Borrowing billions not the way to go: CFIB
Last week, the provincial government tabled a budget during a period of volatile and uncertain economic times. Canadian Federation of Independent Business members and other small business owners will find little comfort in it.
The ‘high-oil-royalties and spend’ approach has been replaced with the traditional “borrow and spend” approach so many governments of the past have used. Have we not learned anything?
According to the government’s main estimates, operating and program spending is expected to grow 7.6 per cent in 2015-16. Government will borrow $2 billion this year to be partly used for the increased spending, with another $5 billion borrowed over the following four years. This should be worrisome for us all. If interest rates go up (which they eventually will) or if the government’s credit rating goes down (which may happen), debt servicing costs will increase.
If this occurs, there will be less money available for existing programs and services. To maintain those programs and services would therefore require an increase in taxes or more borrowing. A two per cent increase in the Harmonized Sales Tax and $7 billion in borrowing could very well just be the beginning. The elephant in the room few want to consider is the size of government and government spending. On a per capita basis, Newfoundland and Labrador has one of the largest public services in the country. Salaries and benefits are expected to cost $3.5 billion in 2015-16, which is $700 million more than two years ago. With four years of recession pending, government contends that to reduce its spending by $1.6 billion in three years would put the provincial economy deeper into recession (not its words, but the point was made).
However, this argument ignores the role attrition and finding efficiencies can play without harming the economy. There are factors other than economics behind the intransigence to reduce spending.
But there is an opportunity with an election expected later this year. In the interest of transparency and accountability in the management of its finances, the government should release its audited consolidated financial statements for 201415, as well as its mid-year fiscal update, by the middle of September 2015. By doing so, Newfoundlanders and Labradorians will have the most up-to-date fiscal information available. Equally important, all political parties would have the same information upon which to base their election campaign platforms.
Each of the parties should take the next six or seven months to give serious consideration to a credible plan that will stem the fiscal bleeding. Such a plan would go beyond taxing and borrowing while waiting for oil prices to rebound to historic levels. The focus should be on smaller government and lower government spending. It is irresponsible to do otherwise.