The NL Economy (or: What They’re Not Saying Before the Election)

A while ago (back when Pandemic hadn’t yet really hit the mainstream vocabulary), I wrote a Twitter thread on the subject of the economics of Newfoundland and Labrador. I’m gonna try to both summarize and elaborate on that work here.

(And three more for some mild elaboration)

Low-Hanging Fruit

1. At a high level, we spend half as much on Education (with some caveats, see the AESL bit below for more) as we do on Resources and 40% less than we do on Debt Service and Financing costs.
2. We make almost as much from Sales tax – a regressive taxation scheme – as we do from Personal Income tax.
3. Fully $3B of the budget is healthcare & related
   1. Half of that expenditure is in the Eastern Health Region.
   2. When you look at the actual budgets of the 4 healthcare authorities, their expenditures don’t add up. The 4 boards spent a total of about $2.5B, but the Regional Health Authority expenditure line for the province is only $2.3B. $200M extra? More analysis would probably turn up where the extra comes from.
   3. It’s kind of amazing to me that Labrador-Grenfell can cover 300% of the geographical area with less than 10% of the budget of the other 3.
4. AESL should not be in that Resource pool because it really fucks it up. It’s almost impossible to discern what we’re actually spending on resources. In addition, if you look down through the AESL details, you spot some big numbers.
   1. That Education amount above? Doesn’t include about $435M of post-secondary costs tucked away in AESL instead. The VAST majority of that money goes to Memorial, with only about 15% headed to CNA. Proportionally, we spend about $21,000/student at MUN in the 2020 budget vs 13,000/student in the public school system and a spectacularly low 8,500 at CNA.
      1. And yet MUN gets about 20% of its funding from student fees, whereas CNA only gets about 12% from fees. CNA, however, gets another 20% of its operating costs from federal money.
      2. On the other hand, U of T operates with just shy of twice the provincial dollars to service well over 4 times the number of students.
         1. This is largely because they charge way, way more tuition – roughly 50% of their operating revenue is student fees.
         2. Also, their full budget is 5x as large as MUN’s (ie roughly proportional per-student) and they also, partly as a result of that higher tuition, ended up with $441M extra in-hand last year, so they may not be the lodestar to follow.
   2. AESL also tucks away about $368M in “Income and Social Development”, almost all of which is either
      1. Income Support ($215M) or
      2. paid for by the Feds, who send us $114M or so for the Labour Market Development Agreement (which is, for some reason, not filed under “Workforce Development, Labour, and Immigration”)
5. $306M was spent on Municipal Affairs, of which $116M was Not From NL Revenues, so really $190M.
6. $379M was spent allowing Nalcor to “facilitate its participation in oil and gas activities and other energy projects.”
   1. I’m having a hard time with this number. TWO HUNDRED PERCENT of the amount spent on communities was handed to Nalcor for…? It’s not clear to me, even after trying to read Nalcor’s 2019 Annual Report, what that money is intended to actually do.
      1. And if I’m reading Nalcor’s report correctly, their “financing activities” are almost entirely them asking for this dole-out every year?
      2. And they’re still -$120M for 2020 as of September.
      3. Oh, and we throw another $10M at C-NLOPB
      4. And a few million on “resource roads”
      5. I’m guessing that OilCo hasn’t yet turned in a report. I can’t WAIT to see the nonsense in that document.
      6. By the by, our spend for “Climate Change” (Tucked into Municipal affairs and environment) is roughly $20M, or about 5% of Nalcor’s “oil and gas play money”.
      7. And of course, Churchill Falls is in there: Hydro-Quebec “bought” 21,000 GWh from us. That’s basically a billion dollars right there, assuming $0.045/kWh. We saw $66M of that, against $43M in expenses.
         1. Joey Smallwood’s various monuments should be melted down and/or set on fire in fucking perpetuity.
         2. And every Quebec and Canadian government since 1969 can kiss my ass immediately after I’ve finished shitting.
7. We spend a tiny percentage of our budget on administrative functions. We could maybe save $20M if we emptied out half of the administrative offices. Which, I’m sure, would have no deleterious effects whatsoever on our situation.

By Way Of Comparison

When I look at ON & AB to try to understand how our taxes stack up, our province takes 23.3% of our revenue as personal income tax versus Ontario’s 23.7% and Alberta’s 24%. We’re spending more per capita, but our geographic area per capita is challenging. Then again, did you know Alberta has roughly 200 small (town/village/summer village) communities with a combined population of roughly 500,000? Doesn’t that sound very familiar?

