Federal transfer payments to NB: Declining influence

Shawn Graham was in the news last week waxing about a variety of subjects but silent on maybe the most prescient aspect of the self-sufficiency agenda – the need to wean the province off its relatively high dependency on federal transfers.

Turns out Stephen Harper has the same vision for New Brunswick.  Between the 2005-2006 budget years per capita federal transfers to NB as a percentage of per capita program spending dropped from 37.2% to 32.8% in 2013-2014.  To put that in perspective if NB was still receiving 37.2% of its revenue needs from the feds – it would almost wipe out the current year deficit.

Between the 2009-2010 ad 2014-2015 fiscal years per capita federal transfers to all provinces rose by 17%.  To NB they rose by 4% – or an amount well below the rate of inflation.  As shown in the chart, Alberta and Ontario have run away with the lion’s share of increases.  Ontario is up nearly $5 billion and Alberta is up over $2 billion.

We have talked about the reasons for this before. The two big issues have been Ontario falling into the need for Equalization and the per capita funding formulas themselves which heavily favour Alberta, SK, etc. which are rapidly growing.

The bottom line is that Graham was right to worry about dependency on federal transfers.  He had an ally in Ottawa.  The big difference, of course, was that Graham wanted to reduce dependency as a consequence of economic growth.


Percentage change in per capita federal support 2009-2010 to 2014-2015



Source: http://www.fin.gc.ca/fedprov/mtp-eng.asp. Includes Equalization CHT and CST.


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Alberta and income inequality: A second look

This is, of course, a no-win blog post.  Anything even remotely related to attempting to justify income inequality is like a red flag to the bulls of Pamplona.

But…  just because I love taking a punch.

This is in response to new data suggesting that Alberta has become a place where the top income earners are hoarding all the income.

In many ways the Soviet Union was the most equal society in history.  You had a tiny cohort at the top and everyone else scraping around at the bottom.  But they were equal at the bottom. I realize that is a cliche but it remains mostly true.

Guess which province has the lowest percentage of taxfilers reporting income under $15,000 per year?  Alberta.

Guess which province has the lowest percentage of taxfilers reporting income under $50,000 per year?  Alberta.

Guess which province has the lowest personal tax burden? Alberta.

Of course if you live in the big city you will have to allocate more to housing and I am not suggesting for a moment there are no ‘poor’ folks in Alberta.

Guess which province spends nearly $11,000 per capita on provincial government services? Well, lots. But Alberta is one of them although it is projected to drop somewhat in the coming years.  On a per capita basis in 2013-2014 Alberta will spend more on provincial government services than BC, Ontario, Quebec, NB, NS and PEI.

I guess my point is that it is true that in a Piketty sense the owners of capital and highly specialized skills do better in a boom economy (SK is facing similar issues) but if the rest of people on the income spectrum are doing better their their peers in the rest of Canada (higher incomes/lower taxes) and the government is spending as much or more on public services – it becomes pretty hard to argue we moved back to feudal England or Russia.

Percentage of taxfilers reporting income less than $15,000 per year and $50,000 per year

For 2012. Source: Statistics Canada CANSIM Table 111-0008.


PS – guess which province is most ‘equal’ as measured by the lowest percentage of folks earning over over $50k per year?  PEI with NB as a close second.  If you look at the percentage at the top of the income scale $250k or higher, same thing. PEI and NB.  New Brunswick has 28 people earning $250k out of every 10,000 taxfilers (0.28%) compared to 151 per 1,000 in Alberta (5.4 times as many).

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The ‘real’ real unemployment rate in New Brunswick

There was a good article in the TJ over the weekend about the ‘real’ unemployment rate in New Brunswick.  UNB economist Constantine Passaris postulates the real unemployment rate is much higher than 9.3 percent because people are responding to the Stats Can Labour Market Survey by saying the are not looking for work because in many small communities there are no jobs to look for.  That puts them out of the labour market altogether and drives down the unemployment rate.

It is a fair point.  A person that lives in a small town that doesn’t have many jobs may want to work but may not be looking (in the Stats Can definition of that term) and therefore be excluded from the formal data.

The broader point that neither expert addressed however was the ‘real’ real unemployment rate.

I estimate that somewhere around 35,000 to 40,000 New Brunswickers collect EI at some point every year.  They work a certain number of weeks and then ‘quit’ or are ‘laid off’ and start collecting EI. Again, by definition, these people must be ‘looking for work’ in the Statistics Canada definition of that term and therefore must be included in the formal unemployment statistics.

But are they really available for work?  By all technical definitions – Stats Can and Employment and Social Development Canada – they must be ready and willing to take work – and some do.  But a large number do not.

The other issue relates to the skills and mobility of the unemployed.  If a call centre in Moncton is hiring, it is realistic to think a former mill worker in northern NB will be a candidate for that job?

What is the ‘real’ real unemployment rate?  The formal data is therefore a very crude metric to assess the state of the labour market.  But it is used by the feds for example to establish various policies from EI eligibility to TFW programming.

