Car­ry­ing on dig­ging

The Gulf News (Port aux Basques) - - Editorial - Rus­sell Wanger­sky East­ern Pas­sages

A lit­tle op­ti­mism can be a fine thing. Eco­nom­i­cally, it can sell houses and cars, keep what money we have turn­ing around and em­ploy­ing res­i­dents of the prov­ince, and keep peo­ple from be­ing fis­cally ner­vous and hold­ing onto their cash for a rainy day. Truth is, though, that there are very few peo­ple hang­ing on to any­thing for a rainy day in this prov­ince — or in the coun­try as a whole. We’ve learned not only to live with low-cost debt, but to roll around in it, of­ten to the very lim­its of our credit.

And that’s why it’s a lit­tle hard to fathom just what the pro­vin­cial gov­ern­ment is try­ing to do with its Chicken Lit­tle ap­proach to bud­get­ing.

The sky cer­tainly is not fall­ing, and Premier Dwight Ball is quite right that the prov­ince is not ap­proach­ing bankruptcy, but not be­cause we’re do­ing a won­der­ful job bal­anc­ing the prov­ince’s needs with what lit­tle money we have. We’re not head­ing for bankruptcy be­cause our credit is good for a dif­fer­ent rea­son — be­cause, to a prac­ti­cal de­gree, Ot­tawa has cosigned our mort­gage. And our car loan. And our credit card con­sol­i­da­tion loan. And ev­ery­thing else.

The mes­sage from the new ses­sion of the House of As­sem­bly so far — and the eco­nomic mes­sage that we can prob­a­bly ex­pect to con­tinue to hear on through the bud­get and be­yond — is that peo­ple, es­pe­cially young peo­ple, are ea­ger to stay here and find new so­lu­tions for old prob­lems. There are lots of rea­sons to want to stay here, and there may well be new so­lu­tions and ideas.

But the claim that this rep­re­sents a light at the end of the tun­nel?

It’s too early for that. Here’s a prag­matic way to look at it: tun­nels are hor­i­zon­tal holes through, say, a moun­tain­side. The fi­nan­cial hole we’re in is con­tin­u­ing to head down­wards, with spend­ing ex­ceed­ing rev­enues well into the fore­see­able fu­ture. We’re ac­tu­ally in a mine, no mat­ter how much our po­lit­i­cal lead­ers want us to be­lieve it’s ac­tu­ally a tun­nel. We can’t even pre­tend that there’s light up ahead un­til we stop dig­ging down­wards.

The prob­lem is that, with the fed­eral gov­ern­ment es­sen­tially un­able to al­low a Cana­dian prov­ince to de­fault on loans, we get loaned money that we prob­a­bly wouldn’t oth­er­wise get at the terms we’re able to get it now.

It’s led to a strange way of look­ing at bor­row­ing. Revently, Fi­nance Min­is­ter Tom Os­borne was talk­ing in the House of As­sem­bly about the $600 mil­lion the prov­ince wants to bor­row to pay out ac­cu­mu­lated sev­er­ance to civil ser­vants. (That de­ci­sion it­self is likely a fis­cally re­spon­si­ble one, by the way, sav­ing $25 mil­lion a year.) Os­borne ar­gued the prov­ince will pay only $10 mil­lion to off­set what would be $35 mil­lion a year in sev­er­ance ex­penses. But think care­fully about his an­swer.

“The $10 mil­lion is paid on in­ter­est to bor­row, as the hon­ourable mem­ber knows — he was premier at one par­tic­u­lar point. The only time we ac­tu­ally pay down on loans is when there’s a sur­plus, and those num­bers, even with their gov­ern­ment, in the wealth­i­est decade this prov­ince has ever had, were far and few be­tween, Mr. Speaker.”

Now, ap­ply that logic to some­thing as sim­ple as your credit card or a car loan.

If you res­o­lutely only pay the in­ter­est on your debt, the best you can ex­pect is to con­tinue to pay it in per­pe­tu­ity, long af­ter your new car or snow­mo­bile has crum­bled into rusty dust.

Imag­ine, in­stead, if the fi­nance min­is­ter was plan­ning to take the $25 mil­lion in sav­ings and ac­tu­ally ap­ply that money to the $600 mil­lion in bor­row­ing. Twenty-four years down the road, we’d ac­tu­ally be able to take that $35 mil­lion a year and ap­ply it to other needs, in­stead of bor­row­ing. But that’s clearly a mas­sive change in mind­set. Manag­ing only in­ter­est costs, no mat­ter how po­lit­i­cally nec­es­sary, is not manag­ing debt costs.

Let’s not tell young New­found­lan­ders and Labrado­ri­ans how bright the fu­ture is un­til we ac­tu­ally make a com­mit­ment to pay for the debt we’ve racked up on their be­half.

This is a won­der­ful place to live, but we’re all go­ing to have to make sig­nif­i­cant sac­ri­fices now to pre­vent a looming debt cri­sis from ar­riv­ing and suck­ing up all of our op­tions, ex­cept ex­port­ing money to for­eign lenders.

You don’t get out of a hole un­til you stop dig­ging, no mat­ter how op­ti­mistic you are about it. Rus­sell Wanger­sky is SaltWire Net­works’ At­lantic re­gional colum­nist, His work ap­pears in 39 news­pa­pers and web­sites across At­lantic Canada, and he can be reached at rus­sell.wanger­sky@thetele­ — Twit­ter: @Wanger­sky.

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