Look at the broader picture

David Murrell from UNB is weighing in on the Equalization question. He’s reasonably sensible on the issue – contrasting himself from AIMS.

I have a slightly different view. On the revenue side, instead of focusing on Equalization my focus is on “own-source” revenue. Because as Murrell points out equalization as a percentage of the budget is actually down slightly from 1981 while being up a billion dollars per year overall. However, Murrell forgets to mention that other transfers are up significantly as well.

Now you will say that all provinces get these other transfers as well (like the health dollars) but there is increasing pressure from Ontario to get this normalized as well (NB gets more per capita than Ontario). So you are seeing more pressure to cut both equalization and other transfer programs. Ultimately the only way to mitigate this is to have a larger percentage of your budget coming from own source revenues. Then your economic fortune is not tied to the vagaries of federal politics and the crankiness of Ontario politicians.

And the other huge thing that neither Murrell nor AIMS even touch on and it is huge is what I call the ‘economic development’ spending of the Feds. This includes R&D, Industry Canada, DFAIT, etc. It seems to me that for just about every federal government funding program focused on economic development, Ontario gets a higher percentage of the funds and for every program focused on propping up economies, New Brunswick gets a higher percentage of the funds (Equalization, EI, CHST, etc.).

I have pointed it out before. Canada’s embassies and consulates are essentially the sales arm of southern Ontario. The Greater Toronto Marketing Alliance one year got 37% of its investment leads from the international offices of the government of Canada. Ask BNB how many leads they get from the Government of Canada.

Check out – even on a per capita basis – how much money the Feds put into research in Ontario. You would be – should be- shocked. R&D is critical to economic development.

Then have yourself a long look at all of Industry Canada’s largest funding programs – TPC comes to mind and see how much of that money went to southern Ontario (including Ottawa of course). Then have a look at ACOA and find out that the maximum ACOA can give in funding to a company is $500,000 (Ithink they can go up to $1m with the Minister’s approval) of repayable loans. Guess what the upper limit is on Industry Canada funding to the auto or aerospace industry in Ontario/Quebec is? I have no idea but they have given out $200 million to a single company.

When was the last time the feds (or the provincial government) ever partnered on a $500 million or a $1billion dollar busines investment project (other than the potash mine which was not the same thing)? Never. Not that I can remember.

That’s the problem. Not equalization or any of these other distractions. The problem is that New Brunswick is not generating enough private sector business investment – this is a chronic problem – and it has left us chronically underperforming and relying more and more on federal government transfers.

And when we get the big investments (like potash or LNG), they have very little economic benefit beyond the construction phase so we get into boom/bust cycles. We need long term, large scale business investments that anchor the economy for at least a generation.

That’s the nub of it for me.

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0 Responses to Look at the broader picture

  1. richard says:

    In some federal departments, regional research centres have had their autonomy reduced to the point where there is little incentive to work with SMEs. AAFC for example has centralized research program decision-making in Ottawa, making it difficult for researchers to contract with small technology outfits.

    This affects other regions of the country besides NB; however, as we are already worse off, local R&D efforts are being even further hamstrung. As I've said before, NB needs an R&D plan, one that is transparent, demands more from our universities, and integrates federal and university R&D insitutions. We need to have a framework that can then be used to demand federal funds.

    You noted that ON gets a big piece of the R&D pie. Its also worth noting that, not only does R&D lead to technologies that create growth, but R&D jobs themselves tend to be relatively high-paying. Another reason ON wants all the R&D it can get.

  2. mikel says:

    An excellent post. One addition is something else frequently mentioned here, which is that the GDP is ‘artificially’ inflated because most NB exports are actually from the Irving refinery.

    And those are a LOT of exports, mainly trucked out. So that doesn’t really compare with the economic effect, for example, of Vermont’s mid sized manufacturing exports. To add up to a similar number in the export column, you’d have a FAR bigger impact on the economy (Vermonts manufacturing may not have as big an effect on the books as a refinery, but it has a bigger impact on the local and state economy).

    So while equalization as a percentage of GDP has lowered, thats mostly because of the impact of the Irving refinery. The ‘number’ is there, but one giant refinery with few employees which pays relatively little tax, can’t really be compared with other jurisdictions.

    As mentioned here before, take out the refinery, and the province’s GDP looks like a very poor record, which means equalization MAY in fact be growing much more.