Canada’s non-energy provinces need to step it up

Despite the significant boost from interest rate cuts and a low dollar, non-energy provinces have failed to lift Canada’s economy


 
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Finance Minister Charles Sousa delivers the tabling of the budget at Queen's Park in Toronto on Thursday, April 23, 2015. (Nathan Denette/CP)

Finance Minister Charles Sousa delivers the tabling of the budget at Queen’s Park in Toronto on Thursday, April 23, 2015. (Nathan Denette/CP)

One day—and economic worlds—apart this past week, the finance ministers of Alberta and Ontario provided updates on the fiscal picture facing each province.

“Projections for a quick recovery have proven wrong,” Joe Ceci admitted while delivering Alberta’s third-quarter fiscal update. “There’s no minimizing the impact that low oil prices are having on people’s jobs, on our economy and on the government’s fiscal situation. This is a once in a generation challenge and we are now faced with stark choices.”

Bummer for you, replied Charles Sousa from Ontario the next day. “Right now, uncertain economic winds are currently blowing in the right direction for Ontario,” he said after unveiling the province’s budget for 2016. “A low dollar, low oil prices and steady U.S. demand all favour Ontario exports.”

Going by those two statements, it might seem like Canada’s economic adjustment to the commodity crash is well underway. But that would imply a relatively tidy transition of our two-track economy from one set of rails to the other. And that’s not how things have played out so far.

Consider the following four charts, which measure growth in GDP, employment, retail sales and manufacturing over the last five years, broken down by energy and non-energy provinces. (Those would be Alberta, Saskatchewan and Newfoundland in the first group, the rest in the latter.) All data, except for annual GDP, reflect year-over-year performance as of the latest month available.




In each case, after four years of outperformance by the energy provinces, the non-energy bunch are now posting the stronger gains. The problem is, their growth is not all that much better than it was before, despite the significant boost provided by the Bank of Canada’s interest rate cuts, the low dollar and cheaper fuel prices. All that’s happened is growth among the energy-producing provinces has collapsed.

It’s why Canada’s overall economic performance remains so anaemic and why the Bank has had to keep lowering its growth projections. The country’s turbo engine is on the fritz, and now we’re relying on a two-stroke motor to make up the difference.

Until the non-energy provinces, led by Ontario, pick up the pace, don’t expect much of an improvement for the country as a whole.


 

Canada’s non-energy provinces need to step it up

  1. Is the author seriously suggesting that non-energy provinces should be shooting for boom like GDP growth like Alberta/Sask reached the last decade or so with $100 dollar oil prices?

    That’s just crazy talk. Unrealistic.

    I would compare the growth in the west to historic gold rushes, abnormal and rare.

    • Indeed, it’s not like the economy could just turn around in a few months. Chinese demand for goods remain low, while Europe’s is still in low growth. In our export based economy, and with many households having high dept, a 2% growth rate is big.

  2. “Canada’s non-energy provinces need to step it up”

    Alberta was the first to waddle up to the trough and demand infrastructure money, after a few years of being on the giving side of the equalization equation.

    • This puts another spin on things. The underlying question here is “Why have the non-energy provinces squandered the billions that were provided by the energy boom in the West?” All the criticism of Alberta’s finances ignores the fact that they were receiving billions in equalization, yet didn’t take the opportunity to bring order to their own financial houses. Instead, they spent like the boom would never end. Sound familiar?
      This helps illustrate a particular bugaboo we have in the West. All equalization seems to accomplish is create a dependency upon the ability to force the federal government to impose taxes upon any other region except your own. It is the ultimate in non-accountability.
      All provinces are equal, until of course, that equality needs to be imposed upon YOUR province. Thus PEI, with the same population as Red Deer County, Alberta, gets 4 MP’s and 4 senators. Sure, PEI was a big player in Confederation back in 1908, but it’s 2016. Ditto for Nova Scotia and New Brunswick. Just as changes to equalization are long overdue, so are major changes to the seat balance in the HOC. Similarly, Quebec needs to be relegated to the back benches of Confederation.
      It is a wholly principled stand to point out that the fiscal contribution to Confederation must be accounted for when establishing national policies involving taxation and re-distribution. Provinces and regions need incentives to get OFF the federal teat, not prolong their reliance on it.
      Otherwise you find yourself asking the ultimate Margaret Thatcher question. What happens when Quebec (or PEI or Nova Scotia) runs out of
      Alberta’s (or Saskatchewan’s) money?

