Monday, March 30, 2009

The New Newfoundland

Newfoundland has long been the basket case of Canadian provincial economies. The fish disappeared and they're so far from markets that transportation costs are a killer. A few years ago, hope dawned in the form of offshore oil and gas. Then this recession hit, and the price of oil went from flirting with $147 a barrel at its height to over/under $50. Ouch, imagine the kind of hit your revenues take when your major export's price drops by two thirds.

Last week, Newfoundland came out with their provincial budget and the deficits are back, they're predicting $750 million in red ink next year. That sounds pretty bad.

But wait a minute, isn't New Brunswick forecasting in the order of an $800 million deficit? What gives? How can we be doing even worse than Newfoundland? Has there been a drop of anything we export in the order of the precipitous fall in oil prices?

The answer is no, despite some laughable spin we'll get into another time. So what does this mean? There's an essential difference in our deficit and Newfoundland's: there's can be largely explained by market changes, ours cannot. Theirs is a direct result of a fall in energy prices. Ours is a direct result of government mismanagement.

Move over, Newfoundland, there's a new King of the Hobos in town. In three budgets, we've taken over the title of Confederation's poor cousin. Even more disgustingly, we've done this while spinning a bunch of PR BS about self-sufficiency. We're going the wrong way, both in absolute terms and relative to our neighbour provinces.

It's true that this recession is kicking everyone, but even in a situation like this, it makes a difference how you manage. Shame Graham is quick to note that $300 million of our deficit is due to hits in the pension fund. It sounds good, until you realize the deficit is $800 million. What Graham is really saying is: EVEN IF THE ECONOMY HAD STAYED STRONG, THE LIBERAL GOVERNMENT HAS MANAGED SO POORLY THAT WE'D BE A HALF A BILLION IN THE HOLE.

Quick question: if there was a forest fire approaching a village, which house do you think is most likely to come out intact: the one with a built-in sprinkler system, or the one which has already been set on fire by the owner before the main fire even arrives?

Saturday, March 28, 2009

Why Should I Care About the Deficit?

It's a simple formula: Today's deficit = tomorrow's tax increase.

You may think the money you borrow doesn't have to be repaid. Businessmen know better. In the world they inhabit, businesses with cash flow problems are businesses in trouble.

1. Tomorrow's tax increase = today's bad investment climate.

2. Today's bad investment climate = less investment today.

3. Less investment today = fewer jobs today, and tomorrow.

DEFICITS KILL JOBS, BECAUSE THEY KILL THE INVESTMENT THAT CREATES JOBS.

Oh, but you say, if tax rates are lowering, doesn't that encourage investment? Only stupid investment.

Let me give you a practical example. Suppose I offer you a stove that uses a special kind of fuel. Right now the fuel is cheaper than the alternative, but three years from now it will probably cost much more than the alternative. Would you pay money for a new furnace which burns my temporarily cheaper fuel? No you wouldn't. Would you invest in a province which temporarily has a lower tax rate, but which has deficits leading to a higher tax rate in the future? Answer: you would ONLY if you plan to get out before the tax rate goes back up.

In other words, you'll create some short term jobs, but if you're planning to create long term wealth from an ongoing investment, you'll seek a financially stable (low debt/low tax rate) jurisdiction.

Can you see now how the Liberal approach encourages short-term, handout-dependent industries?

Oh but you say, if there's growth, we won't need to raise tax rates, the growth will take care of that. That's true, and also unlikely to happen. The more investment you attract, the further you can spread the tax burden, and the lighter it is on everyone. Deficits push away investment, and the remaining industries know that. What do you think works harder, a horse in a team of 8 or a horse in a team of 4? Who do you think is more likely to be taxed higher in the future, a business starting in a low-debt jurisdiction or one starting in a high-debt jurisdiction.

Psychologically, we tend to heavily discount future events. We'll pay those bills later (or our grandchildren will), so why worry now? This ignores the reality of investment, which is: TODAY'S HIGH DEFICIT IS KILLING JOBS TODAY. Not when the debt comes due, not 10 years from now, but RIGHT NOW.

