For roughly a decade, the NDP provincial government annually reported a balanced summary of accounts (core government operations plus the surplus and deficits of Crown Corporations and other government controlled entities). That streak ended with the global recession (2008-2009, was the worst of it) and the government's response to it: stimulus spending requiring increased borrowing.
Now, with the provincial economy basically recovered (gross provincial product now exceeds the level reached before the recession), there still seems to be no certainty whatsoever as to when annual balanced summary accounts for the provincial government will reappear. (The federal government has reported confidence in its plans to balance its books, now suggesting it could occur as early as its 2014/15 fiscal year.)
Publius understands that Manitoba's Finance Minister recently indicated that the Selinger government's most recent claim/promise/forecast that its summary accounts would be in balance for its 2016/17 fiscal year (an earlier forecast suggested an end of deficits in 2015/16) is now, like the previous forecast, unlikely to be realized. Apparently, the reason given for this 'change of heart' is that the government is unwilling to 'sacrifice' services to bring it about.
In its 2012 budget, the provincial government expanded the list of goods and services subject to the PST, and, as well, upped a wide range of other fees. In total, the annual take was estimated in the range of $280-million.
In the latest budget, the government, ignoring a legislative requirement for an approving referendum, upped the rate of the PST from 7% to 8%, a further annual increase in revenues from the measure in the range of $300 million. During the 2011 election, there was no mention of these additional 'takes' from government, Premier Selinger scoffed at the prospect of his government raiding taxpayers' pocketbooks.
So, while the economy has recovered and the Selinger government has increased its annual levies on taxpayers by $600-million, the government still cannot 'foresee' the year it will be able to balance the Province's books. While Publius notes the government's claims of increasing its investments in provincial infrastructure, he is also aware that such investments are not charged against the summary accounts in the year of the expenditure but amortized over the expected service lives of the new or enhanced infrastructure.
Initially, it was expected that a provincial election would occur in the fall of 2015, now, with the prospect of a federal election at that time, it is more likely the provincial election will be deferred to the spring of 2016. From the Finance Minister's lack of confidence that the government will be able to balance its books for its 2016-17 fiscal year, it seems clear that the government is already planning to unleash more spending, and borrowing, in the hopes of re-election.
We are not 'looking at' a revenue problem, we are 'seeing' a government unable to restrain itself from spending, with announcements seemingly coming daily, even though we are still more than two years away from an election. Will the public realize that it is being 'wooed' with its own money? Or, more accurately, with its own money plus what money the government can borrow.
Is the taxpayers' only hope the intervention of the credit rating agencies and the bond market?
We just posted an interesting commentary about sea levels and global warming by an American meteorologist with an interest in ancient city sites in Europe and Asia. Robert Endlich observes that declining global temperatures caused the polar ice cap to grow causing sea levels to fall -
"Those rising oceans created new ports for Greek and Roman naval and trade vessels. But today many of those structures and ruins are inland, out in the open, making them popular tourist destinations. How did that happen? The Little Ice Age once again turned substantial ocean water into ice, lowering sea levels, and leaving former ports stranded. Not enough ice has melted since 1850 to make them harbors again.
The ancient city of Ephesus was an important port city and commercial hub from the Bronze Age to the Minoan Warm period, and continuing through the Roman Empire. An historic map shows its location right on the sea. But today, in modern-day Turkey, Ephesus is 5 km from the Mediterranean. Some historians erroneously claim “river silting” caused the change, but the real “culprit” was sea level change."
In 2011 I had the opportunity to travel to Turkey, where we visited Ephesus and other ancient, abandoned cities. Here is a picture where I am standing in the stadium that graced the ancient city of Miletus, a place many scholars describe to be the birthplace of philosophy. The site is thousands of years old and its hey day as a trading centre, it indeed was on the waterfront possessing a magnificent harbor. The local narrative, of course, blamed silting for the city's eventual decline and abandonment.
