It's The Economy, Stupid

It’s funny. I guess. When I heard about Danny Williams new campaign to personally slay the Harper government, I said here we go again.

And, of course, everyone has lambasted Williams from national commentators to politicians from all parties – even some pundits in his own province.

The funny part is that he is at 73% in the polls. I don’t think I have ever seen a politician at 73%.

It seems to me that Danny Williams – wildly over the top behaviour and all – is a symbol for the biggest problem facing Canada today.

It’s rarely talked about in the national discourse except for some vague references to demographic trends or the Alberta boom.

Newfoundland & Labrador lost 8% of its population from 1996 to 2006. New Brunswick lost population. Saskatchewan lost population. Manitoba, PEI and Nova Scotia barely held their own.

At a time of record national economic and population growth – 14 straight years without a single quarter of negative GDP growth – and yet whole swaths of this country are facing serious challenges.

Listen to Ibbitson and the like and this is just an inevitable urbanization. A good trend. Accelerate it, he says.

What I have found so ironic in my life is that it seems to be the role of government to provide health care, education, roads, police, social programs, etc. but it should be up to the ‘market’ to decide if any actual people live in the communities in which it’s the role of government to provide health care, education……

I, as you know, have a little different point of view.

I think it should be the primary function to government to ensure that its community (narrowly or broadly defined) exists at all – and then worry about the kinds of government services you want to provide.

A bit like when we spent billions to settle Western Canada.

Newfoundlanders are worried and they should be. New Brunwickers should similarly be worried because on top of the population decline government spending is running more or less amok. At a time when population is declining you would think that goverment spending should be stable or at least only growing at the rate of inflation. But government spending in New Brunswick is on pace with provinces that have fast growing populations and that will lead eventually to serious trouble.

So back to Danny Williams.

If you strip away all the shtick, the central theme should be debated in the national discourse. Does the federal government have a role to play when whole regions of the country are in economic distress? If the national dialogue concludes that no – everyone (province) should fend for itself, then fine – I guess- that’s democracy.

But ignoring it. Mission accomplished as it were – makes little sense.

Maybe Ibbitson is right. Maybe we need to urbanize. Maybe Atlantic Canada should become an outpost – with just a few mills, mines and fishing ports to send natural resources to upper Canada. Maybe they should close down northern Quebec. Maybe Manitoba should be retaken by the flies and the cold.

But maybe we should at least have a chat about it first.

One of the interesting things about reading Savoie’s books on economic development is that you get the sense that in the 1950s through the 1980s or so that the Feds at least pretended to be interested in regional development.

But there’s not even any discussion – really – about it anymore. Budget after budget barely mentions it. It’s considered a huge win if ACOA just keeps the same level of funding – never mind it is a fraction of what it once was as a % of national government spending.

As I said before, I still blame John Manley as much as anyone for this. He was the one that first said screw regional development we need to focus on our big cities and our ‘clusters’ after the recession of the early 1990s. And maybe he was right, then.

But shouldn’t we at least consider using the huge economic dividend from that success to rethink regional development?

Poor old Danny. It is likely going to get worse on the Rock (population wise) before it gets better. I have seen provincial government forecasts showing the population will decline into the mid 400k in the next 20 years.

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I don’t know why I still love to pick on old Jeannot Volpe. Maybe it’s the Al Hogan tie in. I don’t know but when I heard old Jeannot saying that the Tories were the defenders of low property taxes this a.m., I just had to check. You know I did.

So I checked. During the Tory reign (so fondly coddled by Al Hogan), total property tax revenue went up by 6.9% per year the fastest increase of any of the major taxes we pay. Under the new Lib budget, they are forecast to increase by 4.5% year over year. Sauce for the goose, Hogan. Why weren’t you pushing tax revolts when Volpe was at the helm and property taxes were going up 40% faster?

Now, of course, this chart represents total taxes forecast in each budget and is not tied to specific tax rates or breaks. But there are some interesting other facts in this chart. Total property taxes collected are expected to go up by $16 million this year. Gas taxes will drop by $45 million (one presumes Al’s Hummer makes up at least a good portion of that). The other thing that bothers me is that Lord’s tax cuts were supposed to be stimulative – i.e. they will drive new economic growth over time. If so, how come corporate tax increases had the worst performance of any tax?

Total Tax Increases by Category:

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Isn’t Catherine Swift some form of economist? From today’s TJ:

Merging Atlantic Canada a tax boon?
Telegraph-Journal
Published Friday March 30th, 2007
Appeared on page A1/A8

But she was recently convinced to revisit the well-travelled concept of regional amalgamation due to the small business tax increases in New Brunswick.

Someone should tell Ms. Swift that uder the current Equalization formula, efforts such as this would ultimately just result in less Equalization transferred from the Feds. That’s the whole premise behind Equalization. If you generate more own source tax you get less Equalization. So, almost by definition, if the four governments merged, dropped overall government costs by say 30% – my guess is that Equalization would drop by similar rate.

