Brother, can you spare a billion or two?

Now Standard & Poor’s has joined the party passing judgment on Newfoundland and Labrador’s economic situation. They join the other major rating agency (Moody’s) in moving this province’s rating from stable to negative. Many people say who cares, but what most people forget is that if Newfoundland and Labrador cannot borrow, then everything stops. The other important point to remember is that the higher the risk to lenders, the higher the interest rate we, the taxpayers, have to pay. Again, many say who cares, but S&P expects a 30 per cent drop in revenues (not including debt) over the next couple of years, so that brings us from $7 billion down to $4.9 billion. We need $8 Billion to keep everything functioning, so this year we were projecting to borrow a billion dollars or so. Our debt servicing right now is $1 billion — before all the money we just borrowed — and will need to support going forward. We will probably need to borrow $2 billion to $4 billion this year, so that will increase our debt by 15 per cent plus. That means that 23 per cent or more of all the money we take in will be going to debt servicing and this does not include the unfunded pension liabilities and unfunded benefits for our public service, which is only going up. Now, when you add this to the fact that we are taking in a lot less money, this is why it matters. People think that the Bank of Canada will save us because they saved us in April (when we could not make payroll). What many people do not realize is that that financing was for a term less than one year, so whatever the details of this loan are it is short term and will need to be renegotiated because there is no way we are going to be able to pay it back. More debt! Borrowing on your credit card does not fix the problem of overspending — it makes it worse. The message is clear: get your budget in order or things will get very bad over the next year. The big question that we all need to ask ourselves is, would you lend Newfoundland and Labrador money to pay for things it cannot afford and has zero per cent chance of being able to repay, given that it seems to have no intention of getting its fiscal house in order?

Tom Davis

St. John’s