Tuesday, March 24, 2009

Worst Government Ever - Part IV, Labour Relations

This part comes as an important addition to the original series, and it deals with labour relations. The Government of New Brunswick is the biggest employer in the Province, with about 45,000 people on the payroll, including nurses, teachers, NB Power, social workers, general civil servants, and so on. It goes without saying that a huge portion of the annual budget is paid out in salaries to people who provide services.

Obviously, managing “the wage bill” is very important for any competent government that wants to balance the books. But according to the Shawn Graham Government, it is more important to be liked than to be right.

Recently, the SGG announced that all government workers would be subject to a two year wage freeze. This came directly on the heels of the cowardly leaked announcement that they had mismanaged spending so badly that they were actually going to table a budget for next year with an $800 million deficit. This is roughly the equivalent of adding $1,000 to the Visa bill of every single person or baby living in New Brunswick. And we all know how easy it is to pay those bills off.

So when the government announces there will be a 2 year wage freeze, everyone of course thinks back to Frank McKenna and his famous “0% increase days” in the recession of the early 1990’s. We all remember Premier McKenna bravely announcing that that the economy had gone down the tubes, and that everyone, and I mean everyone, was getting no increases for a couple of years until the province got back on its feet. This was announced weeks after the then Liberal government had signed a contract with the Nurses Union, a very powerful lobby group in New Brunswick. Many protests were had, but in the end the voters did not punish the McKenna Liberals because people recognized it was a bad time but everyone was being treated the same. It wasn’t right of them to negotiate in such bad faith, but no one could successfully argue against the decision on that basis alone.

Fast forward 15 years and now we have the Shawn Graham Liberals in exactly the same position. Unfortunately, we are quickly learning that Shawn ain’t no Premier McKenna. Because just like in the early 1990’s we are facing a global economic recession, and everyone has to bite the bullet. And just like Premier McKenna, the current bunch of bananas just signed last month a big fat juicy contract with the powerful nurses union. And just like Premier McKenna, they have announced a 0% wage increase policy. But the BIG difference between the two is this: Frank imposed the wage freeze on everyone at the same time and during the economic crisis. Whereas Shawn “I like to be liked” Graham has decided to postpone the wage freeze for anyone who just signed a contract.

What does this mean? Well for 5,800 nurses it means that even though we are having an economic crisis today, right now, they are still going to get every penny of their new contract increases until it expires - - - in December of 2010. At that point (probably once the crisis has passed) then they are supposedly going to have a two year wage freeze.

But wait there’s more. The nurses weren’t the only ones to get in under the wire. The major health care workers union, representing 8,300 employees signed in late September (just as the economy was starting to unravel) and guess what - their members are going to get increases of 12% to 50% over a four year period ending in June of 2011. Then they will supposedly have a wage freeze.

But wait, there’s even more. The nurses and other health care workers aren’t the only ones who have signed a fat juicy contract with the SGG. In December Smiling Kelly Lamrock signed an even bigger and longer contract with 7,500 teachers, a contract that does not expire until February 2012 - at which point - you guessed it - they will supposedly have a two year wage freeze.

Just to recap, here’s the situation. Shawn Graham has announced a wage freeze on all government workers, with the small print that it doesn’t apply to those who have recently signed a contract. In fact, they have recently signed big fat juicy contracts with HALF OF THE GOVERNMENT - so those folks won’t get wage freezes for another two years, or three years, or four years. Does anyone really believe any of those people will have their wages frozen in 2012 - long after the recession is over?

The result is two classes of government workers - those with big fat juicy contracts and those who are frozen. But hey, it’s totally worth it if Shawn doesn’t have to stand on the steps of the legislature with a bullhorn, like Premier McKenna did, and explain his decisions to an angry mob. Right?

Monday, March 23, 2009

Letter from a New Brunswick Ex-Pat

On behalf of the thousands of New Brunswick ex-pats who would someday like to return home, I would like to thank Shawn Graham for making that a fantasy.

