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Friday 10 June 2011

Life after oil.....yeah right.

So for those of you who may have been living under a rock for the last two days take an hour or so and go watch this session video over at The Harris Centre website. If you have seen it or read about it then you should have a basic understanding of the story; oil money will run out, and we will be in BIG TROUBLE! Dr. Locke is generally accepted as perhaps the most public and respected economist in NL, and in the past he has been seen as kind of close to the current administration, so when he is out front talking about the serious trouble we're headed for, people tend to pay attention.

It's the debt stupid!
If you think of the Province as a household you can get a pretty good understanding of what the debt situation is. If you owe student loans (as I do), credit cards, financed a vehicle, and have a mortgage, they are all forms of debt. And while the provincial debt has many different aspects to it the basic idea is that as a province we owe money that has to be paid off. And just like interest on credit cards, there's interest on our provincial debt. And the higher the debt the more we have to pay in interest costs. The recent budget forcasted the provincial budget to be $8.5 Billiom and Dr. Locke is forecasting that unless we change our spending habits our debt will rise to about $17 billion in ten years. Thats almost double. He suggests we should be aiming to maintain debt levels of about $5 billion to be sustainable. He indicated that over the last few years Government expenditures have risen equal to the increase in revenues, about 4.5% but that there was no actual plan to deal with the longer term issues.

Is oil the new cod?
Questions in the session surrounded the idea that NL has replaced a single industry economy built on the cod fishery to a single industry economy built on oil. And I think we all remember what happened in 1992.

What about Muskrat Falls?
A while ago Dr. Locke was engaged to do a little bit of work for the government regarding the possible economic impact of the development of Muskrat Falls. Because of this involvement with some of the forecasting he did not include the project in his presentation linked above. So that means that you can add another $4 billion (plus interest) on top of the numbers he presented. That would put the debt over $20 billion in 10 years.

What do you say Mr. Minister?
The morning of the presentation Dr. Locke was on Open Line and when he was done Finance Minister Marshall was next on the air and he repeated how he has been telling people the same story for years (that oil would end) and that the government was doing what needed to be done. Apparently spending like drunken sailers is the solution to rising debt. Who knew? The Minister has said we are diversifying into and "energy powerhouse." First I think he may misunderstand what diversify means, and second how will that help if Muskrat Falls won't really make us any money?

In an article in The Telegram today Marshall responds to the presentation by saying “What we’ve done since we’ve been in power, we’ve ensured that our level of spending is in line with our revenue. In other words, we live within our means,” So he recognizes that oil money will end but has still matched the spending with the revenues instead of keeping some to deal with the future debt issues. Nice. Oil revenues currently make up about one third of our provincial revenue. So if you knew that in the next few years your salary would be cut by 30%, how would that impact your current spending?

Rose coloured glasses?
One of the best quotes from the session actually came from Jo Mark Zurrel, Chairman of the St. John's Board of Trade. "We've got the highest unemployment rate in Canada, We've got the highest per-capita debt in Canada, yet all the news stories we see and all we hear from our leaders is that things are going great..." Indeed.

All in favor?
Basically we mostly seem to agree that oil money is great but it's a declining revenue stream and that we need to pay down the debt and diversify the economy beyond oil. How about agriculture, or forestry, small business, technology, or how about that fishery?

I think maybe the Navigators said it best:
"Now that the oil is on our shore we better take the time, to develop it more carefully or else you're going to find, what could have been the answer to our poor economy, has changed our way of living and destroyed our fishery."


  1. I have just discovered your blog. I've not had time to wade in very deep, but I like your approach. You are contemplative and a little provocative. You want to get people talking and debating. Good on ya!

    I like what you put forward in this entry. My only quibble is with your song lyric at the end. It was written and sung originally by Bruce Moss, not the Navigators. And the lyric is wrong on this point: oil did not destroy our fishery. The fishery may have been neglected by certain politicians, while they chased after petro-dollars, but you can't blame oil for that. Blame the short-sighted politicians. And Ottawa. And the foreigners. Anybody but ourselves.

    Anyway, good blog. I shall be back!

  2. Hey Geoff, glad you enjoy the blog. And I accept the criticism on the lyric. It jumped into my head and it seemed like a good fit at the time. Plus one could argue that if the current administration wasn't so focused on oil they might be more inclined to spend some time working on the fishery.

    When it comes to the fishery there's plenty of blame to go around, and we certainly have to accept our share of it.

  3. The fishery collapse can be blamed on many. However, if you have a level head and if you have been out in a boat during the much regulated "food fishery" will not admit it, but you have seen many, many violations. I did. And I have lost all respect for the gentleman that I thought would never do such a thing. There is no need to fillet fish in the boat and hide the fillets in a Sobeys bag under the engine. There is simply no need. Yes, there are many to blame for the fishery collapse. And the fishers are as much to blame as anyone.