1. We spend SO MUCH less than ON or AB on education. We spend more (proportionally) on “Advanced Education, Skills, and Labour” – but that includes Income Support here, so hard to compare. It’s not even like our student counts are vastly different – Ontario has about 2M students (13.7% of the population) vs 65k here (12.4%). We just straight-up spend about 40%(!) less as a percent of revenue. Our revenue per-capita is, on paper at least, 30% higher, so maybe that tracks? But our “spending problem”, then, is elsewhere.
2. Healthcare is pretty close – 39% in both ON and NL, 41.3% in AB.

Meanwhile, federal transfers are similar – 16.5% for ON, 16% for AB, and 14.5% for NL. Of course, that 2% would be ~120M, which is not nothin.

The preceding – to my mind, at least – puts paid to the very popular local notion that we have an easily-identified “spending problem”, unless that spending problem is giving half our deficit to Nalcor to fritter away on unaccounted expenses.

But if I just take the overall expenditures, I do see a gap: Our total expenditures are $3k/capita higher than ON, $800/capita higher than AB. If we could even get to AB’s level, that’d be $400M/year.

The primary difference in our finances seems to be interest payments – ON’s is just over 8%; NL’s is a breathtaking 18%. Alberta has 4% debt service, but otherwise similar numbers. I assume if you can afford to have no sales tax you don’t worry about anything as pithy as borrowing costs. If we were at 8.2% of revenue, as ON is, we’d be up $760M+/year. If were were at 4%, we’d be up almost $1.1B – that is to say, we’d be in the black. Having said that, there’s some funny accounting happening in those areas. Ontario accounts for retirement expenses quite differently from NL, and I can only find about $3B (2%) for ON versus …$730M in the Consolidated Fund Services (which is almost 10% of total expenditures?!?) for NL. That’s kind of wild. I have to wonder how that difference came to be.

I really want to know how our next government is going to deal with these realities. Andrew Furey is making soothing noises about public consultation after the Greene report, but we know it’s already in the woods as far as labour is concerned, which means cuts somewhere.

We really do not seem to be “overspending” on basic necessities like healthcare and education, but I’d lay dollars to donuts that’s what will be on the chopping block. And meanwhile many people will waste a lot of energy hand-wringing about how rural areas are bleeding the province dry, ignoring the very basic fact that more than half of our revenue goes to the St. John’s Metro area and surroundings.

Well What Do I Suggest?

1. Don’t wait for the goddamned numbers. If I, amateur that I am, can read several budgets and come up with conclusions, so can you.
2. Nalcor, OilCo, and CNLOPB should have to operate without provincial purse money. $400M+ saved per year, and they’re all big and ugly enough to deal with the ramifications.
3. Education and Healthcare are not bloated, no matter what the fatheads of the world want to say about it. We spend a proportionate amount on those areas. Find savings elsewhere.
4. Spend more on communities than on oil and gas, please. Don’t be stupid.
5. MUN, CNA, and public schools should all be in one bucket so that we have a real sense of how much we’re spending each year on education as a block. Income support is necessary and important, but it shouldn’t be in the same bucket as the province’s one and only university.
   1. While we’re at it, why not put that weirdo federal labour allocation into the workforce bucket?
   2. And yes, MUN may need to hike fees. Sorry, kids.
6. Make sure we are aligned on at least a few industries’ worth of strategic planning.
   1. Ideally none of those are oil and gas, but I know it’s a hard teat to ignore.
   2. Feel free to crib from my notes if you need to.
7. Every year, we do another lawsuit for Upper Churchill. Fuck the doubters and naysayers. A billion dollars a year – even half a billion a year – puts us far, far ahead.
   1. Hell, let’s do a provincewide letter-writing campaign. “Dear Justin Trudeau, as you know Joey Smallwood was the biggest idiot this side of the Trump family…”. 500,000 letters to the PM should have some weight. Do it 4 or 5 times, let’s see what we can get going.
   2. Have we thought about threatening to blow the goddamned dam to smithereens? See what HQ and QC have to say versus Mad Bomber what Bombs at Midnight style antics!
8. If you’re going to regionalize and resettle (which are, in some folks’ minds, the same thing), Make a Plan First.
   1. What communities do you expect to survive?
   2. On what economic and cultural basis?
   3. Are you sure that these judgements haven’t been colored by personal and corporate interests? We know most of the survivorship thus far has been.
   4. What happens when those communities die? Make sure that you look back at what has happened elsewhere – resettlement has largely been a Failure Cascade in slow motion, with entire regions dying and retracting. Don’t fuck around with half-measures. Cut the infected limbs all the way off, or make better economic decisions to revitalize them, but For Fuck Sakes do not half-ass it.
   5. Make the department of Transportation and Infrastructure break out their costs. $82M in a line item that has no further elaboration is unacceptable.
9. Have the decency to tell people when their jobs are facing eventual obsoletion. Oil and Gas is dying, slowly. That refinery has never been a good place to place a bet. Gander Airport has been suffocated by degrees. I Could Go On.