Disappointing but not surprised. Our last messiah offered a fiscal update in the form of a State of the Province Address on January, 5th 2004. The newly minted finance minister, Loyola Sullivan, released am external independent review of the province's economic picture setting the state for an unprecedented live television presidential style address.
Direction, Choices and Tough Choices, completed by PricewaterhouseCoopers was a reality check. It it found:
- Government can not balance the budget by the 2007-08 fiscal year with revenue growth alone.
- In the absence of restraint measures, the average deficit will exceed $1 billion annually, with the cash component averaging $660 million annually.
- The debt of the province will increase to $15.8 billion from $11.6 billion by 2007-08. This equates to more than $30,000 for every man, woman, and child in the province.
- The unfunded pension liability will increase to $4.5 billion from $3.7 billion.
I had just quit my position with Executive Council and joined the Liberal Official Opposition Office as Director of Policy and Operations, a title I much preferred to the official title, Chief of Staff. It was a solemn time, watching the new regime expose the 2003-04 budget as not realistic or attainable. It was a touch night to be a Liberal staffer.
The Premier stated that "It's about making decisions for the right reasons - not for political reasons. That irresponsible practice has gotten su where we are today, AND LET ME ASSURE THE PEOPLE OF THIS PROVINCE - THISE DAYS ARE OVER"
Here a list of most memorable quotes from that address:
- "The numbers are staggering to the point where it is difficult for many of us to fully appreciate just how serious the situation really is."
- "We are in this together and you have a right to know all the information so that you can understand why certain decisions have to be made."
- "we are in very real danger of drowning in our own debt."
- "You elected leaders to make responsible decisions but we must also protect those who are most vulnerable. Our government may have inherited this serious fiscal situation but we have absolutely no intention of letting our children and grandchildren inherit it from us."
- "We can only conduct collective bargaining based upon the fiscal realities that we all face, and we should only reach agreements that we can afford. Otherwise we merely postpone the inevitable."
- "We also intend to diversify our economy away from the mega-projects into sectors that have longer reaching impacts for all areas of the province, and our rural communities in particular. And we certainly intend to stop the giveaway of our resources. "
As you prepare for a new fiscal update, after yet another regime change, I expect the rhetoric may be similar. Here is to hoping that this time our leaders will make good on cutting the garment to fit the cloth.
Is it any wonder that 47% of the voting public skipped making the effort to cast a vote in last month's provincial election.
Here is William's full address:
Premier Danny Williams
State of the Province Address
Monday, January 5, 2004
State of the Province Address
Monday, January 5, 2004
I would like first of all to extend best wishes on behalf of our government to you and your loved ones for a healthy and happy new year.
I asked for broadcast time tonight as a first step to keeping you informed about the major issues that face our province over the coming years, and I thank you for joining me.
On October 21, the people of Newfoundland and Labrador elected a new government because you wanted a new approach, that will see the true potential of our province fully realized in a meaningful way.
I am sure you all recognize that we face significant challenges and you also know that it will take a new approach to deal with these issues.
Good government is about partnership, and together we will face these challenges head on with courage and strength.
Though the obstacles are great, I know that the opportunities are even greater. The time has come to turn the tide in Newfoundland and Labrador and chart a new course to prosperity and self reliance.
As we move forward to achieve this, it is important for government to keep the people fully informed - openly, honestly and promptly. We are in this together and you have a right to know all the information so that you can understand why certain decisions have to be made. That is the purpose of my address this evening.
When our government was formed two months ago, we felt that the first priority was to determine the financial condition of our province. We hired an independent external firm, PricewaterhouseCoopers, to conduct a thorough review of the province’s finances and to assess the financial challenges for this year and the years ahead.
Earlier today, the Minister of Finance released the results of this review and the news is not good. The report, entitled Directions, Choices and Tough Choices, indicates that we have an evolving financial crisis - a situation that if ignored or unresolved will threaten the future sustainability of the province and seriously compromise our social programs and way of life.
The consultants reported that the total deficit is 827.5 million dollars - 161 million dollars over budget. A component of the total deficit is the cash deficit and that deficit for this fiscal year is 507 million dollars, some 220 million dollars over what was budgeted. Clearly, targets outlined in the 2003-04 budget are not realistic or attainable. for future budgets are even more disturbing. Unless we significantly adjust our course, we are facing total deficits of 1 billion dollars or greater for the next four years at least. This would increase our current debt, the money we owe our lenders, by approximately 4 billion dollars to 15.8 billion dollars. That will be nearly three times what our debt was in 1992-1993.
Over the last number of years the maintenance of our schools, hospitals and roads has been largely deferred and the cost of these capital works is in the hundreds of millions of dollars.
We are also facing a number of legal matters before the courts that may or may not have significant cost implications for government. These potential costs have not been factored into governments financial planning but may very well have to be addressed at some point down the road.
