Making Canada Relevant Again- The Economic Super-Thread

[Brad Sallows]

Nothing is going to make much sense until the chief planning assumption - population growth which supports pyramid-shaped benefit schemes - is thrown away and replaced.

 

[Edward Campbell]

Speaking of Jim Prentice, he has some harsh words for the government and the oil industry according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/ottawa-failed-in-its-consultations-with-bc-first-nations-over-oil-pipelines-prentice/article4572255/

Ottawa failed in its consultations with B.C. first nations over oil pipelines: Prentice

SHAWN MCCARTHY - GLOBAL ENERGY REPORTER
The Globe and Mail

Published Thursday, Sep. 27 2012

The federal government has failed in its obligation to properly consult with B.C. first nations about crude oil pipelines through British Columbia – an omission that could jeopardize Canada’s goal of expanding energy trade with Asia, former Conservative cabinet minister Jim Prentice says.

In Calgary Thursday, Mr. Prentice, now vice-chairman of Canadian Imperial Bank of Commerce, delivered a scathing critique of the complacency and shortsightedness in both the government and oil industry in failing to move more decisively to prepare for the “seismic shift” under way in the global energy sector.

After relying on the North American market, Canada’s energy producers now have to looking internationally, and particularly at Asia. And the country has to catch up, he said in a speech at the University of Calgary.

“We are new to the global energy game and, frankly, we aren’t yet playing that game with much skill, foresight or cohesiveness,” said the Calgary native, who headed industry, environment and native affairs departments during his time in government. “Despite our natural advantages, we have failed to occupy the strategic high ground.”

In the last two years, Prime Minister Stephen Harper has heightened his government’s focus on expanding trade and investment ties with Asia, notably China. Earlier this month, Mr. Harper signed a foreign investment protection and promotion agreement with Chinese President Hu Jintao, and reiterated his message that Canada’s future prosperity depends on deepening commercial relations with the growing region.

In an interview, Mr. Prentice said the country must expand its capacity to export oil and natural gas from the West Coast. Building that access is “one of the most important – and certainly one of the most challenging – initiatives our country has encountered in decades,” he said.

But he argued that, so far, the federal government has not assumed its constitutional obligation to engage first nations in a meaningful way about the proposed pipelines, including Enbridge Inc.’s Northern Gateway project and Kinder Morgan Inc.’s TransMountain pipeline expansion.

“The obligation to consult with and accommodate first nations ... these are responsibilities of the federal government,” he said.

“And take it from me as a former minister and former co-chair of the Indian Claims Commission of Canada, there will be no way forward on West Coast access without the central participation of the first nations of British Columbia,” he said.

Ottawa should negotiate agreements that ensure native communities can support pipeline projects without impacting their unsettled land claims and a co-management regime with those communities for ocean terminals and shipping, Mr. Prentice said.

Sounds like a plan to me.

 

[Edward Campbell]

Two related items, both reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

The case of the proposed CNOOC takeover of Nexen

http://www.theglobeandmail.com/report-on-business/nexen-decision-a-tipping-point-for-canada/article4590269/

Nexen decision a tipping point for Canada

DEREK H. BURNEY AND FEN OSLER HAMPSON
Special to The Globe and Mail

Published Thursday, Oct. 04 2012

The decision on CNOOC ‘s proposed acquisition of Nexen will be a key litmus test on whether the government intends to “walk the talk” on diversification. Approval – along with clear limits on future foreign investments – not only makes sense, but is clearly in the national interest, if the government seriously intends to broaden economic ties with the fastest-growing, second-largest global economy.

Concerns about state-owned enterprises not adhering to market principles have some legitimacy, as do the undeniable facts that the Chinese political system is different and plays by different quasi-market rules. Furthermore, Canadian firms have nothing like open access to invest in China on oil sands development or in virtually any other sector.

But Canada needs foreign investment to develop its huge resource base, and China has unmatched capacity to participate. With less than 5 per cent of the oil sands leases, Nexen is a relatively small player. The majority of its assets are outside Canada. CNOOC is making tangible capital commitments to invest in developing its leases in Canada, and to employ Canadians in this development. As demonstrated by its decision to establish its North American head office in Calgary, CNOOC will also make significant commitments to the communities hosting its facilities. It is also important to underscore that the operations of Nexen under CNOOC ownership will be fully in accordance with all Canadian laws and regulations. Ownership does not give any firm a licence to misbehave. On the contrary, CNOOC’s behaviour in Canada will be monitored closely and will impact on future investment aspirations. The Chinese know that.

The 35-per-cent public float of CNOOC will be listed on the Toronto Stock Exchange, as well as the New York and Hong Kong stock exchanges, to provide a higher degree of governance transparency than is the case of some other SOEs already operating in Canada.

Polls suggest a good deal of opposition to this transaction, but polls can easily be manipulated in order to elicit a negative, if not knee-jerk, response.

The “net benefit” definitions of Investment Canada rules, along with the national security and SOE nuances added to the legislation, remain deliberately opaque and give the government considerable latitude on decisions. However, rejection of the CNOOC bid would not only be a blow to the shareholders of Nexen who voted overwhelmingly to approve the deal, but it would be damaging to the Harper government’s recent efforts to develop a strategic economic partnership with China.