I left New Brunswick just as the Graham Government came to power and raised taxes back in 06/07. I am only viewing this government from afar.

Thankfully.

Looking at the latest budget it looks like he is actually just giving back some of what he took a few years ago and he had to go borrow money to do it. Awesome. You should all feel really good about that one.

As it stands right now, New Brunswick has a debt of approx $8 billion dollars. That will rise to $10 billion before the liberals finish this term. That means the debt is more than what the government takes in on an annual basis annual revenue is approx $8 billion).

Add to this that a very large chunk of what the province pulls in for revenue comes from Ottawa in the form of transfer payments, and that equals a province that will be teetering on the brink of bankruptcy around 2009. Great place to live. Your great grand kids will be paying interest on this decision.

I am not an economist but when you spend more than you make that normally spells trouble.

I seem to recall that the New Brunswick debt was going down, albeit slowly, throughout the late 90's and into 2006. Well goodbye to ten years of fiscal stability - IN A BIG WAY. In one budget Shawn is borrowing 10% of what the province spends on an annual basis. He has completely erased years of prudent financial management.

Thanks man.

The self sufficiency vision sure is taking a licking in this budget. How can anyone stand in front of a mirror and say New Brunswick is on a path to self sufficiency? This is a joke of the highest magnitude. A province that will have a debt that exceeds its annual budget cannot ever dream of self sufficiency.

It is now official – New Brunswick has now become the new Newfoundland. There are little to no job opportunities, small business is taxed to pieces, the province is almost crushed under the weight of a ballooning debt and there is no vision or leadership that would entice anyone to come home or for any young person to stay. Just check the stats of out migration from New Brunswick, they will only accelerate in the coming years thanks to this budget.

The only part of Shawn’s self sufficiency agenda that will become a reality is that thousands of young New Brunswickers will become self sufficient when they leave. The province has already established a great reputation for its great young people that go live somewhere else.

On the plus side - years from now there will be a fantastic retirement business to be had when we all come back from a successful life somewhere else.

I really love New Brunswick. It is my home and I would like nothing more than to move my family back. This will not happen with buffoons like Shawn Graham ruining a once great province.

Folks - do yourself a favour and chuck this bartender/substitute teacher who calls himself a premier out

Thursday, March 19, 2009

Ducks Are People Too

Did anyone else notice that last week, the same day he announced he was freezing the wages of 45,000 workers in New Brunswick and that we have an $800 million deficit - Shawn Graham also created a brand new $1.5 million program for ducks. That's right, the very same day he announced the province is broke he also signed an agreement with Ducks Unlimited to give them $1.5 million - that apparently we don't even have in our bank account - so that they can make better homes for ducks.

What the hell?! I can understand where Shawn used to be the Chairman of Ducks Unlimited NB he feels like he wants to give them something - but does this guy have a single clue about making decisions? Has he looked up the word "timing" in the dictionary?

Not angry yet? Try this on for size - this week we found out that the new program the Liberal Government created to help people afford to heat their homes in the winter HAS RUN OUT OF MONEY. They had to turn away almost 4,000 people who had applied. But guess what - Shawn only put 0.5 million dollars into that program. Yes you can do the math - ducks get 3 times as much money for their homes as people do under the Shawn Graham Liberals. What a bunch of bananas!

Tuesday, March 17, 2009

St. Paddy’s Day Massacre - Brought to you by the Church of Self Sufficiency

The New Brunswick government delivered the budget today.

Massacre may be an understatement.

Here is the rundown:
Runaway Deficits
Hundreds of Civil Servants Fired
Higher Unemployment
Higher Debt

The 3/4 of a billion dollars in overspending is nothing more than Deferred Taxation. We are presently unsure to whom we are deferring it, but some possibilities include our kids, our grandkids, the rich, the poor, the middle class, our neighbours and friends. Pick who you think it will be.

This budget will go down in history as the worst budget this province has ever seen.

