Report urges Newfoundland and Labrador to hike taxes, curb public spending to avoid bankruptcy

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A major report intended to guide Newfoundland and Labrador out of its fiscal crisis is recommending steep cuts to government spending, increasing taxes and privatizing public assets – remedies for a province the report says has been living beyond its means for more than a decade.

Moya Greene, chairperson of the Premier’s Economic Recovery Team, said “The Big Reset” plan needs drastic, sweeping changes to government culture if Newfoundland is to avoid bankruptcy. With more than $47-billion in net debt, the province of 520,000 would have already fallen off that cliff if it weren’t for federal intervention because of the COVID-19 pandemic, she said.

The plan would return the province – with the oldest population, highest unemployment, highest per capita expenditures, deficit and net debt in Canada – to a surplus by 2025-26.

Ms. Greene, a St. John’s-born businesswoman known for privatizing Britain’s mail service, argues that the fiscal transformation must come from within, and not in the form of a bailout from Ottawa.

“This is the time to show the rest of Canada and the world the strength, resilience and tenacity of the province. A federal bailout is not the answer. A bailout, and all that it implies, will have a negative long-term impact,” the report says.

Included in the six-year plan is a proposal to dramatically reign in public-sector spending, re-evaluate contracts with public-sector unions and dismantle the provincial energy corporation. Newfoundland’s fiscal problems are self-inflicted, and predate the pandemic and soaring costs of the Muskrat Falls hydroelectric project, she said.

“Our predicament is the result of years of overspending,” Ms. Greene said.

The report proposes a 25-per-cent cut to the province’s health authorities that run hospitals and clinics and a 30-per-cent cut in operating grants to Newfoundland’s two publicly funded postsecondary institutions.

Ms. Greene suggests the province should consider selling the Newfoundland and Labrador Liquor Corporation, Marble Mountain ski resort and the equity stake in the Hebron offshore oil field.

The report also calls for a 1-per-cent increase in income taxes, higher corporate taxes and new property taxes on people who have second homes in the province.

“You’ve got to ask the wealthy to contribute more. It can’t just be on the incomes of the middle classes,” she said.

The report recommends new legislation that would make meeting budgets mandatory for all departments, public institutions, agencies, boards and commissions, and improved financial reporting within government. Too often, Ms. Greene said, senior bureaucrats seemed unconcerned about the consequences of overspending, or whether government services were worth the money.

“We should have had, across the board, a better understanding that you can’t be indifferent to deficits,” she said. “There are ordinary principles of management that we think have not been respected.”

Government spending grew from $4.97-billion in 2004-05 to $8.97-billion in 2020-21, an 80-per-cent increase. The province has been spending on average 25 per cent more money than it brings in every year from all revenue sources, Ms. Greene said.

Newfoundland also spends more per capita on health care than any other province in Canada, yet it has some of the worst health outcomes. Ms. Greene’s report suggests there’s significant duplication within the province’s heath care authorities, and said there’s a lot of work currently done by doctors that could be done by nurses or nurse practitioners.

Critics of the plan were quick to say that some of the cuts proposed seem arbitrary, and were removed from the challenges of delivering services across an aging, sparsely populated Newfoundland.

“She seems to have assumed our higher health care spending has nothing to do with our demographic realities – even now we have, arguably, the worst health care system in the country,” said Russell Williams, a professor of public policy at Memorial University. “I don’t share her faith that cutting 25 per cent is just going to magically make it better.”

The report says Newfoundland should create a “Future Fund,” saving half of oil and gas revenues to pay down debt and a transition to a green economy. Ms. Greene frequently mentioned the potential to develop the Churchill River in Labrador into new hydroelectric dam projects.

She and her team are also proposing to abolish Nalcor Energy, the heavily indebted provincial energy corporation that she says adds $1.5-billion a year to Newfoundland’s 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.”

If the province doesn’t address its daunting financial problems, Ms. Greene says she’s worried that Newfoundlanders will “find it’s better to move away and raise their families in other parts of the country as generations have done before them.”

Her report suggests that 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 hydro project in Labrador. Its ballooning cost – now at $13.1-billion – threatens to double electricity bills in the province.

Newfoundland says it will hold virtual town halls in the coming weeks with communities around the province to consult on some of the changes recommended in the report.

“We have great opportunities in front of us as we modernize and transition to build a bright, stable future for generations to come,” said Premier Andrew Furey, who was accused by opposition politicians of delaying the release of the report until after the recent election.

Siobhan Coady, Minister of Finance and President of Treasury Board, said it’s just a starting point in the major shift the province needs to turn around its serious fiscal problems.

“This is the start of an important conversation on the future of Newfoundland and Labrador, as we all look to transform our province, to improve our way of life, and to leave behind financial concerns,” she said.

With a report from The Canadian Press

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