Besides, the unsaid reality of any Maritime Union or Atlantic Union is this. Government workers are the highest paid workers in Atlantic Canada. If you consolidated government and cut away thousands of workers, would it help your desire to grow the population or hurt it?

Just asking.

Oh, and for the CFIB the same question applies. Public sector workers in New Brunswick are now close to 20% of the total workforce (health care included) and they are the best paid. What would it do to your (i.e. the CFIB’s) clientele, if they lost a big chunk of their market? Sure, save a few hundred in taxes but…

I’m not a big fan of big government. Never have been. But when it’s all you got, you had better think twice. If we could replace big government with big business, then maybe…

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The dress code has been announced for this year’s Atlantica conference. With style that that how could anyone think that the proponents have any malicious intent? Imagine Bob Manning in that outfit.

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The TJ is reporting this morning on a series of focus groups held by the self sufficiency task force. Here are some conclusions:

The overwhelming majority of New Brunswickers who participated in a series of focus groups are ready to take risks to achieve economic self-sufficiency, as long as their health and environment are not sacrificed.

…eight of 10 participants in the focus groups agreed the province must take some risks to attain self-sufficiency by 2026.

“I was really impressed again with the individuals suggesting that self-sufficiency was a worthwhile goal, self-sufficiency was something that they would be willing to work with government, with industry, with commerce to move forward towards,” Robichaud [the consultant] said in an interview.

Now, after reading this article, my first thought was what ‘risk’? There is absolutely nothing in the article to state what ‘risk’ people are prepared for their government to take in the pursuit of self-sufficiency.

That’s what I dislike about polls, surveys and focus groups. The ask open ended questions and devolve into generalities. A poll will ask, for example, what do you think the top priority of government should be? And the answers are ‘health care’, ‘education’, ‘environment’, etc.

If the question was “New Brunswick is going down fast. If the government doesn’t stop the population decline, many of your communities will cease to exist within a generation. What do you think the top priority of government should be?

Of course, pollsters reading this post would scoff that this is not objective. But, is any poll, survey or focus group valid without context? If you took ten people in a room for a focus group and starting asking them what the ‘priority of government’ should be and while they were in the room a large war broke out in Canada, don’t you think they would change their mind based on the context?

I won’t belabor this point too much because I have in previous blogs except to cycle it back into the TJ article today.

What ‘risk’?

Would they agree to ‘risk’ health care (they said no in the abstract)? If the government said they were freezing health care expenditures at the 2007 until 2010 and plowing that dough into ‘self sufficiency’ would they agree with that?

Would they agree to the ‘risk’ of tax increases (not if Al Hogan gets his way)? No pain no gain, folks.

Would they agree to the ‘risk’ of amalgamating small communities into one larger municipality? Based on the discussions I have had in these communities – that’s a non-starter. Remember old Bernie said he was going to get rid of LSDs and dropped that promise like a hot potato when he realized there would be a little political heat.

Would they agree to the ‘risk’ of diverting funds from other spending areas into economic development? I’ll believe it when I see it?

Would they agree to the ‘risk’, gasp, of running a small deficit in order to have funds for economic development? You would see heads rolling up and down Queen Street in Freddy Beach if one penny of red ink flowed out of the Leg.

So, what risk are New Brunswickers prepared for their government to take on? It’s easy to say things like this but put your money where your mouth is.

No, I think the dopiness of the past almost a decade now has turned us into a state of comfortable numbness. I was told that Richard Hatfield was concerned about population trending in the 1970s! If this is true, imagine what old Tricky Dick would think today.

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I was interested to read the results report from the Export Development Corporation yesterday. The EDC “is Canada’s export credit agency, offering innovative commercial
solutions to help Canadian exporters and investors expand their international
business.” In lay person’s terms, they take a lot of the risk out of exporting to international markets. Essentially, it is a federal government agency designed to stimulate more exports from Canadian companies.

And we are not talking about pocket change or ‘advice’. From the report:

Brazil, Russia, India, China and Mexico continue to be the priority markets for Canadian companies because of their growth rates, importance to global supply chains and alignment with Canadian strengths. EDC business volumes in these markets totaled more than $6.8 billion in 2006, up 26 per cent from $5.4 billion in 2005, with notable growth in Mexico at $2.6 billion (2005 – $1.6 billion), India at $730 million (2005 – $375 million) and Russia at $750 million (2005 – $502 million).

And you know where I am going with this, don’t you.

The Atlantic provinces make up only 2.1% of the EDC’s business volume. That means that of all the export insurance/finance deals done by the EDC, only 2.1% of the total volume was with Atl. companies. Even though the region still makes up 7.1% of the population.

They don’t break out their New Brunswick figures, but odds are they are fractional.

Why I bring this up is simple. In this blog I try to explore the causes of chronic economic underperformance. This is another example.

