Budget 2016 - Who Pays for Rainy Days?

Budget 2016  - Who Pays for Rainy Days?

By: Ryan Young

There was doom and gloom hanging in the air of the House of Assembly yesterday as Finance Minister Cathy Bennett stood to deliver her maiden budget speech. You could have almost mistaken the event for a funeral. The only difference being that a funeral would likely be a more uplifting event. There were more than a few shocked gasps and whispered “oh-my’s” going around the gallery as Minister Bennett delivered the news and there was a look of shell-shock on the faces of many advocates and officials that were trying to digest a very difficult afternoon. If reaction on social media is any indicator the funeral analogy is quite apt as many people see this budget as the end of Newfoundland and Labrador as we know it. That may be a bit of a stretch, but there is no doubt that people are worried about what this budget means for them.

For many it was not the budget that they expected or wanted. Most people expected harsh measures but I don’t think many could have predicted what actually came down. As I wrote in my pre-budget analysis, I was not expecting any major public service cuts. On that issue I was correct. On the issue of taxes, however, I was dead wrong. The HST raise will create plenty of rhetoric in the house after all that Dwight Ball has said to defend his cancellation of the plan that had been put in place by the previous administration to raise it by 2 points. You can expect Paul Davis to beat that horse to death and back again during question period. Minister Bennett pulled no punches in delivering the bad news, sparing least of all the PC’s who she blamed for creating the financial mess we are in. Bennett said the tough budget was made necessary by a "failure to plan" by former governments, and oil royalties that once accounted for 30 per cent of revenues dropping to just over 7 per cent.

Bennett promised that a new zero-based budget approach would be taken as we move towards future budgets. This approach would see future budgets being costed from the ground up and not based on budgets from previous years. As a show of good faith cabinet members took a 10% pay cut for themselves. The gesture will save the province just over $60 000. With a mini-budget planned for the fall and more bad news expected in 2017, it looks like this is only the beginning of the rainy days for Newfoundland and Labrador.

So what does Budget 2016 mean for you?

The Good

There were certainly no sunny ways to celebrate in this budget, but despite words to the contrary by Cathy Bennett this week, it did include a few positive investments. The province put up about $60 million for innovation and diversification including funding for culture and heritage initiatives, tourism marketing, improving rural broadband capability, and research and development. They will invest a further $13 million to expand opportunities in seafood, mining, forestry and agriculture. There was also $11 Million earmarked for planning for the new Corner Brook and Waterford hospitals and an additional $2 million for long term care planning.

Some of the better parts of the investment plan were strangely absent from Minister Bennett’s speech in the house. $570 Million was announced for infrastructure spending but the minister failed to mention the $63.7 Million that was earmarked for the Trans-Labrador Highway. I had the pleasure of sitting next to the Mayor of Red Bay in the gallery and she had traveled to St. John’s with the hopes of hearing an announcement on the TLH. She left feeling that Labrador had gotten the shaft again. In fact, even though there were several budget initiatives aimed at Labrador, Minister Bennett failed to mention a single one of them. It kind of puts the “left-out” feelings of the people of the big land in better perspective.

There were also a few social spending surprises in the budget. The major announcement was $76.4 million for a new low income subsidy and an expansion of the existing senior’s benefit. Not included in Bennett’s speech but found in the budget highlights were also announcements for $12 million for renovating and modernizing public housing and improved supportive housing. There was also $119 million for inclusive education initiatives and $1 million for an expansion of the existing family court facilities. These are all well needed initiatives but we can’t help but feel that this budget did not go very far to address the extra pressure that will be added to our social systems as a direct result of the financial measures contained in Budget 2016.

The Bad

An additional $882 million annually will be raised from Newfoundlanders and Labradoreans through what Minister Bennett calls a series of “revenue adjustments”. Personal Income taxes are going up by 2% in each bracket over the next 2 years. HST is also going up 2 points, despite Dwight Balls previous insistence that the HST was a “job-killer” when he canceled the PCs plans to raise it just after the election in November. The gas tax will double with a rise of just over 16 cents. Tobacco taxes will increase, and there will be over 300 fee increases and 50 new fees added to government services. HST will be applied to insurance premiums as well, meaning residents will pay more on their insurance bills starting this year.

