Promoting private sector economic stimulus?

As published in the Telegraph-Journal last Saturday:

 

Earlier this week, I received a Tweet from The Globe and Mail entitled “Premier signals stimulus package to combat slowdown”.     As most Canadian provinces are in full austerity mode these days I wondered which Premier would have the audacity to roll out a new spending package?

Clicking on the Tweet, I quickly found out the Premier in question was none other than Wen Jiabao of China.  I should have guessed this.   Apparently the Premier is quite worried about China’s ability to meet its target of 7.5-percent gross domestic product (GDP) growth this year.

Last year New Brunswick had the worst real GDP growth among the 10 provinces in Canada at 0.1 percent.  In financial terms, the province was only $22 million worth of GDP away from an economy in recession (negative GDP growth).

RBC Economics recently revised its economic growth forecast for New Brunswick in 2012 downward to just one percent GDP growth – the worst among the 10 provinces.  RBC blames their new forecast on a lack of private-sector capital investment and a notable decline in non-residential construction spending.

Despite the poor outlook, it is unlikely the Premier and his resolute Finance Minister will be proposing any type of economic stimulus program any time soon.  New Brunswick is in full austerity mode.  Even with very weak GDP growth and a declining employment situation, it will be a stay-the-course approach to managing the province’s finances.

The problem with public sector austerity is its potential to reinforce the downward economic cycle.  The public sector has been outspending the private sector nearly three to one for many years and now it has pulled back.  This makes it that much more imperative to foster private sector investment and job creation.

Without an expansion of the private sector, New Brunswick could be in for a long period of weak economic growth and that will put even more pressure on the public finances.

The government can’t wave a magic wand and compel the private sector to invest in the province but there are things that can be done.

The federal government has dramatically cut the growth in its transfer payments to New Brunswick and has also announced deep cuts to its workforce in New Brunswick.  This double whammy has a direct and negative impact on the province’s GDP and employment.

If Ontario had just announced a 0.1 percent GDP growth in 2011 and a forecasted one percent GDP growth for 2012, it would be an international crisis.  The Prime Minister would convene a summit and the federal gravy train would flow. When little old New Brunswick is facing this economic reality, it’s just considered business as usual in Ottawa.

In my opinion, the federal government should take this problem seriously.  Even in the midst of austerity, both levels of government should find ways to foster private sector investment through tax breaks, investments in research and development or support for other key infrastructure.

I think the private sector should be challenged to step up.  I talk with a lot of business leaders and there is considerable fatigue these days and uncertainty around the prospects for New Brunswick.  But this can become a self-fulfilling prophecy.  If businesses don’t invest and create jobs, the economy here weakens.  The weak economy leads to less business investment.  Less business investments leads to more uncertainty and the cycle continues.

If we want a prosperous New Brunswick, we have to view it as a shared responsibility.  The public should support efforts to foster private sector investment even in sensitive areas such as natural resources development and public-private partnerships (P3s) – where appropriate safeguards can be demonstrated.

Business leaders should invest – even during this time of uncertainty and government should make the economy its top priority despite the temptation to focus on everything else.

 

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2 Responses to Promoting private sector economic stimulus?

  1. Richard Reeleder says:

    “If Ontario had just announced a 0.1 percent GDP growth in 2011 and a forecasted one percent GDP growth for 2012, it would be an international crisis. The Prime Minister would convene a summit and the federal gravy train would flow. ”

    I very much doubt that the current PM would take those actions. There would just be a press release from the PMO asking for ON to toughen up, cut taxes and spending, cut ‘red tape’ – in order to stimulate the private sector. Ya have to shrink the public sector to allow room for the private sector, ya know.

    I see little prospect of the private sector taking the lead in NB’s renewal. Worse, GNB has apparently no real plan to do anything (I think that’s because they believe keeping taxes and spending low is all they need to do). That’s not working, but the belief persists. We need some political leaders that are not wearing tinfoil hats.

  2. mikel says:

    Yeah, that was a bit of hyperbole. In Ontario it might be HYPED as such, and perhaps the tories would have a little more clout. They are preaching the same as the NB tories, but even they don’t go that far. In our by election, our provincial riding has been tory for decades, but the NDP trounced everybody (mind you, by elections don’t get much turnout).

    In the news today the legislature says that the fall session is going to be ‘all about the economy’, so it will be quite interesting to see what form that takes.

    This is not exclusive to New Brunswick, the Bank of Canada governor has basically become a lobbyist telling corporate canada to stop sitting on its billions and get investing (and yes, it IS ‘billions’).

    And again, this is why its insane to have public policy that gives tax breaks to those who hold onto their money instead of tax breaks to those who spend it, and could get the economy moving again.

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