Nonetheless, approval should be accompanied by some clear guidelines setting limits or conditions on future acquisitions of this kind. A threshold of 10 per cent on any resource sector for outright acquisition, allowing only minority stakes in those above the threshold, would be one such approach. Equally, to give credence to Prime Minister Stephen Harper’s concern about the “imbalance” in the economic relationship, the government could serve notice on the Chinese government of what is needed to redress the imbalance and improve access for Canadian investors and exporters. It is called leverage, and it is fundamental to any trade negotiation.

There may be other ways to balance our need for foreign capital with our desire to retain control of our destiny. But we are sorely mistaken if we believe that investors do not have other options. They do. If we respond erratically to foreign overtures, they will place their investments elsewhere and the world will fast get the message that Canada is not open to business. Making choices in a turbulent, highly competitive global economy is not easy, but blocking investments that fully meet Investment Canada criteria is not conducive to reward.

The harsh reality is that because our energy exports are captive to a single market, we are a price-taker, not a price-maker, for oil – and the price of late has been 20-per-cent to 25-per-cent below world prices. As well as establishing guidelines for foreign investments in our resource base, the government should review urgently, with Canada’s oil companies, ways to reduce our dependence on imports of oil which, in turn, causes Canadian consumers to be gouged by distribution bottlenecks and severe weather conditions in the United States. As the late Peter Lougheed argued, developing greater refining capacity and pipeline infrastructure in Canada will enable us to benefit our own consumers and to market our energy products beyond North America.

What we cannot do, as a nation highly dependent on trade and foreign investment, is pick and choose by stealth, or welcome investment only from countries that mirror our political values. We have to do business with the world as it is, not as we wish it to be. That can be done sensibly and pragmatically in a manner that respects our basic laws and regulations, serves the national interest and broadens the prospects for our future prosperity.

Derek H. Burney is Senior Strategic Advisor for Norton Rose Canada LLP and a former Canadian Ambassador to the United States. Fen Osler Hampson is Distinguished Fellow and Director of Global Security at CIGI and Chancellor's Professor, Carleton University.

AND​

The Northern Gateway Pipeline Project

http://www.theglobeandmail.com/commentary/you-heard-it-here-northern-gateways-dead/article4589760/

You heard it here: Northern Gateway’s dead

JEFFREY SIMPSON
The Globe and Mail

Published Friday, Oct. 05 2012

The Northern Gateway pipeline that Enbridge proposes to build from Alberta’s bitumen oil to the Pacific coast of British Columbia is, for all intents and purposes, dead.

Yes, regulatory hearings before the National Energy Board will continue until the NEB approves the project. And yes, Enbridge will keep pushing for it. And yes, the Harper government, which is so publicly committed to the project, will continue to extol its virtues as part of the need to get Canadian resources to Asia.

But the project is dead. It has too many obstacles now, and there’ll be more in the future.

To survive, the Gateway pipeline would have to push past the growing opposition of British Columbians in general, the opposition of the current Liberal provincial government and the NDP government likely to replace it next year, the unanimous opposition of environmentalists, considerable opposition from at least some of the aboriginal groups along the route and, if all this were not enough, the likelihood of prolonged court battles.

What’s not standing in the way are U.S. environmentalists, whom the Harper government accused of being the principal reasons for the project’s problems. This wild statement was, then as now, completely at variance with reality, since British Columbians are hardly to be led around by their collective nose by a handful of folks from south of the border. To suggest otherwise is to insult their intelligence.

B.C. Premier Christy Clark just spent two days in Alberta, including a meeting with Alberta Premier Alison Redford that both described as frosty. Ms. Clark said she was in Alberta to inform Albertans of B.C.’s concerns and demands; but given a looming political debacle at home, she was really speaking to her home audience.

It was the height of rudeness to ask for a meeting, as Ms. Clark did, then offer nothing and not even pretend to be civil, as if the most urgent thing on her mind was telling the B.C. media how unproductive had been the meeting she sought.

But good manners flee, even between premiers of contiguous provinces, when one of them – Ms. Clark – is fighting for her political life and has come to understand how unpopular Gateway has become in British Columbia. Indeed, it would seem that the more British Columbians know about the project, the less they like it, starting with the reasonable question: Why should B.C. take most of the environmental risks for so little actual gain?

Ms. Clark, reading the political winds, has become testy about Gateway; her likely successor, NDP Leader Adrian Dix, is adamantly opposed. As are, of course, the federal New Democrats. The Harper Conservatives can steamroller the federal NDP in Parliament, but they can’t so easily steamroller the B.C. government and public opinion.

Aboriginals are divided, of course, but those who’re opposed can make life very difficult for Enbridge even if the NEB approves the pipeline. In fact, some aboriginal groups would take a green light to Gateway as a green light to appeal to the courts, arguing that their constitutional right to be consulted on lands they claim to be theirs was not respected, a precept articulated by the Supreme Court of Canada. At the very least, this litigation would stretch on for years.

Enbridge has not helped itself in the court of public opinion with embarrassing pipeline spills. These might be one-off affairs, explainable on technical grounds, but they looked bad and, politically, smelled worse.

