ST. JOHN'S, N.L. — The financial crisis facing Newfoundland and Labrador puts the province at risk of being unable to pay public sector salaries and keep hospitals running, a government task force report released Thursday concludes.
The report titled The Big Reset says that to correct course, the province needs to rein in public sector spending, re-evaluate its contracts with unions and dismantle the provincial energy corporation.
“We are by no means advocating anything like an austerity regime,” Moya Greene, chairperson of the Premier’s Economic Recovery Team, said as she presented the report from her home in the United Kingdom. “The financial situation must be addressed before the province can realize its potential.”
Greene is a St. John’s-born businesswoman known for privatizing Britain’s mail service. Premier Andrew Furey appointed her last fall to lead the team's explorations of how Newfoundland and Labrador could sidestep a looming fiscal crisis. In a livestreamed speech, she said the report plots "a new course forward for strong economic growth” that would get the province out of debt within five to six years.
That debt, she said, stems largely from poor management. "We have been shocked as a panel to talk to very senior managers ... who just think that deficits don't matter," she said. "I don't know where it came from, but we certainly have a long history of it."
According to the document, Newfoundland and Labrador has the highest per capita revenues, expenses, deficit and net debt of any province. In March of last year, then premier Dwight Ball wrote to Prime Minister Justin Trudeau saying his government couldn’t borrow any more money and was in danger of not making payroll.
Greene said the COVID-19 pandemic hit just in time, forcing Ottawa to offer assistance to all provinces and allowing Newfoundland and Labrador to squeak by. “If not for the onset of the pandemic ... we would have been over the cliff,” she said.
However, she said Ottawa is unlikely to pitch in again, noting that Newfoundland and Labrador’s problems come from spending, not from a lack of revenue.
Instead, Greene and her team have made a series of sweeping recommendations to reorient spending, which includes a move to abolish Nalcor Energy. The provincial energy corporation is riddled with redundancies and unlikely to “respond to the emerging green economy,” she said. When Nalcor’s borrowing is factored in, Greene said the province is spending more than $1.5-billion a year in debt-servicing costs.
“We get nothing from these interest payments,” she said. “But it is twice as much as we spend on (kindergarten to Grade 12) education.”
Her report also suggests the government seek federal and private sector partners for its hydro assets, and perhaps bundle them as a package deal. That includes the controversial, Nalcor-led Muskrat Falls hydroelectric project in Labrador. Its ballooning cost — now at $13.1 billion — threatens to double electricity bills in the province.
The package could also include the Upper Churchill resources, which are currently under contract with Quebec until 2041, the document says.
As for public sector employees, Greene says the government has an $8-billion unfunded liability in pensions and other benefits that will come due. The report proposes a wage freeze, work-from-home policies and a four-day work week for certain positions in order to cut staff costs.
The document also calls for a 30 per cent cut over five years to the operating grants provided to both Memorial University and the College of the North Atlantic, as well as a reduction in funds offered to the four regional health authorities.
Funding for the education of students in kindergarten to Grade 12 should not be cut, Greene said, though expenses should be scrutinized to ensure more money goes to the classroom and not to administration. She recommends that the government get rid of the province's stand-alone francophone school board.
Greene’s report calls for Furey and his government to create a “Future Fund” to be fed primarily by offshore oil revenues. The money would be used to pay down debt and to finance a transition to a green economy, which Greene said is a crucial focus for the province.
The report also calls for tax hikes, including a tax on wealth and second homes.
Greene’s report was a thorn in the side of Liberal Premier Andrew Furey throughout the recent provincial election, with his opponents regularly accusing him of trying to hide looming cuts from voters by having them vote before the report was released.
This report by The Canadian Press was first published May 6, 2021.
Sarah Smellie, The Canadian Press