The numbers are staggering to the point where it is difficult for many of us to fully appreciate just how serious the situation really is. Out of our annual 4.2 billion dollar budget, we now spend more than a billion dollars a year – that’s 25 cents of every dollar - to pay for the interest on our debt.
This province should be no different than all of us in running our own households. But the province’s situation is comparable to any of us taking out a second mortgage just to buy groceries and running up our credit card to pay for electricity and telephone bills.
If this continues, we are in very real danger of drowning in our own debt.
I am sure you have seen in your own regions the consequences of crippling government debt - wait lists for health services, cuts to school programs, and a lack of funding for economic development and job incentives.
A heavy debt load limits the government’s ability to deal effectively with unemployment, child poverty and out-migration, which are at the highest levels in the country.
We must address this situation now. We are digging ourselves deeper into a hole and that’s been our problem for far too long. We must start turning things around in Newfoundland and Labrador.
The advice from PricewaterhouseCoopers on how to deal with this problem is straightforward and sound:
I quote, “Government needs to develop and implement clear and decisive action plans to address the fiscal imbalance and to avert those forecast record levels of deficit for each and every year over the next four years.
Clearly the Government, its employees and everyone in Newfoundland and Labrador will have to focus on dealing with this situation.”
They go on to say that, and I quote: “...the financial health of the Province is not the government’s problem [alone, but] it should be the concern of every one of its 519,000 residents.”
I believe that one of the most significant changes that the people of the province voted for on October 21st, was an accountable and strategically minded government. A government that will make the responsible choices that will result in this province finally becoming masters of our own destiny.
This will require hard work and sacrifice by everyone.
We cannot expect to improve our lives without first enduring some short-term pain in return for long-term and meaningful benefits. I have stated repeatedly that the problems facing this province were not created overnight and they cannot be fixed overnight. But make no mistake about it – together we can and we will fix them.
We have a plan that focuses on achieving a balance. It’s about making decisions for the right reasons – not for political reasons. That irresponsible practice has gotten us where we are today, and let me assure the people of this province – those days are over.
We have a serious problem but we are going to work our way out of it.
You elected leaders to make responsible decisions but we must also protect those who are most vulnerable. Our government may have inherited this serious fiscal situation but we have absolutely no intention of letting our children and grandchildren inherit it from us.
So, you may ask, where do we go from here?
Our approach will be two pronged. First, we must regain control of our expenditures over a reasonable time frame. Second, even as we attempt to grapple with the deficit, government will also have an unwavering commitment to growing our economy, creating new jobs and expanding our revenue base
I will now discuss both in greater detail, starting with the expenditure control measures.
Before we ask others to accept the impacts of fiscal restraint, government must demonstrate that it is prepared to lead by example.
I can assure you, since we have taken office, we have tightened our fiscal belts.
One of my first decisions was to reduce the size of cabinet by more than twenty five per cent. What’s more, in time we will attempt to reduce the number of seats in the House of Assembly to better reflect a province the size of Newfoundland and Labrador.
Many perks have been either reduced or eliminated, starting with the Premier’s office where the two government owned vehicles previously assigned to the Premier have been eliminated. We have significantly curtailed discretionary expenditures and non-essential out of province travel for elected members and senior officials.
We also cut 44 political positions that existed under the previous administration and converted many other positions from political appointments to public service appointments.
These staffing decisions have saved taxpayers more than one and a half million dollars. We believe that a strengthened public service will ensure that individuals are being hired on their merits as opposed to who they know in government.
In addition to the decisions we have already taken, all departments have been asked to bring forward expenditure reduction proposals which can be implemented in the short term to make an early start towards our new fiscal goals. I can assure you that everything is under review, from cell phones to government vehicles.
As well, we have deferred all non-essential capital expenditure items.
Short term spending reductions, however, will not be sufficient to address the size of the deficit problem. On a go-forward basis, we will implement our election blueprint commitment to review every government program and eliminate any that are considered ineffective and inefficient. This commitment will be delivered through a comprehensive program review exercise.
We will use criteria to evaluate programs, similar to those now being employed by the federal government as they attempt to free up funds for their priority programs. These criteria will include the public interest, efficiency, affordability, value for money, and the role of government. The review will also look at overhead and capital costs in government.
This comprehensive review will use the expertise of the civil service, and we will also use external resources to consider the systems and structural issues from a purely independent perspective. We must ensure that the changes we make to government are the best and most efficient changes possible. The results of this review will be forwarded to cabinet for action.
I do not want to underestimate the impact that some of these decisions will have over the coming years. We have structural problems with our budget that will require changes to the structure and function of government. We must focus government’s expenditures on our priorities. Not everyone will get what they want from government. We must accept that government cannot be all things to all people.
