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Still, Marshall acknowledged the big increases have to stop. The growth rate is down to two per cent this year, compared to a staggering recent annual spike of 9.8 per cent in program spending. “Now it’s the time to get back to fiscal prudence, and to continue to start to chip away at the debt.”
Complicating matters for Marshall is the inherent volatility of resource revenues. One in every three dollars the Newfoundland and Labrador government receives comes via oil royalties. Those royalties are contingent on three key factors: production levels (which are declining); the price of oil (which is unpredictable, but again approaching the stratosphere); and the strength of the dollar (the loonie’s resurgence has taken a bite out of profits). “It’s extremely difficult to budget,” Marshall said.
And the one-time nature of the province’s oil and mineral wealth means the government has a window of opportunity to get its house in order, Marshall said. “The fundamental issue is that we know it’s going to be gone. We suck (the oil) out of the ground, we suck the minerals out of the ground. It’s going to be gone. And it would be a travesty to turn the place over to future generations, and say, ‘By the way, the oil is all gone, the minerals are gone, and our debt is still high.'”
The government plans to parlay those non-renewable resource revenues into renewable energy streams. It has pinned its hopes on the $6.2-billion Muskrat Falls hydro project in Labrador, and the subsequent potential development of nearby Gull Island, which is nearly triple the size of Muskrat.
Marshall does not see any contradiction in pledging to pay down the debt while taking on billions more in liabilities to build hydro capacity. “(There’s) good debt and bad debt,” he said. “Bad debt is when you borrow to go to Florida. Bad debt is when you bought an asset that went down in value instead of going up in value. Good debt is when you bought an asset that kicked off cash, that paid off the interest and principal of your debt, and grew. And that’s what hydro does. Hydro assets will generate the revenue, pay off the debt, provide us with more money that will allow us to lower hydro costs even further, or to build hospitals, or to do other projects — whatever the government of the day decides. And that’s the difference; that’s a true investment.”
According to APEC, it’s just one of the projects that will see billions spent on major developments in the province over the coming years.
“We’re doing great — Newfoundland and Labrador, the poor cousin of Confederation,” Marshall said. “It’s amazing.”
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