The diminished prospects for Gateway make it somewhat more attractive building further pipeline capacity down the Fraser River to the Lower Mainland, where the Kinder Morgan-owned Trans Mountain pipeline already runs. The prospect of more ships in Vancouver’s harbour is among the obstacles for this project.

Trains? They don’t carry the capacity of pipelines. But they arouse less opposition, so that option has a better chance politically than a pipeline for bitumen to the Pacific. Shipping more oil to Eastern Canada seems to be the easiest option politically of all.

But bitumen oil to Asia through northern B.C. just ain’t going to happen.

I agree, pretty much point by point, with Derek Burney and Fen Hampson: despite some serious problems the CNOOC takeover IS of net benefit to Canada and should be approved, with conditions which will apply to future transactions, too.

I also agree, partially, with Simpson: Northern Gateway is dead for, at the very least, a decade - more likely for a generation. But: we do need to get an efficient, effective, modestly cost effective, pipeline to a port which can serve Asia. A pipeline through BC, maybe a massive expansion of the southern pipeline, the Trans Mountain/Kinder Korgan proposal, is needed and is a better choice than shipping through Eastern Canada.

 

[a_majoor]

What’s not standing in the way are U.S. environmentalists, whom the Harper government accused of being the principal reasons for the project’s problems. This wild statement was, then as now, completely at variance with reality, since British Columbians are hardly to be led around by their collective nose by a handful of folks from south of the border. To suggest otherwise is to insult their intelligence.

So the millions that US groupd like the Tides Foundation sluice into the Canadian environmental movement is a wild statement? He obviously has never heard of ace researcher Vivian Krause.

 

[Retired AF Guy]

So the millions that US groupd like the Tides Foundation sluice into the Canadian environmental movement is a wild statement? He obviously has never heard of ace researcher Vivian Krause.

I suspect that people like Jeffery Simpson consider Ms. Krause as just a crank... that's if they even know she exists.

 

[a_majoor]

I suspect that people like Jeffery Simpson consider Ms. Krause as just a crank... that's if they even know she exists.

Her work has been heavily featured on the National Post (see the sidebar on their website), so I'm sure he does know her. Sadly, many people take the same approach to research and inconvenient facts; they ignore it or if it is directly brought up; they will turn to ad hominem attacks or change the subject (or both). Luckily, we are living in an age where "narratives" crafted by media and others are being challenged by the ability of outsiders to present the facts without going through media gatekeepers.

 

[Edward Campbell]

...
The TPP is, broadly, a good thing, with or without China, Japan and South Korea; an ASEAN-China deal is a good thing, too; TPP + ASEAN-China + China, Japan and South Korea is an even better thing, but don't hold your breath while waiting for any of them.

We are "in," according to the Globe and Mail in a report headlined, Canada officially joins Pacific trade talks.

The report says that "Canada will join the other 10 members of the Trans-Pacific Partnership talks at the negotiating table for the next full round December 3-12 in Auckland, New Zealand," and "Countries participating in the Trans-Pacific Partnership talks include the United States, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and Brunei. With the inclusion of Mexico, which has also just officially joined, the nations involved in negotiations comprise 658 million people and their combined annual economic output exceeds $20.5-trillion."

This will be very, very controversial because several countries, led by the Australia, New Zealand and the USA, will take aim at our egg and dairy supply management (protection) system.

 

[GAP]

Our our egg and dairy supply management should have been phased out ages ago.....

 

[Edward Campbell]

Our our egg and dairy supply management should have been phased out ages ago.....

Agreed, but the counter 'argument' from egg and dairy producers will be loud, colourful and, probably, violent.

 

[Rifleman62]

Violent? Break the law, get arrested, go to trial, then reap what you have sown.

Ten thousand of the richest dairy farmers in the world are making Canada's less well off, the Indians and the disadvantaged pay three times the price for milk. Surely the NDP could support the end of supply management in Canada?

The end is also environmentally friendly for many in Canada. It reduces automobile engine exhaust contaminates escaping into the atmosphere waiting to get out and into Canada with cheap dairy, eggs, chicken, turkey, pork etc.

 

[genesis98]

6 years ago I was able to make 26 grand in one year as a corporal in the sig reserve.

 

[Kirkhill]

Two related items, both reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

The case of the proposed CNOOC takeover of Nexen

http://www.theglobeandmail.com/report-on-business/nexen-decision-a-tipping-point-for-canada/article4590269/

AND​

The Northern Gateway Pipeline Project

http://www.theglobeandmail.com/commentary/you-heard-it-here-northern-gateways-dead/article4589760/

I agree, pretty much point by point, with Derek Burney and Fen Hampson: despite some serious problems the CNOOC takeover IS of net benefit to Canada and should be approved, with conditions which will apply to future transactions, too.

I also agree, partially, with Simpson: Northern Gateway is dead for, at the very least, a decade - more likely for a generation. But: we do need to get an efficient, effective, modestly cost effective, pipeline to a port which can serve Asia. A pipeline through BC, maybe a massive expansion of the southern pipeline, the Trans Mountain/Kinder Korgan proposal, is needed and is a better choice than shipping through Eastern Canada.