Some other less than favorable announcements included deferred infrastructure funding for some schools and capital works programs as well as increased class sizes in schools. The previous administrations decision to replace student loans for post-secondary students with grants has been reversed and $14 million has been cut from the budget at MUN. The province will leave the decision to keep the current tuition freeze in place with the university.

In the public service, 450 full time positions were cut from agencies, boards, and commissions. Another 200 positions in the core civil service have also been cut, however many of these employees will be restructured instead of losing their jobs outright. These cuts will have a negligible impact on the overall bottom line of the province but it is not surprising that they were so few as the government is about to start collective bargaining with the unions. More cuts should be expected in the fall.

The Ugly

The worst part about this budget is the fact that it puts the burden of past mistakes squarely on the backs of regular working families. In addition to the tax and fee increases, the government also announced a new temporary deficit-reduction levy that will range from $300 per year for lower income earners to $900 per year for top earners. Bennett promised a rollback of the levy would start in 2018 but for right now each and every worker in this province will have to pay just a little more. For someone earning $200 000 annually, $900 is a non-issue, but for a family living on $35 000, $300 will hurt. It is the regular taxpayer left holding the bag again.

The government estimates that the average worker will pay an additional $3000 per year based on their budget estimates. When you factor in the elimination of the baby bonus and the increases on gas and insurance premiums, it becomes clear that working-class families will bear the brunt of this budget. For many people the $1.3 Billion earmarked in the budget for Nalcor will be too much. On top of all of the increases we will also have to deal with constantly rising power bills starting this July. When asked if the massive hydro-electric project was a mistake, Bennett said the risks of cancelling the project are "enormous" but added, "We're going to make the changes that allow our government to have strong oversight on that project."

That might be hard to swallow when Ed Martin and his $600 000 salary are still in charge of the ongoing quagmire of construction delays and cost overruns that is known as Muskrat Falls. Cathy Bennett is very familiar with Ed Martin from her time as the chair of the Nalcor board and she should have some first-hand insight into how the corporation is run. Dwight Ball said over and over before the election that he had faith in the Muskrat project but not in its management. His solution to the management problem since the election, however, is to keep everything the same and issue Ed Martin  $1.3 billion to spend as he sees fit. This budget might be a little easier to take if it were not for the gathering shadow that Muskrat Falls has become.

Looking Forward

With an all-in philosophy on Nalcor being made quite clear, Cathy Bennett has delivered a budget that will be very hard on the working class people of this province in order to continue the development of Muskrat Falls. While we all realize that there needed to be strong and decisive action taken to begin repairing our fiscal outlook for the future, the decisions brought down by the minister yesterday will have a very negative effect on our economy and on the confidence of the young families that are left wondering if they have a future in Newfoundland and Labrador.

While more cuts to the public service are coming, it is likely that they will be based on seniority and will have an even greater effect on young families who want to stay in the province. The overall impact to our economy will reduce our real GDP by 3.2%. For those who don’t follow economics that translates into less jobs and a decreased tax base which means that the “temporary” measures outlined in yesterday’s budget may not be as temporary as the government would like you to believe.

There is some hope for this budget but only if major, targeted public service reductions follow it in the fall or next spring. If we can trim another $500 million and if oil goes back up in the neighborhood of $55 a barrel we could be back to running manageable deficits where any additional oil revenues could be used to balance the budget or pay down the debt. In the absence of that, however, this budget falls flat on the backs of our working families. We, the people, will continue to bear the brunt of loose fiscal management and be responsible for funding the Muskrat Falls project for generations to come.

If one positive thing can be taken from this budget it is that more people may begin to realize that the politics that they wish to ignore are about to start hitting them where it hurts. People might just begin to listen to what the politicians are saying and start to hold them accountable for their actions. Everyone’s wallet is about to get a little thinner and the only thing we will get out of it is a power bill that is three times higher. The people who didn’t care before might just start to take notice of what is really going on in this province. We can’t solve new problems with old ideas and there is nothing new or innovative to be found in Budget 2016. As far as I see it we have 2 choices. We can bend over and grin and bear it or we can start to come together and say enough is enough. If we want our government to be accountable, standing on the sidelines may no longer be an option.