Face the fiscal situation and work to fix it

With the upcoming budget does Premier Andrew Furey have the ruthlessness to do what’s necessary?

Newfoundland and Labrador is at a point where the payment of debt and servicing the debt is unaffordable. Other than making required payments to its sinking funds Newfoundland and Labrador has not paid down its debt in many years — paying interest and using deficit budgets to fund day-to-day operations, increasingly adding to our financial problems.

Many people use net debt to measure the financial health of the province, a measure commonly used by governments. Net debt is total debt minus the book value of financial assets, including cash and investments. Rating agencies understand net debt, but the discussion around net debt really masks the true problem.

The province receives credit ratings from three firms: Moody’s Investors Service, Standard and Poor’s Ratings Services (S&P), and DBRS Morningstar.

Moody’s revised the province’s rating from A1 stable to A1 negative on April 8,2020.

S&P revised its rating from A stable to A negative.

DBRS Morningstar confirmed its rating as A (low) negative.

Couple the above with Dwight Ball’s letter to Prime Minister Justin Trudeau we have a very serious financial problem.

“To put it bluntly, our recent attempts to finalize our borrowing program, both short term and long term, have been unsuccessful,” Ball wrote.

Ball, then premier, told Trudeau in March 2020 the province is facing an “immediate and urgent financial crisis,” with no success in its attempts to borrow money in both the short and long-term. He said the province has “no other recourse to raise the necessary funds to maintain the operations of government” including health care.

“Our province has run out of time,” Ball told Trudeau.

Ball cited the state of emergency brought on by the January 2020 Snowmageddon, oil prices plummeting and the virtual shutdown of economic activity resulting from the COVID-19 pandemic.

I don’t believe there is any argument with the Premier’s Economic Task Force assessment of our total liabilities.

From PERT: “In total, the province’s liabilities plus other obligations and exposures stands at $44.5 billion as of March 31, 2020. Adding in borrowings to cover the 202021 shortfall of $2.8 billion brings the number to $47.3 billion.”

Over the last 10 years, annual debt expenses averaged $899 million and debt expenses as a percentage of revenue averaged 11.9 per cent with a low of nine per cent for 2011-2012. Over the past five years, debt expenses as a percentage of revenue averaged 13.3 per cent — an upward and deteriorating trend. Debt expenses as a percentage of revenue for 2019-20 are 11.1 per cent.

There are many arguments on how to deal with our debt, cuts being one of them, but unions want nothing to do with cuts that affect them. I am not sure if it’s real concern or self-preservation but it definitely lacks sensitivity to the financial quagmire we are in.

The only thing I can gather from The People’s Recovery report is to keep spending, tax big business and the elite to offset the increased costs with little or no regard for our current debt and debt servicing.

There are also opinions on how we should grow the economy and increase our GDP. Where will the seed money come from if you begin to tax big business and the elite, the province cannot borrow to invest (nor should they) because we are already at our debt wall.

The people of this province have to accept the reality of our financial situation. They also have to work with, offer opinions and fight with government to reign in our unsustainable debt so this government will not kick the can down the road any further.