Perhaps the time is ripe to go right flanking and tie Fort McMurray, Inuvik, Prudhoe and Valdez together.  It would mean mixing pipelines, directions and fluids (bitumen, distillate and gas) and it would exporting Canadian oil and gas via American ports (which we are already doing).  But the scope of the project would be so massive and of such duration that it would create a focus for activity that would create transportation corridors for road and rail.  That is a strategic outcome appreciated by both the Alaskan and the Canadian governments.

And it would have the support of the majority of the Alaskans and the northern tribes along the MacKenzie.

It might even be privately financed.

 

[Edward Campbell]

We are "in," according to the Globe and Mail in a report headlined, Canada officially joins Pacific trade talks.

The report says that "Canada will join the other 10 members of the Trans-Pacific Partnership talks at the negotiating table for the next full round December 3-12 in Auckland, New Zealand," and "Countries participating in the Trans-Pacific Partnership talks include the United States, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and Brunei. With the inclusion of Mexico, which has also just officially joined, the nations involved in negotiations comprise 658 million people and their combined annual economic output exceeds $20.5-trillion."

This will be very, very controversial because several countries, led by the Australia, New Zealand and the USA, will take aim at our egg and dairy supply management (protection) system.

More on the TPP, especially on the difficulties, in this report which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/tpp-talks-are-canadas-best-ever-opportunity-for-trade-diversification/article4600407/

TPP talks are Canada’s best ever opportunity for trade diversification

JOHN IBBITSON
The Globe and Mail

Published Wednesday, Oct. 10 2012

Finally and formally, Canada has been invited to join the Trans-Pacific Partnership talks. We are arriving just as things get interesting.

The talks are troubled. They could collapse. Even if they don’t collapse, the final agreement could be so riddled with exemptions that the deal essentially becomes meaningless. (Canadian dairy and poultry farmers, who are hoping to be granted one of those exemptions, would celebrate such an outcome.)

Does that mean that Canada has joined the party just as it’s breaking up? Not necessarily. The dream of the Trans-Pacific Partnership is still alive. And every Canadian has a stake in its success.

President Barack Obama and other leaders had hoped to conclude an ambitious trade agreement among Pacific nations by the end of this year. They’re not even close.

The most optimistic estimates don’t envision a final text before the end of 2013, at best.

Internal resistance is growing in some countries. As details leak, critics seize on allegations that, for instance, the TPP will force Australians to pay more for prescription medicines.

“Do you think it would be in the government’s interests, or in Australia’s interests, for Australians to be paying large amounts more for medicine?” countered Australian Trade Minister Craig Emerson.

“Do you think we are really that stupid?”

But he also acknowledged that the toughest negotiations still lie ahead. Next year will be make-or-break for the talks. It could be break.

The TPP is, by its very nature, unbalanced. Some of the participating countries are small and poor, such as Vietnam. Some are small and rich, such as Singapore.

As well as the Asian participants, much the Anglosphere is involved (the United States, Canada, Australia and New Zealand) but so are Mexico, Peru and Chile in Latin America. It can be difficult to find common cause.

The biggest problem is the United States. Yes, adding the world’s largest economy to the partnership hugely increased the TPP’s importance. But the Americans are setting the terms for the negotiations, and many countries don’t like those terms.

Some countries are balking at American demands for stricter intellectual property-rights protection.

There is huge resistance to an American demand that would allow corporations to sue governments for allegedly breaching the terms of the treaty.

And while the Americans want other countries, including Canada, to eliminate agricultural protections, they continue to assure their own farmers that, for example, the American sugar industry will still be protected.

Canadian officials grumble off the record that the Americans are trying to use the TPP talks to force Canada and Mexico to abandon protected sectors – not just in agriculture, but in culture and financial services – that were part of the original North American free-trade agreement .

Will these disagreements doom the TPP? Everyone, including Canadians, should hope not.

With the Doha round of global trade talks moribund, bilateral and regional agreements are the best hope for expanding global trade.

The TPP would encompass 685 million people, uniting North and South, East and West in a great, Pacific economic free-trade zone of the developed and the developing; of Christians, Muslims and Buddhists; of nations that border, not only the Pacific, but the Atlantic, the Indian, the Arctic and Antarctic oceans as well.

And once it was up and running, the invitation would be there for China to join, making the TPP not only the biggest, but virtually the only, game in town.

The TPP, in short, is the most important opportunity for trade diversification that Canada has ever had. When the next round of talks commence in Auckland Dec. 3, Canadian negotiators will finally be at the table, doing their best to advance the cause. We should wish them well.

I hope that the Canadian negotiators are going to take a long view, which means e.g. sacrificing "supply management" because it is bad public policy and bad economics, despite being good politics one guarantor of public peace in Ottawa. (Early this year CBC journalist stenographer Janyce McGregor took dictation from the dairy industry and published "five reasons to save supply management"; the sixth reason, the one she failed to mention, but which the CBC editors posted in graphic form, is because the dairy farmers will commit acts of vandalism, even violence, including criminal assault on elected officials, as they did to Liberal Agricultural Minister Eugene Whalen in 1976.)

