What Big Reset?
By Roger Bill
When Dr. Andrew Furey became the Leader of the provincial Liberal Party in August 2020, he inherited a public debt he described as “crushing.” The new Liberal Leader said the situation was “dire.” Five months earlier his predecessor Dwight Ball had gone to the Prime Minister like a beggar on bended knees. Ball told the Prime Minister the Province faced an “immediate and urgent fiscal crisis.” Its attempt to borrow money in the bond market had been “unsuccessful.”
The province’s net debt of $14.6 billion was forecast to grow to $16.7 billion. “Government has to be right-sized, ”Andrew Furey said, and sometimes “it is necessary to cut off a limb to save the patient.” Dr. Furey won a majority government, created an Economic Recovery Team, and in May 2021 released its recommendations in a report called The Big Reset.
The recovery team said the Province’s economic situation was “grave…perilous.” The head of the Dominion Bond Rating Service said the Province was on the “brink of bankruptcy.” The Big Reset recommended the province sell Nalcor’s assets “along with its equity stakes in the province’s offshore oilfields, transmission and distribution assets, and island generation assets.” Nalcor was buried, but its assets continue to be held by Newfoundland Hydro. A Future Fund was created to hold a share of the province’s natural resource revenue, but there was no equity stake sale.
In what was described as a “re-profiling” or “reconfiguring” of the Province’s “asset portfolio,” the Economic Recovery Team recommended selling the provincial liquor corporation (which also controls the retail-cannabis marketplace), the motor vehicle registry, the Registry of Deeds, and a ski resort. The Province’s “asset portfolio” remains largely unchanged though the government unsuccessfully tried to sell the Marble Mountain ski resort.
The Economic Recovery Team recommended new taxes but stressed that generating new revenue by itself will not get Newfoundland and Labrador out of the hole it had dug itself into. The team noted: “The fiscal challenges are entirely of the Province’s own doing,” and “This problem cannot be solved by increasing taxes alone.”
Spending Cuts?
The Recovery Team’s recommended remedy was balanced budget legislation and spending cuts to core expenditures, including compensation to public sector employees. That didn’t happen. It also recommended reducing operating grants to post secondary institutions by 30 per cent over six years; decreasing health-care operating grants by 25 per cent over six years; reducing administrative costs in the K-12 school system while transferring the money to classrooms; and reducing operating grants to other government agencies by 20 per cent.
A balanced budget Act was introduced in 2022, but it stalled and then disappeared. MUN got hit, but public sector employee compensation was not cut in any meaningful way. In its review of the 2023 and 2024 budgets, the Newfoundland Association of Public Employees was pleased to note there were no major cuts, closures, or service reductions. In addition, the 2024 travel nurse program was a fiscal embarrassment that led the Auditor General to call for a fraud investigation.
The Elusive Balanced Budget
Year after year Finance Minister Siobhan Coady said the Province’s fiscal position was improving. We were on track to achieve a balanced budget, she said. Not this year, but next year or the year after, she reassured taxpayers. Siobhan Coady is not running in the upcoming provincial election, so she won’t be around when the final numbers come in, but in a recent update the Minister said her forecast of a $372 million deficit in the current fiscal year was off by almost 70 per cent.
Siobhan Coady said the new projected deficit will be $626 million. Plus, if it weren’t for an accounting manoeuvre booking $400 million in revenue this year that is scheduled to arrive in increments over the next two decades, the deficit would be over a billion dollars.
When Siobhan Coady became Andrew Furey’s Finance Minister, the provincial net debt was on track to be an estimated $14.6 billion. As they leave office the net debt is on track to be $19.4 billion, the largest debt load per capita in Canada, and Marble Mountain is still for sale.