You will recall, with me, for a moment, the glowing peacock of a man – Kirk MacDonald – former minister of Business New Brunswick getting up in the Leg last year and bragging at great lengths about the ‘export performance’ of New Brunswick. He even said billion with a ‘b’ to make his point.

What he forgot to mention (I am sure it just slipped his mind) was that without the Irving refinery, exports from New Brunswick in real terms were actually down since the Tories came to power – the second worst exports performance of all provinces in Canada.

Now, my disgust with that performance aside, the truth is that New Brunswick is not really an ‘export’ oriented province. Stuff all the reports in your toilet. When you extract commodities and look at value added exports – there is very little coming out of New Brunswick. I did a little analysis of this a few years ago and the difference is quite staggering. From Ontario, something like 80% of all exports were high value add (auto parts, manufactured goods) while something like 5% of New Brunswick’s exports were high value (i.e. more than just commodities, paper, untreated fish or 2x4s).

And that is likely a main driver why the EDC does very little business in New Brunswick.

But back to a central theme of this blog. If you look at every program from the Federal government oriented to support economic development: Technology Partnerships Canada, federal R&D spending, EDC, etc. – New Brunswick gets well below its ‘fair share’ in a per capita sense and every program that is expense oriented (Equalization, social transfers, etc.) we get well above our ‘fair share’.

And that, folks, in my opinion, is another reason why New Brunswick is third from last in North America for its standard of living, while we are one of only a handful of jurisdictions losing population (1996-2006) and continuing to need more and more Equalization just to get by.

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The TJ is running a story this morning about a ‘different’ kind of side deal.

Rather than a “side deal” fully funded by Ottawa, Graham hopes to persuade Ottawa to share equally in the costs of an ambitious range of infrastructure improvements and programs meant to fuel his bid to wean the province off equalization within 20 years.

Now, here’s the deal as I see it. The Feds aren’t necessarily stupid. Bernard Lord’s ‘Accelerating Prosperity” plan was wrapped up as a ‘side deal’ for supporting prosperity. Elements included Petitcodiac River remediation, Saint John Harbour clean up, road improvements, etc.

These are worthy expenses – for sure – but they won’t accelerate prosperity any more than help ‘weal the province off Equalization’.

If Graham’s ‘ambitious range of infrastructure’ and ‘programs’ includes quadrupling the ED budget, tripling R&D investments, setting up foreign offices, building aligned infrastructure like a world class animation hub in Miramichi, establishing a best-in-class repatriation/immigration program then maybe that would make sense. But more Federal dollars so that the provincial government doesn’t have to make any tough fiscal decisions, in my opinion, won’t cut any mustard.

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Why is it that economists with all thier education and study can be so narrow minded?

An Atlantic Institute for Market Studies report grades Nova Scotia the lowest financial grade in Atlantic Canada. The report gave New Brunswick the highest grade with a C plus, while Newfoundland and Labrador jumped from last year’s D to a C/C plus and Prince Edward Island also improved from a D plus/C minus to a C.

The release said per-capita spending and government size are lower than the rest of the country “but interest payments on the province’s debt continue to rise as it is spending at too high a rate.

Now, here’s the galling thing. AIMS, the bastion of free market ideology, craps on Nova Scotia and gives New Brunswick the best ‘financial score’.

Funny stuff. Nova Scotia has significantly reduced its dependency on Equalization while New Brunswick has significantly increased its dependency on Equalization. Nova Scotia’s population growth over the past 10 years is nothing to write home about but certainly better than New Brunswick’s population decline and Nova Scotia has had a considerably higher rate of private sector job creation over the past 10 years.

So, here’s what pisses me off. Nova Scotia politicians and taxpayers start reading this stuff and the catcalls start and Nova Scotia Business Inc. ends up getting cut. Or some other incredibly important program related to economic development.

AIMS, it seems, would like Nova Scotia to reduce its ‘debt’ and raise its dependence on Equalization like New Brunswick.

This is just madness. Maybe AIMS’ ‘hidden agenda’ is to completely snuff out any innovative attempts to stimulate economic development. Maybe they would like Jeannot Volpe as Premier of Atlantica – shaving tax rates and raising Equalization for all.

Sure, a large provincial debt is a challenge and needs to be addressed. But scaring governments into cutting spending that is directed at growth-oriented activities is not the solution.

Isn’t that funny. Let this d-i-g-e-s-t slowly. AIMS is applauding the province with the highest level of dependence on Equalization (and increasing) and slamming the province that has reduced its level of dependence.

Did AIMS hire Maude Barlow as it’s new CEO?

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Come on.

Maybe it’s the NSCAD influence.

I don’t know.

But I like it.

Delusional calgaria.

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The director of Teenage Mutant Ninja Turtles is from Salisbury.

Who knew?

Can anyone say ambassador for the NB animation/digital media sector? Anyone? Anyone? Bueller?

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