      • According to the WTO the so-called energy provinces were receiving $34B in government benefits while according to CRA they were giving back $22B in tax revenues; with tanking oil and gas prices the only thing that goes down is revenue simply increasing the corporate welfare received by ‘energy provinces’ who even with a quick $1/4B bailout are still kvetching about transfers to other provinces that are less generous.

    • Here is the funny thing. The only province that saw increases in manufacturing while the dollar was at par were the energy provinces. They didn’t sit and whine about China taking all the manufacturing jobs but became inventive and went in new directions and found things to manufacture that Canada could excel at. Meanwhile, the provinces that previously excelled in manufacturing did diddly squat to become inventive in anything. As for Alberta giving money for a few years into the kitty we call equalization payments, how about decades. Anyway, now that you in Ontario are offering free university, I am sure many of your out of work sons and daughters who moved to Alberta to work will be coming back to Ontario to take you up on your free education and we will get more people off EI. Thanks so much.

    • FYI- Alberta contributed $200 BILLION into the equalization pot, just in the last 15 years.
      That’s almost $60,000 for every man, woman, and child in the province. It’s the equivalent of the median NET worth of Canadian families.
      That means that the average Alberta family has contributed almost half the average Canadian family net worth in excess taxation in just the last 15 years. That doesn’t count the previous 4 decades.
      That $200 billion, in a decade and a half (ignoring the other more than 40 years), should have been enough for every other province to achieve a balanced budget and get their ducks in order.
      After all, it IS just like they had an oil well in their back yard. Only it was their neighbors yard, and he drilled it, cemented it, ran a pipeline to it, shipped the oil to a refiner and still was nice enough to write a cheque to every other household on the block.
      Now that the price of oil is down though, and a bunch of the neighbors have complained enough about pipeline Cats and coiled tubing rigs to keep them away from the well, everybody who used those cheques from the oil-rich neighbor to finance a boat and a 40 ft RV and vacations in Maui, still want those cheques to show up every Tuesday. They have payments! I’m sure that’s going to work out well.

      • Meanwhile, the net transfer from Ottawa to Alberta was as much as $10B per year … those who pig out on subsidies and federal program spending should stumph.

  3. The title perpetuates a Harper government mythology: Canadians produce energy in many forms other than fossil fuels and, at current oil and gas wholesale prices, the contribution of renewable energy production both to GDP and energy exports are rapidly gaining on fossil fuels. For several years, fossil fuels consumed 25%+ of capital investment while never adding more than 11% to GDP including indirect economic activity; however, fossil fuels produced less than 1/2 as much GDP per $ of capital investment as compared to renewable energy projects and 1/4 as much employment per $ of revenue. Instead of working so hard on developing means of transporting fossil fuel to oversupplied export markets, more effort should be applied to transport of renewable energy to high price export markets primarily along the eastern seaboard but also along the west coast (and HVDC transmission lines don’t have spills to clean up). The graphs are also deceptive since they are proportional rather than absolute – even in boom years, Ontario’s contribution to GDP was twice Alberta’s and this year is likely to be more than 3X. Where’s the graph that shows which group’s GHG emissions has increased and which has decreased? It’s somewhat inept to put up all this data without recognizing Dutch disease when one sees it.

    • Oil c’onsumed’ 25%+ of investment because it offered a ROI. Renewables aren’t there yet without help from the government (us.)
      2% growth in GDP means the middle class goes nowhere because of inflation, not to mention rising home prices.

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