Those of you who have read my blog for awhile will have heard this story before. I was reminded of this theme when chatting with someone recently about biofuels. He told me that New Brunswick was one of the worst places in North America to produce agricultural product-based biofuels. We don’t have the scale, scope or even proper climate. However, he said, we do have a strong and persistent agricultural lobby that wants the NB government to incentivize biofuels development.
I remember an old political strategist telling me his golden rule of politics. Never mess with the seniors or the farmers. Both groups are very strong and go to the deepest parts of society. Seniors are not only a large group but they have kids and grandkids so in a sense, if you piss off the Seniors, you end up pissing off just about everyone.
Way back in the 1990s, Frank McKenna floated the idea of making the snowbirds who spend the bulk of the winter in Florida get health insurance before they go. The reality was (and may still be) that a lot of seniors would go to Florida, get sick and then the costs would get charged back to New Brunswick Medicare. It seemed like a reasonable concept but I remember walking by the legislature when the Seniors – hundreds, probably several thousand, were protesting this with pickets and shouting down with McKenna. That proposal was dropped quick as a flash.
Then there was our old friend Bernie Lord. About three months after his election, I ran into an aquaintance who had gotten a job in the Premier’s Office as some form of advisor. Anyway, this guy knew my interest in economic development and he pulled me aside to talk about Lord’s plan. The first thing he told me was that Lord was going to deeply cut the subsidies to farmers. He asked me “did you know that farmers get a subsidy to transport cows to those islands in the middle of the Saint John River?” I said no but intoned that old saying of never mess with the farmers and the seniors, Lord, I was told, was a ‘different’ kind of politician. Fair enough.
First budget comes out. Lots of proposed cuts to agricultural subsidies. The farmers drive up to Freddy in their tractors, stage a large protest, Lord says he will ‘study the issue’ more and everything gets dropped.
Don’t mess with farmers and seniors.
From Wednesday’s Globe and Mail:
Ottawa drafts new deal for provinces
Tories willing to extend greater economic autonomy – such as allowing Quebec to negotiate unilateral labour deal with France
July 30, 2008 at 4:00 AM EDT
QUEBEC — The Harper government is prepared to let Quebec negotiate a unilateral labour-mobility deal with France, and is willing to provide each province with similar autonomy on economic issues, the Prime Minister’s Quebec lieutenant, Lawrence Cannon, has announced.
In the clearest indication to date that the Conservatives are willing to offer exclusive arrangements for each province, Mr. Cannon signalled the Harper government is prepared to shift the way the national government works with its provincial counterparts.
Quebec offers potent political benefits for the minority government and with economic volatility affecting all provinces differently, Mr. Cannon said in an interview that it is time to deal individually with each province’s needs.
While he declines to use the word “asymmetrical,” Mr. Cannon concedes the effect of his proposed framework creates precisely such a landscape.
The collapse of a manufacturing base in Central Canada and Alberta’s work force shortage mean each province’s story has to be addressed through an autonomous approach. Mr. Cannon acknowledged the concept of autonomy is dear to Quebec nationalists in particular.
I have been calling for development of a new economic development partnership between Ottawa and NB that is unique to our situation. It is absurd to try and lump all the provinces together into these national programs when their situations are so individual these days. It seems that if Alberta, Quebec and Ontario need an “autonomous approach” maybe finally New Brunswick will get treated by the feds based on its unique circumstances.
Why is NB unique? I’ll give you the top ten reasons:
1. It is not – regardless of what some say – going to benefit directly from oil, gas and other mineral revenues. There will be some – but only a fraction of other provinces including SK, NS, NL, AB and BC. NB’s economic growth, unlike most of those other provinces, will have to come from some other location.
2. Our traditional industries are in decline. This is not a unique situation in Canada but it is unique in scope and scale. Over 8% of our GDP is tied directly to the forestry, for example, compared to less than 1% in Ontario. So the effect is much greater.
3. Our population is in decline. It went up slightly in the last year but the trend is downward.
4. We are starting to see some specific labour shortages despite a 9.6% unemployment rate. The pull of Alberta and now Saskatchewan is causing challenges.