The takeaway from the article is - Sea level is a dynamic property in our planet’s climate cycles, which are closely linked to changes in solar energy output and other natural factors. It is unlikely to change in response to tax policies that make energy more expensive and economies less robust – no matter what politicians in Washington, Brussels or the United Nations might say.
One of the projects I'm working on at Frontier is a new video clip about a company called GSI - Geophysical Service Incorporated.
Joseph Quesnel, one of my colleagues, has written about GSI before.
GSI conducts seismic surveys and then sells the data they collect to energy companies who use it to help them find resources under the seabed.
Unfortunately, they are locked in legal battles in Atlantic Canada, where provincial governments have been taking their data and giving it to energy companies for free, "for the greater good" of their provinces.
The provincial governments think giving free data to the energy companies will increase the likelihood of the province striking it rich, but in reality it just greatly reduces the incentive for businesses to collect the data in the first place, harming the province's prospects.
A video that GSI produced themselves is embedded below.
Look out for our video sometime later this month!
A recent news report from the Winnipeg Free Press shows that 40 per cent of bands in Manitoba have outside managers to help with their finances. This is a record among Canadian provinces and territories.
Saskatchewan also has a high number of First Nations under some sort of remedial intervention.
The report also correctly concludes that while this while this intervention may help balance the books, it doesn't necessarily deal with underlying management issues.
Here is a link to a government document showing what First Nations across Canada are under default management.
The Frontier Centre, in the past, has asked First Nations respondents about default management in its flagship Aboriginal Governance Index. Control over finances is a prerequisite for good governance. Default management is not necessarily evidence of financial mismanagement, but it does not bode well for the First Nation.
The Frontier Centre is set to release a new and improved Aboriginal Governance Index and default management will be part of the governance equation when assessing quality of First Nations governance and services.
The report also mentions that default management does not necessarily improve the skills of band staff and elected officials, but enriches outside consultants, accountants and lawyers.
Clearly, the alternative is to improve governance and services before they reach such a critical level that default management is deemed necessary.
CBC aired a documentary on Toronto's condo market on November 21st that can be viewed here. It is notable for two reasons. First, it provides a prognosis for Toronto that is much darker than the most negative mainstream sources would suggest. Second, while it hints at some of the policies that have fuelled the condo boom, the producers seem to lay the blame for the problem they perceive entirely at the feet of "corporate greed" and foreign ownership, as though to absolve the particular policies behind the boom that they happen to like.
Some observers have expressed concerns over the last few years of a potential housing bubble in Canada. Of course, the more astute observers realise that the Canadian housing market is, in fact, dozens of loosely linked markets. The real concerns lie in Toronto and Vancouver, where prices have escalated dramatically since the 1990s. But there are good reasons why housing prices have increased in those markets.
Strong demand driven by in-migration, paired with natural and artificial barriers to growth lead inexorably towards higher prices. For there to be a genuine bubble, there would have to be a good degree of speculative investment that eclipses expected demand. That doesn't seem to be the case. As the documentary points out, 2.5 million people are expected to move to Toronto in the next 20 years. People need places to live. At worst, supply could get ahead of demand. Except it hasn't. Otherwise prices would be falling.
As the documentary points out, the construction industry cannot actually keep up with the demand. There are many people who purchase condos as an investment, and never actually live in them (many rent them out), and people who only live in the city part time, but it isn't clear why these are supposed to represent problems.
At one point they talk to a retail business owner who tried to set up shop in a Vancouver condo neighbourhood, only to go out of business. That person claimed that the fault lie with the fact that not enough people actually occupy those condo units. No thought was given to the fact that it might not have been a sound business idea to begin with. It's as though the documentarians set out to find as many victims as possible, even if they were cut by their own hands.
In addition to concerns over a possible bubble, the documentarians express concern over the quality of condos. They visit a few people who have had problems with their condos such as leaking windows, but provide no evidence that these aren't exceptional circumstances. Some percentage of construction is flawed, whether high rise or not. Simply pointing out a few cases doesn’t tell us whether or not defects are uncommonly prevalent in the Toronto condo market.
