It’s The Economy, Stupid

We have talked about this before but I found this blog on the subject particularly interesting.   The Washington Post article is particularly interesting.     I think that, like roads, many politicians believe that spending money to build a broadband telecom network is an economic development end in and off itself.   But when Bathurst and Edmundston combined saw only 90 net new jobs in ICT from 1996 to 2006 - it is clear that broadband (which has been available in both communities for a long time) is not the issue.

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Prince Edward Island’s GamePlan, an economic development strategy targeted at the island’s gaming industry, is helping local game developers score big in the province. Launched by the PEI government, GamePlan offers a combination of tax and labour credits for businesses and ties with local schools. The program has slowly but surely made headway in developing the computer game industry of the Maritime Province. GamePlan might also stem the tide of young talent migrating away from the island, according to local business owners. At a time when Canada’s digital media industry is strapped for funds, PEI’s gaming sector is growing.

I thought the timing might be right to have this discussion……

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This bothers me and I will warn Anoymous upfront that smartalec remarks on this will be deleted.  This is way too important and impacts peoples’ lives.  I won’t allow this kind of crap on my blog.

I don’t know what the solution is.  I hope that Fatkat’s struggles are truly a reflection of the downturn and that Fowler can turn it around. 

I have felt for a long time that orphaned companies like FatKat (they are the only serious player in the ‘Chi and one of a very small handful of animation studios in New Brunswick) are at a disadvantage. Yes, they are not competing for labour locally but in the long term all of the data shows that clusters of firms have a better chance of collective success than onesy and twosies here and there.

If we want to grow a cluster of animation firms there are specific steps that can be taken such as implementing a tax incentive structure like six other provinces, focusing on churning out talent from the educational system, linking into the global animation industry and attracting a mix of national and international firms as well as local entrepreneurs.

Anyway, I don’t know the answer.  I have chatted with several industry players and most are bullish that the industry could be a serious economic driver for New Brunswick (they point to the growth in online and mobile gaming and the use of animation for learning and other applications) but we need to figure out what the spark is - what is the fuel that can be thrown on the smouldering fire to set it ablaze.

Or we need to forget about that sector and move on.

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I like CBC and most of the time for me the mix is right.  The old journalistic mix - set up the basic skeleton of the story, cover both sides and then wrap up.   Certainly on an issue such as taxes, certain journalists will have skew things, as one of the more intrepid journalists told me, in favour of “the little guy”. 

But Robert Jones’ covering of the tax story yesterday on CBC left a bad taste in my mouth.  First, his expert source was the Help4Taxes guy who is trying to position himself as the middle class tax advocate to drum up new business - which is fine - but that populist rage from a guy who’s business telephone will ring the more shrill his commentary - has a vested interest in cranking up the volume.

When you cover a story, you need to give people the facts - not cherry pick the facts.  Just about any balanced story I have ever seen on taxation will tell the tax rates but also the amount of tax paid.  Not Robert Jones.  He tells us that the rich person will save $27,000 (the 1,300 persons) and the poor person (@$35,000) will save $349.

What he doesn’t tell you is that the guy making $350,000 will pay $148,135 in income taxes per year and the guy making $35,000 will pay $6,406 in total income tax (provincial and federal).  This is the taxes payable before deductions (see my point below).

A balanced story would have shown this fact so that people understand that in New Brunswick (and Canada) the richer you are, the more tax you pay.  Jones left this out deliberately.

Another point that Help4Taxes would neglect on purpose but the UNB economist shouldn’t have is this issue of tax shifting.  These high income earners (and we are talking about less than one half of one percent of tax filers) making more than $250,000 per year can find creative ways to pay far less tax anyway.  As I have pointed out several times, when former Premier Bernard Lord cut the small business tax to the bone, there was a significant migration of persons that were unincorporated self-employed to persons that were incorporated self-employed.  Why?  Because all of a sudden there was a big tax savings to being a corporation versus a private citizen as a taxpayer.

I don’t know the numbers but based on my experience, the bulk of doctors and other high end health professionals are set up as corporations and that has the impact of significantly reducing income taxes payable.

If you will recall, I wasn’t the biggest fan of the tax cuts that the government implemented.  I much prefer using the tax code to incentivize specific behaviour (whether it is carbon reduction, new investment in local business, etc.).  But I think in this case, Jones picked low hanging fruit that is designed for maximum titilation and to anger people, which it seems it has.

The real issues are far more complex and worthy of analysis.  Will these tax cuts actually stimulate the economy?  I am unsure.  Will they help attract skilled workers?  Will there be jobs for those skilled workers to begin with?

