our fishery – shrimp and crab – are in decline and the aquaculture industry is struggling to succeed.

Quebec is currently producing massive amounts of hydroelectricity that it cannot sell at a profit and predictions suggest this will continue for many years to come. Meanwhile, our province is headed for expensive power rates – possibly double what we are now paying. This, and the integrity of our power grid on the island, is a real concern.

However, I remain optimistic that we can arrive at a solution which can be implemented in the short- to intermediate term. Much of that solution can be achieved within the scope and structure of government and in the levels of expenditure outlined therein.

Under my leadership, there would be a thorough, zero-based budget review of all departments and agencies of government. A true value for money audit process must be undertaken.

Other measures that need to be worked on at both the provincial and federal levels include:

  1. A review of fisheries jurisdiction, with a view to returning more control to the Province.

  2. Development of a significant increase in offshore drilling with a stepped-up timeline to increase production from existing and future wells.

  3. To undertake a leadership role with the other provinces in lobbying the federal government and the Bank of Canada to place the Canadian dollar at a more reasonable level in support of increased export value from resource-generating provinces and Canada in general.

There are many other measures that can be taken to generate additional revenues and to identify excessive spending commitments within the budget.

Under my leadership, a team of the best professionals in the province, reporting directly to the Premier, with a defined timeline, will be engaged to carry out this critical mission.

There can be no delays in initiating these and other actions as the impending financial adversity must be confronted and dealt with immediately.

Unless we get very lucky with more oil, higher oil prices and a lower Canadian dollar, we could be well on our way to ruin – or as we used to say – have not.

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