"NL is racking up debt provincially and personally - these experts have a way out"

CBC Article featuring Larry Short; published May 13th, 2019

People in Newfoundland and Labrador are spending money they don't have on two fronts, with the provincial and personal debt to prove it.

As taxpayers, the province's debt is more than $13 billion. "It's the worst [per capita] in the country, it continues to be a problem and it's something that hasn't been addressed by any of the provincial parties in this election," said chartered professional accountant Larry Short.

"Primarily what we're hearing about is spending, and not programs to actually conquer the biggest single problem we have."

That debt exists because the government borrows money to pay its bills — to make up the difference between what it spends, and what it brings in.

There's lots we could be spending money on besides interest.- Larry Short

Overspending is a problem for individuals as well. Al Antle says last year almost 18 per cent more people went to his team at Credit Counselling Services of N.L. for help with their finances than the year before.

That help is generally reorganizing finances, cutting down spending or consolidating debt. But these people are "significantly worse off" than those Antle traditionally sees. "People who are coming in our door now are far beyond our assistance," he said.

Debt piling up like dirt at a work site

Neither provincial nor personal debt accumulated overnight. Short said the provincial government reduced its debt from 2008 to 2010, during the oil boom. That started reversing in 2011, as government spent more than the $8 billion coming in.

When the price of oil dropped significantly in 2012 the debt really took off, he said.

At nearly $1.3 billion a year, the province spends more on interest than it expects to earn in offshore oil royalties.

"There's lots we could be spending money on besides interest," said Short, warning that a drop in the price of oil would mean less money coming in.

"That will push that debt expense even higher."

The solution, to Short, is for the government to cut spending and follow success stories from elsewhere — like Ireland and Saskatchewan.

Short says this graph highlights where Saskatchewan's debt sits now, after it was in a similar situation Newfoundland and Labrador is in today. (Submitted/Larry Short)

In the early 1990s, Saskatchewan "basically closed their eyes and said, 'We hope that things will work out in the future,'" said Short.

When that didn't happen, the prairie province could no longer borrow money. A harsh budget closing 52 hospitals was part of how it recovered.

"If we plan ahead of time, we don't necessarily have to go through such extreme harshness. But there's no plan to actually address the debt," he said.  

Watch for red flags

Al Antle said planning, controlling spending and getting help are key for people dealing with significant personal debt as well. Those they see with the biggest problems are generally earning about $60,000 a year.  "These are also the people who are paying the taxes," spending the money they earn, Antle said. It appears they've been spending that money in credit … but that's what keeps the economy rockin'."  Antle said those people don't notice their overspending right away, by making minimum payments and borrowing more for years.

"It's only when that $2,500 becomes $25,000 and you discover that you have no more capacity to borrow, your needs haven't changed. You still need to pay for the kids' hockey lessons, you still need to get gas for the car, you still need shoes for the kids," he said. "But suddenly the ability to get it has run out.

It's not a cost of living issue either, according to Antle, "the common thread with the group we're seeing is a [consumer] debt load in excess of $30,000."

He said it's usually a credit card or two, a loan with a finance company "and more usually than not, some sort of consolidation loan — so they've done this before." The longtime credit counsellor said if your debt is higher this month than last, it's a red flag. "If it's higher last month than it was the month before, the flag is even redder," he added. "Reach out sooner rather than later."

Please view the full article here.

Reported and written by Megan McCabe.  McCabe is a journalist who works with CBC News in St. John's.

This information was prepared solely by Larry Short who is a registered representative of HollisWealth®, a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).The views and opinions, including any recommendations, expressed are those of Larry Short alone and not those of HollisWealth®

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In Short: Secrets to Make Your Dollars Grow

HollisWealth® is a division of Industrial Alliance Securities Inc. (iA Securities), a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trade name and business name under which Industrial Alliance Securities Inc. operates. This information has been prepared by Larry Short, Portfolio Manager for HollisWealth®, a division of iA Securities, and does not necessarily reflect the opinion of iA Securities. The information contained in this document comes from sources we believe to be reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces where he is registered. For more information about HollisWealth®, please consult the official website at www.holliswealth.com . ShortFinancial is a personal trade name of Larry Short.

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