The most bizarre part of the documentary is when Toronto city councillor Adam Vaughan, beloved by downtown "progressives", argues that condos are breeding grounds for crime. The documentarians then implied that the downtown condo developments would turn into St. Jamestown, a poor high rise community. Yet, they fail to explain how condos only accessible to high income earners, could be breading grounds for poverty among low-income Torontonians.
The documentary mentions that the creation of the Greenbelt, which put much of the unused land around GTA cities off limits for development, helped spur the condo boom in Toronto. There is obviously some truth to that, as there is less land available for single dwelling houses, though shifting preferences towards urban living (while often exaggerated) certainly played a role as well. But this is the last we hear of the Greenbelt throughout the entire program. While pundits in documentary raise alarm bells about condo price increases in the GTA, they don't mention the very simple fact that reducing the supply of land available to development pushes up prices not only outside of the city, but also within. Those increasing land prices get passed on to condo buyers. There is good reason to believe that this will keep prices up unless migration to the GTA tails off dramatically, which isn't likely in the foreseeable future. While foreign buyers and speculators are convenient targets, it seems odd to ignore simple arithmetic.
The troubling part of this documentary is not that it took a dim view of the Toronto condo market, but that they never bothered to interview anyone who didn’t share that view. Given that the documentarians expressed a perspective that runs contrary to most independent assessments, the least they could have done was engage with people holding the majority opinion. It’s fine to take a dissenting view, but when doing so, one should explain what the majority opinion is, and why they believe that position to be erroneous. A strong documentary should weigh various perspectives according to their merits. Instead, The Condo Game makers mustered selective evidence to defend their preconceptions. Our publicly funded broadcaster should aspire to a much higher standard.
Recently, the Minister Responsible for Manitoba Hydro, former Finance Minister Stan Struthers, issued an invitation to Manitobans to provide their views regarding Manitoba Hydro's Power Smart programs.
Briefly, Publius considered responding to the invitation, before rejecting the notion after recalling the futility that has greeted numerous past efforts by many knowledgeable persons to bring about a reconsideration of Hydro's development plans by the provincial government.
The Power Smart programs of Manitoba Hydro are designed to reduce the electricity demand of its customers through enhancing energy efficiency, thus allowing those customers to reduce their otherwise bills. Reducing demand allows the Utility to defer the construction of new generation and transmission, and/or export the 'saved' power (the latter attractive when wholesale electricity prices are higher than the what would be otherwise realized from domestic customers).
Deferring the construction of new infrastructure allows for a lower unit cost of electricity to the Utility's domestic customers, as new infrastructure comes with a much higher price tag than that derived from old highly amortized infrastructure.
Manitoba Hydro already knows that demand is a function of price, albeit not a one to one relationship. Yet, it does not employ 'price' as a means to either reduce demand or, when the demand is strong enough to overcome concern over the price, to obtain higher prices for its power. Higher prices received from a customer or group of customers reduce the revenue required from the rest of the overall customer base.
In many advanced jurisdictions, time of use rates, higher rates in peak times and seasons, provide an incentive to consumers to 'move' power needs into the off-peak hours, reducing demand in the peak hours and seasons.
And at a time when the Utility and the government are arguing new infrastructure must be added, knowing that the unit cost of production from that new infrastructure will be twice or more the current unit cost, the Utility still allows new large industrial customers, or current large industrial customers undertaking significant expansion, to be charged the rates large industrial consumers consuming power at normal historical levels. Selling 'new levels' of power at less than 4 cents per kilowatt hour when the marginal cost of power transmitted from new generation needed to provide that new level is ten cents or more doesn't seem to make a lot of sense.
Finally, noting that Manitoba Hydro indicated an intention to reduce its Power Smart expenditures at its latest rate hearing, despite other utilities in other jurisdictions increasing their commitment to energy efficiency.