Former agriculture minister Eugene Whelan is hit on the head with a milk jug during a
demonstration by dairy farmers in this 1976 photo. Whelan said in his autobiography
that the federal government's refusal to bail out Quebec dairy farmers helped elect
the Parti Québécois later that year. (Russell Mant/Canadian Press)

I don't blame the (mainly Quebec) dairy farmers for being upset. They have a "sweetheart deal" which has 'saved' hundreds and hundreds of "family farms" and, indeed, a "way of life" which will disappear when, not if, supply management disappears. But we need not fear that failing to support pay blackmail to Quebec farmers is somehow important to national unity ~ dairy supports are the least of our worries on that front.

 

[Kirkhill]

Many of the dairy farmers are the same youngsters that were chucking milk at Eugene Whelan when I was in University.  Only they are not so young any more.  And they are not operating their family farms either.  Nor are their kids (remember the Quebec birth rate).

So where are they and what are they doing?

They are members of dairy co-operatives.  They manage their quota in their home province and that quota share gives them voting rights in their home co-ops. 

So far so traditional.

But the co-ops are no longer traditional.  They compete against Parmalat (Italian Multi-National) and Saputo (home grown Family held Multi-National).  Consequently they have bought operations outside the home province.  Within Canada that means that the co-op buys milk like any other business and sells its milk products.  The milk producers outside of the home province are not members of the co-op.  The only people eligible for membership on the board, and eligible to vote for the board, are home co-op members. 

Within Canada but outside the home province the co-ops operate exactly like their privately held competitors.  They are effectively limited partnerships and not co-ops.

The co-ops also operate outside Canada, buying up properties in the US in competition to Saputo and Parmalat as well as the major American players.
They are indistinguishable from privately held Multi-Nationals in the US.

Finally the co-ops are operating in places like Argentina and Brazil. 
They are indistinguishable from privately held Multin-Nationals in those countries.

And they compete from the safe haven of their protected status in Canada.

No more getting up at 04:00 to milk the cows.



There will be squawking but enough of them see the writing on the wall that they will adjust to making fortunes selling cheese to China in competition with the Kiwis and the Yanks. 

The co-op memberships have learned a lot in the last decade about the advantages of being a shareholder instead of a dairy farmer.

 

[Edward Campbell]

Here is the article by David Dodge, Peter Burn and Richard Dion; there is not much with which one might argue. It makes good economic and public policy sense. The conclusion is important and prescriptive: "the “solution” lies elsewhere: we need to focus less on the equality (or comparability) and more on the quality (or adequacy) of public services; less on federal transfers that redistribute income to “equalize” fiscal capacity, more on federal investments that will create more income and build the fiscal capacity of today’s lower-income provinces. We need policies that promote positive provincial convergence and the development of competitive manufacturing and service industries, and that also reflect the practical reality that Canada’s economic prosperity and political equilibrium ultimately depend on the economic strength of all provinces, especially populous Ontario ... In short, we need to think and look outside the equalization and transfers box, outside the narrow confines of subsection 36 (2) of the Constitution Act, 1982, and look to the broader economic objectives of subsection 36 (1)."

From The Consitution Act (1982):

Dodge et al say more "promoting," "furthering" and "providing essential public services of reasonable quality" and less "making equalization payments."

I agree.

There is a report in today's print edition of the National Post that says that Finance Minister Jim Flaherty has been given a classified (SECRET) report outlining some possible changes to equalization. One change that might have real fiscal and political ramifications is to recalculate how hydroelectricty production and the associated economic benefits are factored in; this would impact BC, MB, QC and NL.

 

[Edward Campbell]

There is a report in today's print edition of the National Post that says that Finance Minister Jim Flaherty has been given a classified (SECRET) report outlining some possible changes to equalization. One change that might have real fiscal and political ramifications is to recalculate how hydroelectricty production and the associated economic benefits are factored in; this would impact BC, MB, QC and NL.

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Vancouver Sun, is the report:

http://www.vancouversun.com/business/Conservative+government+plans+equalization+overhaul/7373306/story.html

Conservative government plans equalization overhaul
Changes could have multibillion-dollar consequences for some provinces

By Jason Fekete, Postmedia News; With File From Jonathan Fowlie, Vancouver Sun

October 11, 2012

The Conservative government is considering substantial changes to the $15.4-billion federal equalization program that could dramatically affect transfers sent to provinces and their ability to pay for programs and services.

One of the most contentious changes being examined by the Harper government is possibly recalculating how hydroelectricity production and the associated economic benefits are factored into equalization, according to confidential briefing notes prepared in recent months for Finance Minister Jim Flaherty and his deputy ministers.

The government's decision could have multibillion-dollar consequences on hydro-producing provinces such as Quebec, Manitoba, British Columbia, and possibly Newfoundland and Labrador.

The briefing notes, titled "Secret" but obtained by Postmedia News under access to information legislation, reveal the federal government is also examining whether to include the cost of delivering services into how federal equalization dollars are doled out to the provinces.

The documents, which are heavily redacted, also focus on the so-called "fiscal gap" facing Ontario, which is the difference between the amount of federal taxes collected in Canada's most populous province and the federal cash spent there on programs and services.

The equalization program, which is funded through general tax revenue collected from all Canadians, transfers dollars to poorer provinces so they can offer programs and services reasonably comparable to those offered in the wealthier provinces, at similar levels of taxation.

British Columbia has not collected equalization payments since 2006-07, officials said, adding the changes are therefore unlikely to affect B.C. anytime soon.

