Just when I think I’ve heard it all. It’s hard to imagine a stranger scenario than the present storyline. NB Power was originally being sold to pay down its $4.75 billion debt, but now the sale will be for $3.2 billion. At the same time, Premier Shawn Graham has been running provincial budget deficits consistently and intends to do so until 2014 for a grand total of $3.8 billion. These figures can be found in the public accounts 2009 and the budget speech 2010 on the government’s website.
So, it’s pay down debt and then incur larger debt? What doesn’t make sense here? What most people may not understand is that replacing a funded debt with an unfunded debt is a small distinction that will cost them dearly.
Higher debt means higher taxes at some point. Paying for the new $3.8 billion debt will take about $300 million in additional revenue or service cuts by 2014. That could mean a tax increase of $400 for every resident of New Brunswick or, for a family of 2.2 persons, $880 per year.
Now, are the savings from foregone power rate increases significant enough to counteract the new provincial debt being incurred? Well, the full debt arranged by Premier Graham and the full savings implied by the sale won’t be in place until 2014, so let’s examine at that date. Energy savings for the typical household are 15.92 per cent in year five, or $473, but the additional tax burden for the average family of 2.2 people is $880. So, the net effect of government policy will be an increased tax burden of approximately $407 a year. Not so good an idea. The effect on apartment dwellers is worse, as their energy savings are minimal.
Perhaps you think that large industry, the big winner in the 2010 rate sweepstakes, might contribute towards these taxes. Based on historical precedents, we probably won’t see them at the front of the line to pay any portion.
A previous column mentioned another inconvenient fact – lost revenue streams that could reach as high as $200 million dollars per year would erase the value of this deal, such as NB Power’s “in lieu of taxes” disappearing, reduced jobs at NB Power and related tax revenue. Expressed as dollars per year, that’s another $266 per person ($585 per family).
Politics is the fine art of kicking a problem down the road to the next guy. It is also the art of misdirecting the audience. Lower energy rates here, and nobody notices the higher taxes there.
We have a bad habit of giving a leader two terms. The present occupant plans to get finances under control by 2014, when his second four-year term ends. Any new premier will inherit a fiscal mess to deal with either in 2010 or 2014.
A recent Telegraph-Journal commentary by Toby Couture made an important distinction between energy politics and the larger framework of energy policy. Lacking a rational energy policy, we might be tempted to embrace this deal, and there are indeed attractive elements. However, the numbers don’t support the framing of this deal as a “money saving” experience for residential and commercial customers.
What will likely happen is that the loss of revenue streams will negate the benefits, at least for residential customers. And quite co-incidentally, the premier’s lack of fiscal control will increase net costs to New Brunswickers for taxes and electric energy.
The idea of lowering the cost of energy is fundamentally flawed. Conservation and innovation happens with higher energy prices, and waste occurs with low prices. By choosing this approach, we ignore reducing energy usage for homes, make renewable energy policy next to impossible, and we risk losing control of our energy costs in the long term.
There’s a real alternative out there, and perhaps we can save the best aspect of Shawn’s initiative. More to come..