Bullish on Ontario

Ontario, it’s kind of fun to watch the drama unfolding in our largest province.  I have been listening to The Agenda coverage of the Drummond report.  It’s an existential crisis!

I’ve said it here before, Ontario is an economic powerhouse.  Name me another large economy that is booming right now that isn’t based in large part on non-renewable resources?  California? New York?  Illinois?  Florida?  Even across the pond – who is booming right now?  Norway, et. al.  Even Germany’s real GDP growth is expected to slow to one or so percent this year.

But the fundamentals in Ontario are strong.  The stored wealth, the % of the decision making for the Canadian economy.  The R&D infrastructure.  There is more R&D spending in Ontario than the rest of the country combined (including the Ottawa region).

The province got a little bloated before the recession and now needs to re-calibrate spending and taxes and it needs to build some new economic growth engines the way it has in the past.  It became the manufacturing powerhouse in the first 60 years of the 20th century, it stole the financial centre away from Montreal, it built the largest biosciences cluster in Canada in the 80s/90s/00s.

Of course McGuinty wanted to turn Ontario into a renewable energy powerhouse – he said it would be the next auto industry for the province – shale gas has really wreaked havoc on a lot of our assumptions circa 2005.  Even the whole NB Power/HQ narrative has been recast post the U.S. shale boom.  And nuclear?  Before shale, the U.S. had something like 30 more reactors in the planning phase.  Now?

But I digress.

The truth is Ontario will be fine.  Will it grow as fast as Alberta?  No, but it hasn’t for a while.  From 2006 – 2011 the Ontario population grew faster than the national average – and people were still call for the end of the world as we know it.  New Brunswick’s population growth rate was half the national average and there were parties in the proverbial streets.

I think the short term, this need to reboot Ontario will indirectly impact New Brunswick in a negative way.  We have talked about the negative impact on Equalization already but there will be other effects.  Ottawa will need to pump more and more ‘stimulus’ into Ontario – in the form of R&D and other spending.  I realize there is a broader Harper agenda but they won’t sacrifice Ontario.

I think a place like New Brunswick may be even more marginalized than ever.  NL and NS are forecasted to do quite well on our eastern flank and the west will be doing just fine.  Ontario will get a lot of focus and will double down on FDI for a while I would think as well.

Quebec is harder to say – the plan nord is expected to give GDP a strong boost every year for the next 20 years but the province is struggling under a lot of public debt and weak growth in several of its key industries.

 

New Brunswick needs to find new sources of economic growth.  I’ve said it before and I’ll say it again – this is the main impetus behind shale gas.  The sands are shifting under our feet.

 

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One Response to Bullish on Ontario

  1. Don Dennison says:

    I agree that NB is goingto need new, and more from the old, sources of economic growth. And yes I agree that we will suffer form the undermining of equalization. But I also think that we need to maintain as staunch a defense of equalization as possible. The whole concept is being unfairly discreditted.
    Equalizing arrangements of some sort are a feature of most federations. Where Canada differs from most is that the non-renewal resource rents mainly accrue to the provincial and not the federal level. If Canada were a ‘normal country’ to quote Lucien Bouchard, the geographical redistributing effect to support basic public services wouldn’t be an issue. Yes, equalization has the effect of pulling some greater proportion of wealth (via federal taxes) from some places and allocating it through various federal spending programs. But to repeat the old saw being heard more frequently these days “Ontario taxpayers are actually sending more money to Ottawa than their government gets back in payments” is to overlook that Ontario has benefitted, and continues to benefit, from federal government support in many ways beyond direct payments, ways that bring revenue to Ontario through its own tax collections.

    Federalism is messy. I have often speculated whether the people living in equalization receiving provinces wouldn’t be better off if Canada were a unitary state in which public services are funded by the national government more or less uniformly across a nation. But that’s not an option, so we like other federations (the US excepted , and they have their ‘means’), kind of try and do a little rebalancing for the public good.

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