Andrew Furey is the new Premier of Newfoundland and Labrador.ILLUSTRATION: THE GLOBE AND MAIL. SOURCE PHOTO: THE CANADIAN PRESS
Lori Lee Oates is a lecturer at Memorial University in St. John’s who regularly writes about the political economy of Newfoundland and Labrador. She is co-host of the podcast Podco: Making Government Work For Us.
The new Premier of Newfoundland and Labrador, Andrew Furey, was sworn in last week. I joked on the night of the Liberal leadership convention that when he saw the real condition of the province’s finances, he would probably want a recount.
It is largely predictable what he has been told by Department of Finance officials. The province already had to seek a bailout this year in order to continue making payroll. This will likely be an issue for the foreseeable future or until a significant stimulus package arrives.
The provincial government has had a series of layoffs dating back to 2012. There is little to no slack left to cut in the public service.
The province has not been doing key things that it needs to be doing in order to develop the economy and build it over the long term. That list includes not doing enough data collection for effective evidence-based decision-making, meaningful gender-based analysis and planning for climate change.
The new Premier quickly discovered there were public service agreements in place that will prevent the layoff of unionized workers for the next two years.
A high percentage of the population is employed in public service, creating a divide between the people with “good government jobs” and those who work in the private sector.
Many people in the province are employed in low-paying service-sector jobs. There is little in the way of big business. Estimates are that 70,000 people in Newfoundland and Labrador earn the minimum wage.
Minimum wage is $11.65 an hour and tied for the lowest in the country. It is slated for an increase to $12.65 by 2021. Estimates put a living wage in the province at $18.86.
Anyone who is laid off from the public service will likely exit the province quickly. This will shrink our declining population further and faster. For those reasons, our leaders are often fearful of telling the public exactly how bad the situation is.
The population has been contracting quickly for the past number of years and that is expected to continue into the future. In 2019, data from Statistics Canada predicted the province could lose 90,000 people, or one-fifth of our population, by 2043.
Further complicating the situation, most federal transfer payments are tied to population. When people leave, our transfer payments shrink.
Transfer formulas do not factor in the additional costs of administering public services to a widespread and aging population. The more people that leave, the more expensive it becomes to administer services per person. There is little in the way of economies of scale.
Andrew Parsons, left, Sarah Stoodley, centre-left, Premier Andrew Furey, centre, Siobahn Coady, centre-right and Tom Osborne speak after the Premier's swearing-in ceremony on the grounds of Government House in St. John's on Aug. 19, 2020.Paul Daly/The Canadian Press
The equalization formula was changed by the Harper government in 2007 to ensure that Newfoundland and Labrador would not receive equalization. The formula forces provinces with natural resources to develop them as a source of revenue, at the same time that the federal government is imposing a carbon tax.
Muskrat Falls continues to be a noose around the neck of provincial taxpayers. That is the ill-fated hydroelectric project that almost doubled in cost after its approval. The price tag is expected to be $12.7-billion. Provincial estimates put 2019 debt levels at $22.9-billion.
Those numbers mean that in 2019, before the pandemic, every taxpayer owed $42,287 in provincial debt. The cost of Muskrat Falls for individual taxpayers is approximately $24,000. That includes children and retired persons.
Auditor-General Julie Mullaley has said the province “is not living within its means.” However, Muskrat Falls is largely the cost that makes our spending high, and at this stage it is mostly contractors benefiting from the project.
Newfoundland and Labrador taxpayers will pay for the project twice, both through provincial investments and increased electricity rates.
The provincial government has been pursuing money for rate mitigation from the federal government. The goal is to ensure that electricity rates do not go beyond 13.5 cents per kilowatt hour. This is below electricity rates that are paid by Canadians in other provinces.
There are lawsuits from Muskrat Falls contractors that will certainly cost taxpayers more money. They have protection from mismanagement at the province’s energy agency. Citizens do not.
Muskrat Falls received approval from the provincial cabinet and House of Assembly, largely on the basis of a loan guarantee from the Harper government. The terms were far from favourable to the province.
Even though the Trudeau government has increased the size of the guarantee, the province maintains responsibility for paying off the loan.
Our leaders have failed to move us into the global service economy, despite significant potential to do so in technology, the arts and tourism. The good news is that Dr. Furey’s cabinet indicates there will be greater focus on those areas, with ministers now responsible for technology, digital government and energy. Tourism returns to being a stand-alone department, with a new mandate for the arts.
It was assumed that new oil projects and royalties would save us eventually. With climate change and the move to green energy being hastened by the pandemic, it now looks as if that will not be the case. It is highly unlikely that costly deep-water projects will proceed now.
We’ve been here before in our history – with the Newfoundland railway, the financial crisis of 1939, Joey Smallwood and his rubber boot factories, Sprung Greenhouse and the cod moratorium.
What we have never seen before is the breaking of the yoke of the natural resources dependency that has plagued us throughout history. We have a long history of resource royalties being wasted on projects that largely benefit contractors outside of the province.
Many are hoping Dr. Furey is the person who can finally fix this. Certainly, the new organizational structure of his government is a good start. However, to say that some of us are skeptical would not quite cover it.
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