Sunday, March 8, 2009

Worst Government Ever? – Part Three

Taxation

This is the third in a three part series, examining whether the government of Shawn Graham can pull off an historic feat, becoming the worst government in New Brunswick history.

Finally, the biggest power of the provincial government is controlling our taxes. As already mentioned, the Graham Gang sent quite a clear signal to the national and international business community in their first budget when they raised business taxes by 500% - many of them just packed up and left. Now the Graham Liberals feel bad however, and they want to give some of that back, as the Premier has suggested that now they believe in lower taxes and as much as $100 million could be returned to us. That's great, except that the original tax hike was more than $135 million, and when you add in the new fee increases worth more than $15 million for driver licenses and marriage certificates, we still seem to be paying more than we were before.

This is a great example of the Shawn Graham "re-back-tracking" on an issue. Because before the election he never talked about raising taxes. Then right after the election they paid someone to do a study that said we could have a major million dollar deficit and that they had to raise taxes to fix the deficit. Only, when the final results came in there was no deficit but a major surplus of more than $200 million. But then they said they were going to keep the taxes high so they can pay for more government services (and pay people more salaries and bonuses). Recently Shawn Graham announced that NB is actually (for real) running a $300 million deficit and worse news ... it's going to be even bigger next year. But now that the deficit is real he also feels it is the right time to lower taxes, and spend an extra billion dollars on capital projects that only provide temporary jobs, which will make the deficit bigger and leave more money for our kids to pay off.

So to summarize: If you have a fake deficit you have to raise taxes. If you have a real surplus - you keep the extra tax money anyway. But if you have a real deficit then that's the time to cut taxes and increase spending. John Maynard Keynes must be rolling in his grave.

To give the government some credit – even a stopped clock is right twice a day - they did decrease the tax on gasoline by a few cents per litre after they got elected. The fact that research done by the Moncton Times & Transcript shows we still seem to be paying the same prices as people in Nova Scotia, despite our lower taxes, probably only means that the oil companies are now using our tax breaks to collect extra profits. But hey, oil companies are people too.

Worst government ever? - You be the judge.

Wednesday, March 4, 2009

Worst Government Ever? – Part Two

The Economy

This is part two of three parts, outlining how the Graham government is in the running (the lead?) to become the worst government in New Brunswick history. A big feat, but definitely attainable if the current direction does not change.

How about supporting New Brunswick businesses and industries like forestry - maybe they are having more success in that department? Try this on for size: within six months of being elected they raised business taxes by 500% and chopped spending on silviculture. Probably it's not a coincidence that within six months after that first budget four major international forestry companies closed their operations in New Brunswick pretty much devastating small communities like Bathurst and Miramichi. And after years of operation our textile mills have recently closed up shop throwing hundreds more out of work.

However, not all is gloomy on the business front. Shortly after the election a prominent Liberal was given a grant to start up a houseboat business. And if you just happened to be the Liberal campaign manager, then your marketing and communications business has received lots of new government contracts. Suppose you're a former Liberal cabinet minister who's into lobbying: you probably spent two years raking in the cash and now you have a top government job in charge of "strategic priorities". Likewise if you own a failed golf course in Moncton with a board of directors stacked with card-carrying Liberals then don't worry, the government will bail you out. And, let's say you own a bar business in partnership with your son the Liberal MLA, and you take the government to court for charging you too much taxes and you win - that could be worth a cool million dollars too.

Of course, the economy is driven by energy and this may well be the saving grace for the Graham Liberals, as a number of private sector companies (who thankfully don't need this government's help) are poised to deliver on some mega-projects such as a new LNG plant and an oil refinery. On the other hand, the energy projects that the Premier and his ministers do have some say over, those being managed through NB Power, have not been as successful. So far the refurbishment at Point Lepreau nuclear is months late and only $100 million over budget. And as for "Lepreau II", well AECL doesn't even have the reactor design approved yet - so don't hold your breath on that one. Did we mention the one New Brunswick company that had a contract to work on the Lepreau refurbishment recently filed for bankruptcy? So much for local benefits.

Worst government ever? - You be the judge.