The track not taken
A few months back, the Fraser Institute issued a laughable report, ranking Danny Williams as the third-best fiscal performer among Premiers, in terms of managing their respective provinces’ finances.
The pallbearer government of Kathy Dunderdale, in the document produced for the annual pre-budget consultation farce, proves just how undeserved that reputation is.
This chart, taken from the document, shows the provincial net debt (columns, scale at left) and net debt per capita (line, scale at right.) Yes, Virginia, the third-best fiscal performer, faced with unprecedented, windfall, and – as we were reminded over and over again during Equalization Wars I and II – one-time offshore oil revenues, managed to go reverse his own brief interval of debt-reduction, and left office presiding over a government whose debt had reverted to its old habit of increasing.
But what if?
What if… instead of blowing the unprecedented, windfall, one-time oil revenues, Danny Williams had chosen a different financial track? Most of the windfall during the Williams years, realized through financial arrangements that pre-dated his entry into elected politics, was spent buying or renting love. No problem was too small to be solved by throwing public money, unprecedented, windfall money, down the problematic hole.
But what if he and his government had picked the more conservative, responsible, and prudent course, and used the bulk of those one-time revenues to make a lasting change in the provincial bottom line?
This chart, identical in every other respect to the one in the budget consultation document, shows what would have happened if Danny Williams-Government, instead of spending billions on happiness, had taken a radically cautious approach. In this scenario, one quarter of the offshore revenues, as well as 100% of any other public revenues such as mining royalties, general taxation, and federal transfers, are available for spreading the love. The remaining three-quarters of just the oil revenues are used to pay down debt:
The red parts of the column are “ghost” debt – debt that would have been paid off in this alternative scnarious, but which instead remained on the books. (Ignore the blue line from the original graph, for now.) By fiscal year 2009-10, the net debt in fact would have fallen off the bottom of the original graph’s scale. The fuller picture, with a vertical-scale baseline of zero, looks like this:
And what about that other important measure, net debt per capita? The blue line, transposed from the original chart, shows reality. The red line shows an alternative reality, assuming the same population trends as observed over the past decade or so, but also assuming the same super-cautious and aggressive fiscal strategy of getting the province out of debt, fast.
There was, of course, nothing responsible or prudent about Danny Williams’ tenure as Premier, and nothing, other than name, that was conservative about it. He chose a different track.
That is why a government that collected over $9-billion in oil revenues during its tenure still presides over a $9-billion net provincial debt.
And that is why the provincial net debt per capita this fiscal year was over $17,000 and rising, when in the alternative universe it would have been $7,000 and falling, and falling fast.
If recent trends in the alternative scenario keep up, the provincial net debt would have been wiped out by the middle of the current decade, freeing up 100% of the offshore revenues for other public purposes. (In an even more-aggressive alternative reality, in which 100% of the oil revenues since January 1, 2004, were used to pay off debt, the provincial net debt would have been $0 by the end of this calendar year.)
This is the record of the same crew who are now contemplating adding, at a minimum, another $4-billion to that debt — over $7800 for every many woman and child alive in the province today — to build the Danny Williams Memorial White Elephant. That would completely wipe out the modest debt reduction that was realized during the latter part of the last decade, put the burden of paying it off on electrical ratepayers, and the risk of cost overruns or interest rate shock on provincial taxpayers.
And they are doing so at a time when interest rates are poised to rise, and when the provincial population has resumed its decades-long downward trend, so that fewer and fewer people will be paying off more and more public borrowing.
So, you see the light at the end of the tunnel?
Yeah. That would be the train.
Labels: pretty charts