The ‘real’ real unemployment rate should be measured by the ability of firms to find workers.  In a ‘high’ unemployment area it should be easy to find workers (think Moncton circa 1992 when firms would get 200 qualified applicants for each available job – this was almost completely independent of the headline unemployment rate).

If you go around New Brunswick and talk with business people you will find them saying it is getting harder and harder to find workers – in low, semi- and high skilled occupations.

That is the best indication of the ‘real’ real unemployment rate.

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It’s time to have a conversation about tourism development

The new Minister for tourism, Bill Fraser, has a good commentary in the TJ today talking about how the new government is “ready to invest in tourism”.

It’s  nice to see they are now using the right return on the taxpayer investment language.  They used to talk about how the millions of government spending on tourism would generate new ‘revenue’ for the tourism industry and come up with some multiple.  That is the wrong numerator.  If the denominator is the tax dollars invested in tourism marketing, the numerator is incremental tax dollars generated as a result of that marketing – not general revenue to the industry.

But the main issue remains.  As I wrote about a few weeks ago, tourism industry revenue has been flat for years.  Despite a massively ambitious new tourism strategy in 2010 that was focused entirely on growing revenue, industry revenue declined (based on the most recent data we have access to).

I think we need to have an honest conversation about the tourism industry and its ‘growth’ potential given the local,  national and international context.

Again, I like tourism.  What I don’t like is our tendency to talk loosely about ‘growth’ potential without any serious analysis.  It would be okay for me if the tourism folks said “we don’t expect much growth in the coming years because of conditions x and y but we still see value in investing $13 million in tourism marketing to keep the industry from declining further”.

It just raises even more cynicism when you throw out all those rosy growth forecasts and it doesn’t happen.

In addition, an honest appraisal of the situation may lead to changes in approach.  Maybe we need to link tourism more closely to immigration.  Maybe we need to spend more time trying to attract tourism-related infrastructure investment rather than on marketing what we currently have.

Every time I work with local communities on economic development strategies I ask the question “who is out promoting the community for tourism infrastructure investment?” – new hotels, new tourism attractions, etc.  The answer is always no one.

In a business setting if the product isn’t selling, maybe you need to work on the product. I think it is a good idea to blend different tourism assets and experiences into themes but maybe we could use a few new tourism assets.

Anyway, I wish the new Minister well.

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Boosting population: Echos of the self-sufficiency agenda

According to the latest Labour Force Survey there were 487,500 people in New Brunswick aged 15-64 – the population that feeds the labour market.   Here is a question for you.  What do you think the population in this age group was back in October 1990?


Twenty-four years later and the population in New Brunswick between the age of 15-64 had declined marginally.

Across Canada?

The population in this age group is up by 5.4 million.

If New Brunswick had seen its population in this age group grow by just the national rate of growth over this period, there would be 143,000 more people in New Brunswick. With an employment rate of around 65% in this age group that would mean 93,000 more people working in New Brunswick.

At an average level of income, that would translate into roughly $4.2 billion worth of incremental labour income.

Which would result in roughly $6 billion worth of increased GDP.

Which would mean just about $1 billion in tax revenue for the provincial government.

Would we be having the demography, economy, fiscal health – etc. debate right now?



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Addressing NB’s economic challenges: The right messages to the right audiences

The best of the media tweeters, Jacques Poitras, recently tweeted comments of the new NB LG.  poitras

This is a good time to restate my view about targeting the right messages to the right audiences.  Because some people will read the LG’s comments and say she is absolutely right.  We need to stop talking about our challenges and focus on the positives.

But for me this would be a mistake.  In fact, I believe the vast majority of New Brunswickers including those in power don’t realize the pickle we are in right now with respect to our economy and demographic situation.  They hear it but have become immune.

Because I swim in all the data I guess it is easy for me to put on the prophet of doom cloak but the opposite effect – Pollyanna – doesn’t solve anything either.

So our core message should be one of potential and opportunity just as stated in Poitras’ tweet above (realizing this is true but only up to a point).  But we still have to talk about the uncomfortable subjects too.  Denying them or dismissing folks who talk about them as too negative isn’t the right approach.

We do face variants on two futures: One version of NB’s future is one of population growth, economic vibrancy and fiscal sustainability.  Where creative people and entrepreneurs thrive.  But the other version – stagnant economy, youth out-migration, fiscal weakness is the one we are trending towards right now.


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What do shale gas and blueberries have in common?

The Province of New Brunswick covers a land area of 71,377.18 square kilometres.  That works out to 17.63 million acres.  Each shale gas well takes up between one and three acres.  Using the high number of acres and assuming a high number of wells drilled on the high side that would result in something like 30,000 acres over a 30-year period

This would result in a total land area allocated to oil and gas development of 0.17 percent.  That is less than one fifth of one percent or about the same as is currently used for blueberries.

The legislation forces gas development firms to re-mediate the land back to its pre-well state so even if the industry continued beyond 30 years it is hard to see how it could ever consume more than a fraction of one percent of New Brunswick’s total land mass.