Still, Finance Minister Mike de Jong added the province has been at the table during the discussions. "B.C. has been participating in the ongoing discussions of how best to renew the Equalization Program even though it is not likely to receive equalization for the foreseeable future given its economic strengths," he said in a written statement.

Other items also being studied for possible changes, according to the documents, are the treatment of property taxes in calculating equalization, as well as the federal government's "protection payments" to provinces, which ensure no jurisdiction experiences a decline in its combined funding under health, social and equalization transfers.

Yet, any reforms to how hydroelectricity is calculated in equalization would almost certainly prove to be one of the most contentious issues, especially in the hydro-producing provinces.

"Potentially, it's a huge issue," said Al O'Brien, chairman of the federal government's 2006 expert panel on equalization, which examined hydroelectricity revenues as part of its analysis of the broader national program. "It will be controversial." He believes governments in Quebec and Manitoba recognize their fiscal capacity, or revenue-generating ability, is under-represented in the current system.

However, any changes to how hydroelectricity is calculated in equalization could have a "huge impact" on how much - if any - a province receives from Ottawa in equalization, he explained. For example, some studies have suggested Quebec could lose billions of dollars in equalization payments if the true value of hydroelectricity were calculated in the program. O'Brien said any such move "is bound to create friction at the federal-provincial level" - especially in Ottawa's relations with a new sovereigntist Quebec government.

Six "have-not" provinces are splitting $15.4 billion in equalization payments in 2012-13: Quebec ($7.4 billion), Ontario ($3.3 billion), Manitoba ($1.7 billion), New Brunswick ($1.5 billion), Nova Scotia ($1.3 billion) and Prince Edward Island ($337 million). The other four provinces (B.C., Alberta, Saskatchewan and Newfoundland and Labrador) are considered to have greater revenue-generating capacity and don't qualify for equalization.

The rules governing Canada's equalization program are up for renewal in 2014.

The current equalization program calculates 50 per cent of a province's natural resource revenues in determining its revenue-generating ability - or "fiscal capacity" - and whether it deserves an annual equalization payment. But the economic value of hydroelectricity isn't necessarily calculated the same as oil and gas, partly because of the difficulty in determining the value of hydro power due to a lack of a competitive market in Canada. Provinces such as Quebec, Manitoba and B.C. sell their abundant hydroelectricity to their consumers at below-market rates, meaning they reap the economic value of the resource through lower electricity prices rather than direct revenues and profits to Crown hydro-generating corporations that could be factored into the equalization program.

If the true economic value of the hydroelectricity were calculated, it would amount to a larger fiscal capacity for equalization-receiving provinces such as Quebec and Manitoba and possibly mean billions of dollars less in federal payments sent to those provinces in the coming years.

The Harper government announced in December 2011 that equalization will continue to grow in line with GDP, and federal officials have insisted that any changes to the program from an ongoing federal-provincial review will be purely technical adjustments

© Copyright (c) The Vancouver Sun

The simplest thing for provinces is to stop subsidizing hydro-electric power rates for consumers; it's also a simple way to guarantee electoral defeat. It may be simpler to accept less and blame the feds.

 

[a_majoor]

Demographics rears its head again. We will almost certainly need to make some drastic adjustments before they are made for us:

http://opinion.financialpost.com/2012/10/12/jack-mintz-adapting-to-new-reality-of-longer-lives/

Jack Mintz: Adapting to new reality of longer lives

Jack M. Mintz | Oct 12, 2012 8:44 PM ET
More from Jack M. Mintz

Politicians are caught between a rock and a hard place as ­population ages

Over four years ago, Lehman Brothers declared bankruptcy, resulting in a collapse of stock and bond markets by over 40% and shaking the confidence of economies around the world, including Canada’s. With declining finances and large pension losses, Canadian retirement wealth took a nosedive. Instead of looking forward to golfing and travelling, many retirees had to reconsider their options, including working for a longer period or making do with less.

With the Great Recession of 2008-09, Canadian governments also ran up public deficits to counteract a credit crisis. The looming demographic crunch with a retired population increasingly dependent on public transfers from more heavily taxed younger workers became less affordable as sovereign debt piled up.

So is today’s picture as bad as four years ago? The story is a mixed blessing with some good and bad news.

Canadian household wealth has recovered to a large degree as net assets per dollar of disposable income have almost returned to 2007 levels. This is quite unlike the U.S. experience, where housing prices remain almost 30% below the 2007 peak. Canadian net wealth per dollar of disposable income is now higher than in the U.S., with the latter falling to early 1990s levels.

Debt as a share of household assets has also risen from about 17% in 2007 to 20% in 2011. Mortgage debt, the most important form of consumer debt, has risen from 29% in 2007 to 32.5% of housing values in 2011.

As for elder poverty, Canada can still boast having one of the lowest levels among OECD countries (somewhat above 5%), even though the incidence has increased slightly. Nonetheless, single elders living on their own have a much higher incidence of poverty at 14%.

All this suggests that politicians are caught between a rock and a hard place. On one hand, governments need to reduce unfunded liabilities, including those associated with public pension funds and health care, to avoid sharp tax increases on the young working population in the future. On the other hand, leaders will be pressured to further support the elderly poor with fixed incomes, especially if Western countries inflate their economies to manage public debt burdens.

