Justifying economic development

Yesterday, in the House of Commons, Jack Layton gave everyone a quick laugh when he demanded that Stephen Harper stop the hundreds of millions of dollars in tax breaks for big oil and big ‘ass’.

As we have debated on these pages, not many Albertans know that they are among the largest providers of ‘corporate welfare’ of any province in Canada. Remember the indignant Calgarian who was so offended that RIM got a $10 million payroll rebate (which only kicks in after the company has made the investment and spent the labour cost) while at the very same moment large energy companies are getting $100s of millions in corporate tax rebates (which kick in after the company has made the investment) to develop the energy sector in Alberta.

But not to pick on Albertans and their blissful self image as Canada’s hotbed for the free market, my point here is related to justification.

It is a subject I write on periodically but one that is worth embedding in our collective thinking on this (whether we agree or not). Ultimately, any investment in economic development should be justifiable. Or what’s the point?

After Lord started systematically dismantling economic development in New Brunswick, I said he should have the guts to just disband the BNB department. What’s the point of spending $40 million a year and getting almost nothing in return?

Now, my BNB friends are going to be perturbed at my statement but I think it’s worth saying.

When governments look at the economic development department (BNB) as ‘just another spending line’ they are dead wrong.

Supply and services is a spending line. Health care is a spending line. Economic development must be an investment.

Forget the ‘KRAs’ (key results areas) and all the management processes. BNB over a 3-5 year cycle should be able to show substantial ROI on taxpayer dollars or it should be disbanded. Keeping a token economic development department “just because” is a waste of valuable tax payer dollars.

How do we measure ROI on economic development? For me it has to be direct and broadbased. Not broadbased as in BNB taking credit for the oil exports from the Saint John Refinery but broadbased as it summing up everything the department did, looking at the direct new taxes generated from that activity and measuring that against the cost.

So if BNB spends $40 million per year or $200 million over five years, the incremental taxes generated directly from their activities should well exceed $200 million. In fact, if Premier Graham is ever to meet his goals, it should be $600 million or more.

And don’t give me this crap about ‘jobs retained’. I like rentention. I think it’s a key area of economic development. But economic development agencies now use this as a neat little crutch. They give a company $10 bucks and then say they ‘retained’ 500 jobs.

For me the measurement must be new, incremental growth and to ensure it’s tied to a true ROI it has to be based on incremental taxes paid. This would put a further onus on BNB to attract higher quality jobs and companies that will actually pay taxes in the province.

Back to Alberta.

Not one Albertan complains about the tax breaks to oil companies. Okay, I take that back. There are a few. But the point is that Albertans (the ones that actually know about the tax breaks) draw a straight line between these types of tax breaks and the massive economic growth in the province.

Do New Brunswickers draw a straight line between the activities of BNB and the economic growth in New Brunswick?

Or do New Brunswickers draw a straight line between the activities of BNB and the fact that the economy is tanking?

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to Justifying economic development

  1. Anonymous says:

    Two excellent points that should be BRANDED in every New Brunswickers brain. If Ontario, Quebec and Alberta can get ‘kickbacks’, then quid pro quo. Those are, after all, New Brunswick taxes that helped pay off the Mad Cow industry when they came crying to the feds. They were NB tax dollars that got plugged into the BC, Ontario and Quebec forestry industry to just keep them afloat when the US slapped a duty down (anybody notice two trends here….like maybe beware the US in trade deals)

    However, the ROI is a big deal and if we had a functioning media it would be talked about all the time. The ROI can easily measured by how many have decent jobs. Yet once companies set up you never hear how much money goes to them each and every year. Many companies wouldn’t exist without government contracts, there’s nothing wrong with that so long as checks and balances are imposed. Like I said before, I knew a furnace dealer who had eight empoyess and connections who went sucking for money and right after bought two dodge vipers and a boat and laid a guy off.

    But I certainly don’t agree that supply and services and health care aren’t investments every bit as much as economic development-in fact health care is even more so.

  2. David Campbell says:

    You are correct in that most government spending could be considered ‘investments’. Why I differentiate the two is simple. Economic development spending should lead to direct economic benefit (i.e. invest now to get a direct financial return on that investment). Expenditures in health care are needed but they do not lead to direct financial benefit (expect of course the direct benefits from the spending itself). However, if we do not invest in health care, it will have ripple effects through the province. So, in that sense, you are correct, sir/madam.