Despite Greene report warnings, N.L.’s ‘perilous’ tide of red ink continues to swell

The warnings were blunt about the way ahead — and how Newfoundland and Labrador arrived here in the first place.

“We can right the ship, but we have to face facts,” Moya Greene said at a virtual press conference on May 6, 2021.

“We are in a time of unprecedented financial challenge of our own making. And it will get worse. The hole will get deeper.”

Greene — a former CEO of Canada Post and Royal Mail, the British postal service — had been appointed to chair the premier’s economic recovery team eight months earlier.

Her report concluded that Newfoundland and Labrador was in financial trouble, with “unsustainable” borrowing that needed to be urgently addressed.

To illustrate the gravity of the situation, the Greene report chose to zero in on its assessment of the province’s total liabilities and total financial exposure.

Those numbers were grim.

As of March 31, 2020, according to the report, that total number stood at $44.5 billion.

And it was on the rise, with the number reaching $47.3 billion by the time the Greene report was released in the spring of 2021.

That’s the equivalent of $215,000 for every household in the province.

“Right now we’re in a very perilous place,” Greene told reporters at the time.

The report recommended a series of tough measures to get the province back on stable financial footing, sparking intense public debate.

The severity of the situation was punctuated in a televised address by the new premier who had commissioned the work.

“This report should be the loudest bell to be heard throughout Newfoundland and Labrador,” then-premier Andrew Furey said.

“This is the pivotal moment in our collective history. The problem is clearly laid out before us. We are not on a sustainable path.”

But early vows of action do not appear to have altered the province’s fiscal trajectory.

CBC News analyzed the public accounts — the government’s financial statements — over the past five years, mirroring the methodology in the Greene report.

That analysis shows that the initial number of liabilities and exposures flagged by Greene — $44.5 billion in 2020 — has now grown to exceed $53 billion.

That’s an increase of more than $8.5 billion, over a period of just five years.

COVID cash crunch

The beginning of the global COVID-19 health crisis in March 2020 caused a fiscal crisis to brew closer to home.

Then-premier Dwight Ball wrote the prime minister with a plea for help. The province had tried to borrow money — unsuccessfully. 

“We have no other recourse to raise the necessary funds to maintain the operations of government, including our health-care system, especially at this critical time,” Ball noted in that letter.

“Our province has run out of time. Your attention is urgently required.”

The Bank of Canada stepped in to buy provincial bonds, averting the crisis.

But the near-disaster put a new focus on Newfoundland and Labrador’s fiscal footing — and the importance of securing it for the future.

Furey took over from Ball in the summer of 2020, and announced the appointment of Greene soon after.

Trajectory of N.L. debt levels ‘not sustainable’

Today, the province remains on a less-than-firm financial footing.

Trevor Tombe is professor of economics and director of fiscal and economic policy at the University of Calgary’s School of Public Policy.

He told CBC News that his projections match those of the Parliamentary Budget Office — “the trajectory of public debt levels is not sustainable in the long term for Newfoundland and Labrador.”

Tombe said there are two main things within the province’s control to reverse course — ensuring that government revenue keeps pace with the economy, and controlling the growth in health-care spending.

And then, there is Ottawa.

“I think it’s fairly clear that in the long term, Newfoundland and Labrador can’t address its fiscal challenges on its own,” Tombe said.

Ottawa could increase health transfers to provinces with older populations.

And it could review the equalization program, to potentially boost benefits for provinces that depend on resource revenues.

“I think it is due for the federal government to take a hard look at those programs, if only because the demographic pressures are mounting,” Tombe said. 

“They’re not unique to Newfoundland and Labrador.”

So, could there be another crisis moment, like the one during COVID?

Tombe said that may be unlikely — but the risks do continue to increase.

“The province is moving into a lot of the fiscal space that it had to absorb big negative shocks,” he said. “And so it becomes increasingly less prudent over time, even though there’s no fiscal cliff that we suddenly arrive at.”

And while there may be a widespread belief that Ottawa will come to the rescue, that help could come with painful conditions.

“It’s not a rapidly moving issue. And so it’s easy for governments to — in the moment — prioritize other considerations over and above these longer-term ones,” Tombe said.

“The longer that we wait to address it, the more difficult it is going to be.”

Kam Hon Chu is a professor of economics at Memorial University in St. John’s.

He stresses the importance of stronger fiscal governance, to help to get the province’s finances back on track. 

Options include limits on spending, and balanced-budget legislation.

“The government should have clear policy goals,” Chu said in an interview with CBC News.

“The government or politicians, they may have their own self-interest. So their policies may be myopic, short-sighted, that may not be beneficial to society as a whole. So that’s why we may need to have fiscal rules to keep the fiscal house in order.”

He said it’s not just an economic issue, but also a moral one — with the province’s children potentially left paying the price.

“The tax burden will be passed to the future generation.”

Steady stream of spending promises 

For something that may affect future generations, Newfoundland and Labrador’s fiscal situation has not been getting a lot of attention from politicians on the hustings.

Instead, citizens have been bombarded by a conga line of campaign commitments.

The focus has been on big promises, with big price tags.

Liberal Leader John Hogan said at a campaign stop “there will be no cuts to the health budget in Newfoundland and Labrador for any amount of time that I am premier of this province.”

PC Leader Tony Wakeham told reporters that “it is time for a government that will make life more affordable for all of us, and that starts with lower taxes.”

NDP Leader Jim Dinn announced a housing plan with an annual price tag of $150 million.

Hogan cited the pending Churchill Falls agreement as a panacea — the remedy for the province’s financial ailments.

“Any government — if this deal is signed — if any government runs a deficit in the future, they’re not doing a good job as government,” he said.

Wakeham, meanwhile, told reporters: “I’m focused on making sure people can balance their budgets. Then I’ll focus on balancing ours.” 

Deficit on the rise this year

What is clear is that this year’s budget is not balanced — nowhere near it.

The initial deficit estimate for 2025-26 was $372 million.

By the summer, just months after the budget was tabled, plunging oil prices had pushed that projection up to $626 million.

And Finance Minister Siobhan Coady warned that pressures related to wildfires and health spending could drive expenses up further.

On top of that, the province has booked hundreds of millions of revenue this year from a tobacco settlement that is expected to flow over decades.

While that accounting approach was rejected in last year’s financial statements, the government is pressing ahead with it anyway.

Cutting the tobacco cash out of the picture altogether could drive this year’s deficit number even higher — up over $1 billion.

In the two years after the Greene Report, there were signs of progress, with numbers coming in better than expected.

A projected deficit even turned into an unexpected surplus, thanks to reassessments of tax revenues from previous years.

But after that, a shift.

In 2023, a deficit three times higher than forecast. Last year, the deficit came in at nearly double initial expectations.

Now, that fiscal deterioration is continuing, with this year’s projected deficit on track to be the worst since the first year of the pandemic.

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