Obviously, there are no easy answers, but one is available. Canadians already recognize that public policies should adapt to a new reality whereby we live longer and could gainfully contribute to society for a longer time too. This well-understood perception provides a unique opportunity whereby governments can reduce fiscal pressures while at the same time ensure public policies are in place to protect the elderly from ­poverty.


To begin, it makes a lot of sense to increase the age of eligibility from 65 to 67 years of age for many public programs, as recently introduced for Old Age Security and the Guaranteed Income Supplement. While none of the existing or near retirees are affected, increased age eligibility will help make programs more affordable in the long run.

Many public benefits for the elderly were developed at a time when people lived few years beyond their retirement. Old Age Security itself was introduced 60 years ago with an age eligibility of 70 years, even though expected lives were little different.

Policy need not stop with this change. Eligibility for aged and pension income credits, public pensions for employees and the Canada Pension Plan could also be increased over time, saving federal and provincial governments gobs of money for other critical priorities.

These other priorities could include tax reforms aimed to generate more savings and improve Canada’s productivity so that more economic activity can support public services through taxation.

For example, the age of eligibility for contributions to RRSPs could be increased from 71 to 75 years. Required withdrawal rates from locked-in RRSPs and RRIFs could be reduced so that Canadians can make sure that they have some wealth available should they live longer than expected. None of these changes have a significant impact on government revenues, but they would encourage Canadians to use up their existing RRSP room with more flexible arrangements.

Public savings from increasing the age of eligibility can be used to boost GIS payments to counter poverty among the elderly, especially singles.

And public savings could be devoted to tax reform aimed at reducing the ­burden on younger Canadians who unfairly lose benefits that are currently available to existing elderly Canadians. As I have argued in these pages, Canada should consider taxing ourselves like Swedes under a dual income tax system, whereby unsheltered capital income is taxed at a uniform low rate. A low tax rate on savings would be particularly important to many young people today who have time to accumulate wealth for retirement purposes. Increased Canadian savings over time will also encourage investments by those businesses that have less access to international capital markets.

In fact, tax reform should become the mantra for Canadian governments today with a focus on productivity and demographic issues. Instead of policies that blindly raise tax rates and introduce new tax preferences to complicate an already overly complex tax system, we should look at taxes that can be fairly and more simply assessed on a tax base reflecting current realities.

Financial Post

Jack Mintz is a professor of public policy at the University of Calgary.

 

[a_majoor]

Another area for deep reforms, both to save money and to provide real help to people in need. Private charity and faith based charities have a very positive track record:

http://www.theglobeandmail.com/commentary/the-awful-truth-about-social-programs/article4610262/

The awful truth about social programs
MARGARET WENTE
The Globe and Mail
Published Saturday, Oct. 13 2012, 9:00 AM EDT
Last updated Sunday, Oct. 14 2012, 11:01 AM EDT

One night back in July, a shooting spree broke out in a Toronto social-housing project on Danzig Street. Two young people died. As usual, everyone was shocked that such a thing could happen here. As usual, people demanded more help for troubled neighbourhoods – more social workers, more basketball programs, more jobs, more youth counselling. People who run social programs warned that as funding ran out, more violence might explode.

Yet as I toured the neighbourhood, it struck me that the residents already got a lot of help. They had access to dozens of programs that would send their kids to summer camp, provide mentoring for youth, help students get in to community college, improve parenting skills, and find jobs for young adults with criminal records. Over the past seven years, the city has poured an extra $210-million into programs designed to help Toronto’s “priority” neighbourhoods.

What difference has that money made? Nobody has a clue. Nobody tracked the programs or measured the outcomes, or even collected local data on changing crime and dropout rates. City officials admit that because of the lack of basic information, it’s impossible to evaluate the impact of these investments.

But that’s not unusual. Other governments are no wiser. Hardly any of the countless programs that spend billions of dollars to help the poor and vulnerable are measured for results. According to the Cato Institute, the U.S. spends nearly a trillion dollars a year on anti-poverty measures – which works out to $20,610 per poor person, or around $61,000 for a family of three. “We are spending more than enough money to fight poverty but not spending it in ways that actually reduce poverty,” argues the Cato Institute’s Michael Tanner.

It’s beginning to dawn on cash-strapped governments that this has to change. As public finances reach the breaking point, we’ve got to start spending public money more wisely. To do that, we need rigorous evidence about what works.

Now comes the discouraging part. The evidence to date – such as it is – suggests that many, perhaps most, social programs do not make a difference, except to the legions of administrators and social workers who are directly and indirectly employed in delivering them. This is not a conservative conclusion. It is the conclusion of independent groups such as the Brookings Institution (a non-partisan think tank) and the Coalition for Evidence-Based Policy, which are part of a growing movement to make social spending more accountable.

Here’s one example of how big the problem is, as laid out by the Brookings Institution. The U.S. federal government funds dozens of programs to help youth. These include a $1.2-billion after-school program for disadvantaged youth, a $1.5-billion Job Corps program for at-risk high-school students, and the legendary Head Start program, which spends $7-billion a year to help disadvantaged younger children. Ten of these programs, including Head Start, have been evaluated using the gold standard benchmark of random control groups. Nine of the evaluations found weak or no positive effects. A Brookings report says, “Only one program [Early Head Start, aimed at even younger children] was found to produce meaningful, though modest, positive effects.”