I raise this point only because a friend of mine used a variant of the term “industrial wasteland” again when discussing the shale gas industry.  I’m all for a vigorous debate about shale gas but as the old saying goes “you are entitled to your own opinions but not your own facts”.

If New Brunswick gets around to developing its natural gas reserves it will create more industrial activity.  There will be more trucks on the road, more burly men in the woods and, yes, more people in Emergency Rooms with fractures and other maladies.

But there is no evidence vast swathes of the province will be turned into an industrial wasteland.

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Ten-year NB employment growth by sector. You might be surprised….

It is interesting to look at the employment trend by sector in New Brunswick over the past decade as it does put things into perspective.  On a seasonally adjusted basis, in September 2004 New Brunswick had 352,600 people working.  In September 2014, there were an estimated 354,100 working – or a difference of +0.4 percent (rounded down in the table).  Nationally, the economy added 1.95 million jobs over the 10-year period.

The table below shows the sectors that added and those that lost employment over the period.  This is from the LFS so the aggregation is quite high but it does provide a high level snapshot of what has been going on.  NB’s agriculture sector is quite small relative to the country as a whole – still it has shed 46% of total employment over a decade – or about 3,200 workers. Manufacturing has dropped about 30% of its workforce.

I have been warning about transportation and distribution for years but I can’t seem to get any kind of good answer as to why this sector has shed nearly 5,000 jobs over the decade. The big jump in public administration employment is strange.  Maybe some kind of anomaly in the data as it is showing 3,500 more workers in Sept 2014 than just one year ago back in Sept 2013.  September 2009 was actually the high watermark for Septembers – there were an estimated 27,200 workers in public admin in that month – just slightly below the 27,000 in Sept. 2014.

Look at health care and education employment.  Those two sectors combined across Canada have accounted for 776,000 new jobs.  In New Brunswick, 4,300 net new jobs (0.55% of the national total).  Now, these sectors tend to track overall population growth (which is virtually zero in NB and robust across Canada) but it is a reminder that so much of the service sector (and construction) is reactive to overall population growth.

Other than public admin, NB saw employment growth in the utilities sector rise faster than the country as a whole as well as the info, culture and recreation sector.

Percentage change in employment (September 2004-September 2014)
Seasonally adjustedemp

Source: Statistics Canada CANSIM Table 282-0088.

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NB and NS: We’re all in this together (employment stagnation)

The teeny bopper movie that was so popular a few years ago called High School Musical featured a catchy song called “We’re all in this together”.  This could be the theme song for New Brunswick and Nova Scotia.  The chart below shows employment growth in the two provinces from September 2005 to September 2014 (on a seasonally adjusted basis).  I show it as an index but it really means Alberta’s employment has grown by 25% and Nova Scotia by 2%.  An index allows me to display my economic bona fides.

The two provinces have witnessed virtually no employment growth over the nine year period. Note that PEI has started to pull away from NS and NB.  The Island is by no means booming but a strong focus on immigration and the growth of a few key sectors such as biosciences is showing up in the numbers.



The interesting thing to me is that this doesn’t seem to bother a lot of folks and, in fact, I get emails suggested we should “get used to it” and it is the “new normal” and even “it’s a good thing”.

Maybe.  I don’t claim to have all the answers but I see a long, difficult period ahead for this province if we don’t get population and employment growth back to at least a moderate growth position.


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What the Mactaquac Dam says (or doesn’t say) about our view of the future

If you read the history of New Brunswick’s big electricity generation projects you will find they were meant to facilitate economic growth.  Going back to the 1920s, the main rationale given for big public investment in power projects was to facilitate economic development – heavily related to forestry but also mining and urban growth.

The same applies to the Mactaquac dam.  It was a key reason why the Nackawic Pulp Mill was built in 1970.

That was then.  This is now.

Most of the discussion now is about how we won`t have any need for Mactaquac power in the future.

Whereas throughout the 1900s the rise in power generation was a driver of economic growth in the 2000s the closure of generation plants and the decline in power will come as  a reaction to decline.

Now of course no narrative is ever so neat and tidy.  We now focus more on energy efficiency.  We want to reduce our energy footprint per dollar of GDP.  We want the energy we produce to be cleaner and less hard on the environment.  Maybe we will move more towards distributed generation.  Who knows?

For some the Mactaquac dam is an ideal source of power because of no carbon emission and the huge disruption that comes from the initial development of hydro power is done.  A new ecosystem has developed that would be disrupted again if we tried to remediate the Mactaquac dam back to 1960.

But I still can`t avoid that nagging feeling that this is just part of the NB decline narrative.  Like the folks in the Department of Finance warning universities and colleges they will need to downsize their expectations.  Or the whole narrative about austerity.  It`s a culture of decline.

Yet few have thought through how continuing decline will fully impact our province.

Those who like the idea of a slow paced, retirement-focused New Brunswick where Sunday afternoon drives through the rolling hills are the week`s highlight haven`t thought through the sustainability of that vision.

I have never argued for massive growth but if we get to the point where decline is acceptable then we have to think about the implications and what we are prepared to sacrifice to support that decline.


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