The structural changes in government will involve a change in the programs that are offered and a change in the size of government. We will continue with a hiring freeze that was implemented by Minister Sullivan soon after he was sworn in to ensure that every vacant position is thoroughly examined before being filled. Some six thousand people are due to retire over the next few years.
While not every position can be eliminated, this represents a good and rational opportunity to achieve savings.
In a few days, we will begin negotiating new collective agreements with most of our public service employees.
The external review indicated that public sector wages, benefits and pensions represent approximately 52 per cent of the entire provincial budget. They went onto say that the last round of negotiations added approximately 350 million dollars to the annual salary bill of government, representing a huge component of government’s expenditures.
Throughout the election, I committed that there would be no massive lay-offs in the public service as I firmly believe that our province cannot sustain the types of mass lay-offs that were experienced in the early 1990's. The new government will continue to do everything in our power to honour that commitment.
Due to our unprecedented fiscal problems and the recommendations of our Royal Commission, our lenders, and the consultants, our public servants must understand that we have a very serious financial situation which must be remedied to preserve our way of life.
Therefore, one of the messages we will be bringing to the unions is that there is no money available for salary increases at this time. We have already conveyed this message to the union leaders earlier today, and I am giving to all of our public service the benefit of knowing this situation at the earliest available opportunity rather than in the last stages of an extended negotiation.
I appreciate that this will be a difficult message for our valued public sector employees to accept.
However, no one in this province was told that the debt would increase by more than one billion dollars in each of the next four years.
We can only conduct collective bargaining based upon the fiscal realities that we all face, and we should only reach agreements that we can afford. Otherwise we merely postpone the inevitable.
Though clearly this province is facing a very serious fiscal situation, I do not want to leave you with the impression that it cannot be fixed. I would not be here if I believed that!
Our administration is not completely surprised by what we have inherited. The recent Royal Commission made clear that the province’s budgetary deficit trend was unsustainable.
So did several reputable independent financial analysts, which is why we presented the people with an eight-year plan for economic development.
I can assure you that I am not interested in managing our province’s decline. My government and I were elected to help turn this situation around, and together we can do it.
It is not about shifting around the chairs on the deck of a sinking ship. It is about restoring the seaworthiness of the vessel so we can launch out into the deep with confidence and success.
Our plan is to eliminate the cash component of the deficit over time.
While it will be difficult to accomplish this task over our four-year mandate, as we stated during the election, it is our responsibility to try.
But let me make it clear that if the cost of eliminating the cash deficit in four years involves crippling our economy and halting economic growth, then this time frame will be adjusted to ensure the province’s best interests are served.
The fiscal challenge is tremendous. But the greater challenge – and frankly, the one that motivates me – is turning the economy around so we generate new industries, small business growth, new investment and new jobs.
We are looking to our partners, the Government of Canada and our new Prime Minister, for support.
The ability to invest 100 per cent of our oil revenues in economic infrastructure would go a long way to helping us stand on our own feet in the long term.
I have had very positive meetings with both the Prime Minister and Minister Efford, and I have told them that we are facing an extremely difficult fiscal situation in this province. We are prepared to take action and make the difficult but responsible decisions to address our problems, but this will not be enough. Newfoundland and Labrador not only needs, but is entitled to its fair share immediately, before it is too late.
To achieve this we will work together with Ottawa in a spirit of cooperation and collaboration as we are relying upon our partners in confederation to be a meaningful part of the solution.
In the meantime, we are prepared to take initiatives on our own to create new investment, new opportunities and new jobs in Newfoundland and Labrador.
Our plan is to aggressively grow our economy over the next four to eight years. In fact, we will be investing in economic development and job creation, despite our fiscal circumstances, because we see such programs as investments which yield a positive return.
firmly believe we have a strong base upon which we can grow our economy. Low interest rates have helped boost consumer confidence with excellent years reported for retail sales and new housing starts. And our tourism and oil and gas industries continue to perform well.
All these activities hold promise for a brighter future.
We also intend to diversify our economy away from the mega-projects into sectors that have longer reaching impacts for all areas of the province, and our rural communities in particular. And we certainly intend to stop the giveaway of our resources.
We will focus on small and medium size business developments. We will have a renewed focus on the fishery. And we will pursue opportunities that have not been tried before.
Job growth means revenue growth, and that in turn means more money for health care and education.
Though we must not and will not underestimate the significance of the immediate financial challenges that grip our government and our province, neither will we underestimate the opportunities to revitalize our economy.
We must effectively address our fiscal challenges together. The decisions that need to be made will not be easy, but with your participation, support and understanding, your government will lead you through it in a planned and progressive manner.
That is the promise we made during the election; that is the new approach; and that is exactly what we intend to deliver.
There is reason for optimism. There is reason for hope.
Thank you for your patience and cooperation, God guard thee Newfoundland and Labrador.