5. We are not investing in industry sectors with growth potential.
6. We have the lowest level of spending on R&D among the 10 provinces in Canada.
7. We are not seeing the growth in higher wage, private sector jobs that will be needed to attract skilled workers from away.
8. Economic development spending as a percentage of both federal and provincial budgets in New Brunswick is well below the level it was a decade ago.
9. Northern New Brunswick.
10. Increasing dependence on Equalization.
So, for the feds to roll in with “Building Canada” and other national programs doesn’t make much sense. It makes far more sense to establish a new economic development partnership where both governments invest, let’s say $500 million each over eight years with the specific goal of making New Brunswick attractive for business investment and expansion. It would put serious dollars on the table to attract/leverage private sector R&D, it would help New Brunswick promote itself internationally but most important it would provide funds to invest in industry-specific infrastructure.
And, lest you think my dollar amounts are crazy, the feds just gave Nova Scotia almost $900 million more to go against the offshore royalties agreement and the feds spend close to $400 million per year on EI payments in New Brunswick – every year – I would think a fraction of that amount on economic development might be a good idea.
My TJ column this week discusses the proposed tax changes in New Brunswick. In a nutshell, I believe that the government should control spending – within the rate of inflation, try to keep corporate and personal income taxes competitive with other Canadian provinces (even if it means slightly higher consumption taxes) and strategically use tax policy to incentivize specific behaviours.
There will always be jursidictions that have lower tax environments. Applying a “how low can you go” approach to tax policy doesn’t make sense in New Brunswick’s context. If we were awash in cash, it would.
Don’t forget there are something like a dozen U.S. states that do not charge any personal income tax at all. And Nevada, where my brother lives, doesn’t charge any sales tax either. No income tax. No sales tax.
It was only a matter of time. Trying to profit from misfortune is as old as time itself. There are folks in the Miramichi that want to put direct flights from the Miramichi airport to Fort McMurray.
I wonder if these people understand that if they make it even easier for people to fly out to Alberta for work that more people will likely do it?
I also wonder if they understand the mid and longer term impacts of separating families for weeks and months at a time?
I wonder if they realize that in the long term, many people are just going to end up moving out there anyway.
I realize that there are mayors in Ontario proposing the same thing. I guess it is a “better than nothing” approach to economic development.
From a provincial perspective, we would be better off if they would start talking about putting a bus from the Miramichi to Saint John every day for the guys/gals that have the skills to work on these larger construction projects. Or even a bus from the Miramichi to Moncton every day (shades of Francis McGuire?).
Or better yet, why not try some serious economic development effort in the Chi?
It seems odd for an economic developer to be urging caution when it comes to cutting corporate tax rates. But that is exactly what I am doing. This new survey proves my point.
Halifax compared well with other cities around the world in a new tax competitiveness study by KPMG LLP. The study compared income tax, capital tax, sales tax, property tax, local business taxes and statutory labour costs faced by companies in 102 cities in 10 countries. Scores were determined as a percentage of total taxes paid by corporations in the United States. A lower score meant lower tax costs for businesses.
KPMG managing partner Greg Wiebe said in an interview Monday that Halifax and other Atlantic cities — including St. John’s, N.L., Moncton and Fredericton — that scored well in the study benefited from having the harmonized sales tax, which he called a true value-added tax.
“From a business perspective, there is no cost to a particular business,” he said, noting that HST costs are borne by the end user. “That’s not true in other places. Cities under the HST have a very competitive rate.” St. John’s scored 59.1, while Moncton scored 62.6 and Fredericton scored 62.8 in the KPMG study.
Vancouver scored 75.2, Montreal 83.2 and Toronto 85.4.
For overall business taxes, New Brunswick is already well below the larger urban centres in Canada. Don’t make deep cuts to corporate income taxation. Use the money to invest in other areas that badly need investment such as R&D, energy and other infrastructure.
It doesn’t matter how smart a person is, lots of things can cloud their judgement and application of intellect to the problems of the day (including myself although at a much reduced intellectual level). Take this Mark Milke fellow from the Frontier Centre in Calgary. He works for a think tank. Probably has advanced degrees and such and can still articulate an argument completely devoid of reason. Read his article and tell me what you think. It could be that I have my blinders on (suspect this is the case) but truly, the only question for Milke and everyone else in Alberta that sees red when people talk about their resource revenue is this:
The oil/gas revenue sharing deal in Canada – would lead to a civil war in Iraq. If that country were to divvy up the oil revenues the way Canada does – even through the circuitous Equalization program – it would be civil war.