These results are devastating. They suggest that most of the money we spend to help the poor and vulnerable is wasted. For what it’s worth, conservative-inspired programs – Scared Straight, abstinence education, boot camp for young offenders, teacher pay for performance – don’t work any better than liberal-inspired ones.

So, should we just throw in the towel? I don’t think so. What we need to do is be more humble, more realistic and more selective. We need to let the evidence be our guide. Some small, inexpensive interventions appear to work reasonably well. One example is the Montreal Prevention Experiment, which was designed to reduce antisocial behaviour among disruptive boys between the ages of 7 and 9. Just a few family counselling sessions produced modestly positive long-term results. Another successful (though quite expensive) innovation is Pathways to Education, which steers vulnerable kids through high school and on to higher education.

Among the biggest advocates for evidence-based funding is Barack Obama, whose administration is working to redirect funding to programs with solid evidence of success. David Cameron’s U.K. government is moving in the same direction. Canada lags far behind. The idea is suddenly hot stuff in Ontario, where Dalton McGuinty’s government faces crushing deficits. But the truth is that the data needed to make decisions simply don’t exist. As one insider says, “We’ve organized ourselves in such a way that mostly we have no idea what we’re doing.”

Governments are uniquely ill-equipped to overhaul their approach to social spending. To start with, they can’t take the heat. All are saddled with giant legacy programs from the past. Any cuts to any programs, no matter how trivial, invariably spark a firestorm of hostile reaction, complete with heart-wrenching testimony from the victims.

Practically, politicians can’t make big moves without broad-based support from the electorate. And in any case, governments are organized to spend money, not get results. They are equipped to measure volume, not outcomes. Government bureaucracies instinctively manage information in ways that will perpetuate the status quo (and themselves). On top of that, politicians include vast numbers of people who work in the helping industries. The sum of all these forces is a built-in inertia that makes it almost impossible to shift spending to programs that might be more effective.

The next frontier in social policy is to rigorously assess social programs so that we can identify the ones that really make a difference. Meantime, here’s an idea. Let’s take all the money we are spending to help the folks on Danzig Street and just give it to them. Maybe they’ll use it to move to a better neighbourhood.

Editor's Note: Earlier, we accepted comments from our readers on the issues raised by this column in a format where our moderators reviewed the comments before posting. Thanks to everyone who participated. The transcript of that debate is below.

 

[Edward Campbell]

This, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail might seem counter-intuitive, but it is an interesting assessment:

My emphasis added.
http://www.theglobeandmail.com/report-on-business/top-business-stories/some-canadian-provinces-lurching-toward-unsustainable-finances-study-warns/article4620163/

Some Canadian provinces lurching toward ‘unsustainable finances,’ study warns

MICHAEL BABAD
The Globe and Mail

Published Thursday, Oct. 18 2012

'Unsustainable finances'

Several Canadian provinces are lurching toward “unsustainable finances,” according to a new study that warns of severe ramifications.

Done by San Francisco consultant Marc Joffe of Public Sector Credit Solutions, and released today by the Macdonald-Laurier Institute, it warns Canadians of the possibility of a euro-style debt crisis.

I find that a bit too much, personally, but agree, of course, that Canadian provinces need to get their act in gear even more, and that trouble looms.

“Canadians may be too complacent if they think that the debt crisis wracking Europe cannot happen here,” the 52-page study warns.

“In the medium- to long-term, public finances in several provinces are unsustainable, raising the spectre of debt crises, damaged credit ratings, and federal bailouts if corrective steps are not taken. If such crises occur, they will harm not only the provinces directly concerned, but could affect the entire economy.”

It’s not overly surprising that Mr. Joffe, a former senior director at Moody's Analytics, found Ontario to be a flashpoint, with what the institute termed the “highest probability” of default in up to 20 years.

What is arguably surprising is that he found Alberta has the highest probability over a 30-year timeline, despite its solid standing now.

Quebec has the lowest risk.

“The most vulnerable in the 10-20 year window is Ontario, due to its large annual deficits,” the study says.

“Alberta has the most risk at the 30 year threshold as its annual deficits swing its net financial position from a surplus to a large debt. Alberta’s risk is attributable to high deficits, the fact that its population is expected by [Statistics Canada] to age more rapidly than other provinces and because it is heavily exposed to volatile energy revenues.”

Mr. Joffe found that the risks among the provinces are seemingly not reflected in what are now low and uniform long-term interest rates.

“The fact that long-term rates do not incorporate the solvency risks detailed in this report could show that (1) investors expect the federal government to rescue provinces down the road, or (2) they have confidence that provinces will take corrective action, or (3) they have not fully evaluated the long-term credit picture.”

Read the study

 

[a_majoor]

Lurching? Unsustainable?

How about moving at warp speed in Ontario's case, which Quebec drafting close behind.

Reason?

(1) investors expect the federal government to rescue provinces down the road, or (2) they have confidence that provinces will take corrective action, or (3) they have not fully evaluated the long-term credit picture.”