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The Canadian Community Health Survey (CCHS) includes a question that may be a bit off topic but it’s a good one nevertheless. The survey asks whether a person’s “Sense of belonging to local community is somewhat strong or very strong”.  In the most recent four years that data is available, there has been a strong drop in the percentage of people confirming a strong sense of belonging to a local community.

There has been a fairly significant drop in this indicator in the four year period.  I can’t quite understand the Moncton figures unless it is related to the in-migrants not quite feeling attached to the local community.  But I am more concerned with the Northern NB numbers.  The Bathurst/Acadian Peninsula area has witnessed a deep decline in sense of belonging - now only just over 1 in 2 adults say they have a strong sense of belonging to the local community.

I have a theory that chronic and sustained economic development challenges spill over into the social realm as well.

Sense of belonging to local community, somewhat strong or very strong

Statistics Canada. Table 105-0502 - Canadian Community Health Survey (CCHS).

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Moncton and Fredericton are 6th and 7th on the list of top 10 places to live in Canada - according to Moneysense magazine.  No Atlantic Canadian cities make the best places to work.   Winnipeg is on both.  No Atlantic Canadian cities on the best places to retire list either.

We aren’t on the top five cities with buzz either but you will find Canmore on that list.  I am sure Mike from Canmore will agree.

Check your city’s ranking here.

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I see the NBIF has a new President.  It’s funny how initial perceptions can shape your view of things on an ongoing basis.  Former Premier Bernard Lord said the NBIF was to be the ‘catalyst’ to achieve his goal of bringing New Brunswick to among the top four provinces in Canada for R&D.    As of the latest data, we are still dead last in Canada.

And instead of the NBIF and government officials lamenting this fact, there is a whole lot of back slapping and wide grinning about the success of the NBIF.

My point is that maybe for those with a lesser ambition for the NBIF, it has been a wildly successful organization.  But if you were to believe the former Premier, the NBIF is a failure.

Now, as I have pointed out on many occassions, New Brunswick would need more than $100 million per year in increased R&D to have met the former Premier’s goal and an organization with $35 million to spend over many years can hardly be expected to leverage that into $100 million in new R&D. 

But a new president should be a time of renewal and rethink.    I don’t read anything into the new president’s comments that indicate any kind of course direction.  

I guess that is what frustrates me the most about the institutions involved in achieving these ‘goals’ in New Brunswick.  Premier Lord had his prosperity plan goals - none of which were met - and there was no accountability in the institutions of government.  The Graham government has its self sufficiency goals and (cross our fingers) let’s hope they get done.  But there doesn’t seem to be any alignment between the political goals and government institutional accountability.

If the NBIF was supposed to provide small levels of VC to 3 companies per year (17 over six years), host  conference, put on a business plan competition and funnel some funds to university researchers - than it is a success and everyone involved should be satisfied.  If it was supposed to be the catalyst that led to a massive amount of new R&D, it has failed and everyone should be introspective.

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I had a great lunch this week with a guy who owns a small new media development firm. He confirmed that PEI is aggresively pursuing NB firms to set up on the Island. If we want animation development here we are going to need a similar incentive structure. NS, PEI, NL, QC, ONT and BC all have big incentive programs.

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We have talked on this blog alot about India and Ireland and the need to evolve the call centre industry into a more IT and technology-based economy - much like this commentary talks about here.  I guess we shouldn’t be too strident in our position on this, however.   As he is chiding New Brunswick for not developing its IT sector it is worthwhile to point out that from 1996 to 2006 both Saint John and Moncton had faster growth rates in IT workers than Vancouver or Toronto and as of 2006, there were just about as many IT workers in the labour force in Saint John and Fredericton as in Vancouver (relatively speaking).

Only Toronto can claim to be way out front in terms of IT workers.

But the guy’s thesis is worth a look.

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When New Brunswick has 9-10% unemployment, population decline, a $1.7 billion annual government deficit (the Equalization payment), it’s yawn yawn, yadda, yadda.  In fact, New Brunswick governments actually were known to brag about that state.

When Canada has  9-10% unemployment big government deficits (and the population is actually rising), it’s the worst thing since the great depression and the response is swift:

Bank of Canada readies weapons to fight record slump
CAW, Chrysler close in on deal
Bailout: Canada prepared to offer $6-billion in financing
Government to run record deficits to stimulate economy

I’m not complaining and I know the difference between economic decline in a province versus a national economy but it sure would have been nice to have had a greater sense of urgency in New Brunswick 5-10 years ago.

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