In fact, I had a little look at this just for fun a few years ago – and in fact Canada system for distributing natural resources revenue is non existent. There is the back door Equalization system but the majority of Albertans even resent that. How about we scrap Equalization and divvy up the resource revenue like Norway.
I think guys like Milke would be far better off a) making their argument against sharing natural resource revenue using historical arguments – this bravado about it isn’t based on reason and b) having a little class when reacting to journalists and others in poor provinces that do not have the luck of the Albertans.
P.S. – Equalization has nothing to do with hydroelectricity. It’s just a very cheap source of electricity and that is why Manitoba can offer it more cheaply than other provinces. Why would they inflate the price and take away the one advantage they have?
Scroll down this article and read Lacey’s comments. Is there another NBIF that I am not familiar with? Bernard Lord set up the NBIF to be the catalyst for his goal of getting New Brunswick from last to third among the provinces in Canada for R&D. Last time I checked we are still last. Now, the NBIF has been in operation since 2003. Over five years.
I don’t blame the workers at the NBIF. It was an impossible goal but I think if New Brunswick is to drastically increase the amount of R&D (like old Bernie’s goal of Top 3), they will have to drastically rethink this stuff. All the little tiddly stuff should become a secondary activity and the main goal should be to catalyze R&D by working with existing research organizations, private sector firms, etc. In fact, I think they should attempt to attract R&D projects from multinational firms.
I guess I am just a hopeless (helpless?) romantic when it comes to this stuff but I have long hoped that New Brunswick would get back to the day when it saw electricity as an economic development driver and a key public policy tool to attract and grow industry. In the list of performance indicators for NB Power leadership released yesterday there was this one of interest:
Building a strong economy is important to all New Brunswickers. Management will
take an active role, working with business, labour and governments to foster
economic opportunities in the Province.
This is definitely Francis McGuire’s influence on the board but I was hoping for much more (naively). Quebec Hydro has clear economic development mandate and actually talks about its role in supporting and growing industrial activity in the province using low power rates. Imagine if NB Power committed to that. Many (most) U.S. electricity utilities have an economic development office and many have a Vice President in charge of economic development. Imagine that in New Brunswick. In fact, many electricity utilities have performance indicators based on their ability to attract new industry to the jurisdictions. Imagine that. I think sometimes that NB Power would like to see less industry in New Brunswick, not more.
It will be very interesting to see what ‘active role’ to foster economic opportunities will be. One thing is for sure, there is lots of rhetoric to go around these days but I don’t see a whole lot being done to address the structural challenges facing the province. And then there is that annoying unemployment rate which has crept back up to almost 10%.
I would like the province to carve off a chunk of its electricity capacity production (now and in the future) and set it aside at lower rates to attract and grow industry. In many jurisdictions this is done. It’s all fine and dandy to roll all rate payers in as the same and even say that NB Power should put it to the industrial users but where do the jobs come from? We have had several major mill closures in New Brunswick and all stated high electricity costs were a key factor.
Finally, the problem with NB Power is us – residential users with electric heating. Let’s face it. NB Power’s hydro and nuclear power production (clean with almost no marginal cost of production) is enough to cover almost all of the base need of the province – residential and industry. In other words, if you take our summer need for power – both residential and industrial – it is almost completely covered by clean and cheap production. But in the winter, demand (for about five months), demand spikes up to double the summer levels and that is when NB Power is forced to purchase fuel and run its carbon emitting plants – at very high cost of production. Over 60% of NB homes are electrical heating and I heard recently that 80% of all new homes constructed are using baseboard heating. Why not? It’s easy and cheap because we have structured our power rates to blend NB Power’s cost of production at peak and baseload.
Don’t blame industry for increasing power rates. It’s demand is virtually consistent throughout the year. Without the huge peak for our heating needs, NB Power would be clean and cheap in its power production.