Publius concludes that providing advice to the Minister is a waste of time, as it is apparent the government and its Utility are seeking ways to increase demand rather than reducing it. Why? Because the government has had its Utility expend a couple of billion dollars (with a forecast overall cost of $34-billion of capital expenditures over twenty years) and enter into commitments with both construction partners and importers of power based on the premise that the Manitoba market needs more generation.
The Minister and Hydro know what could be done to increase energy efficiency and reduce domestic demand, but chooses not to act, so giving advice seems a futile exercise.
Publius read with interest former Manitoba Hydro’s former Chief Financial Officer’s claim that the Utility is in “the strongest financial position in its history” – Manitoba Hydro finances on firm footing (Winnipeg Free Press, November 25, 2013).
Mr. Warden values paper entries too highly, for a firm to have its complete capital base represented by deferred costs, intangible assets and non-performing assets is not a sign of financial strength, but of financial weakness. When a Utility is embarking on a $34-billion development gamble, one of such magnitude that it risks the Province’s future economic footing and its ratepayers’ pocketbooks, many of them of lower-income households, it is not a gamble to be financed by debt.
His declaration that Hydro “… must conduct its affairs in a businesslike manner” is almost amusing when one considers the endless stream of incorrect Hydro’s forecasts that blight its past and raise valid concerns for its future. And, his defense of the likely $4-billion or more construction cost of Bipole III ignores consideration of feasible, and much less expensive, options allowing for a safe deferral.
His claim that “Hydro’s accounting practices are in full compliance with accepted accounting standards (and) are subject to rigorous external audit” provide no comfort, given that the accounting being employed flatters current period net income reports and moves costs (soon to be accompanied by further rate hikes) well into the future. Mr. Warden’s calming words imply Hydro hopes for a ‘sleepy’ ratepayer base, one not to ‘wake up’ until the gamble has fully played out.
But when Mr. Warden refers to an annual takeoff $287-million by the provincial government from ratepayers’ pockets (a take drawn from Hydro operations), he confirms a significant conflict of interest of significance, one that will grow significantly if the $34-billion adventure continues.
Last Friday, Shawn Micallef, a Toronto Star author, wrote a very bad article about why he believes that de-amalgamating Toronto would be a bad idea. I wrote a letter to the editor to the Star, pointing out how ridiculous the article was, but they ran a letter from the last mayor of the former municipality of East York, and current MPP, who pointed out geographic errors in the article, and noted that many, if not most East Yorkers would support de-amalgamation if presented with the opportunity. It is worth a read. I also posted the text of my submission below:
RE: Why this east-end intersection exemplifies Toronto, November 15, 2013
I read Shawn Micallef’s argument about how the intersection of Victoria Park and Danforth allegedly makes the case against de-amalgamating Toronto with interest.
The argument that the intersection is emblematic of commonalities between East York, Toronto, and Scarborough doesn’t wash. A shopping mall on the East York side and apartments on the Scarborough side suggest similarities between the two communities, but they vanish quickly.
Just west of the mall on the East York side is the heart of transit oriented and walkable Danforth Village. Crossing the intersection east into Scarborough, one sees a used car lot, suburban LCBO and Beer Store locations with gigantic parking lots, and an Enterprise car rental in close proximity. As a pedestrian, one doesn’t feel welcome straying even that far east of Vic Park. Further east, Warden Station (the last stop on the Bloor Line) is more accessible by car than by foot.
Micallef also suggests that de-amalgamation would alienate the suburban poor. But by his logic, there should be a moral imperative for Toronto to swallow up Brampton and Markham. Inclusiveness isn’t the point of municipalities.
The reason why observers such as myself and former Mayor John Sewell favour de-amalgamation is that the formerly independent municipalities have different and irreconcilable interests from residents of Old Toronto. Suburban and urban settings require different regulations and services. The Megacity is evidence that one-size fits all prescriptions don’t work.
Mr. Micallef’s emotional rhetoric is unhelpful. He should stick to arguments based on reason, rather than emotion.
Who would have known that this is a busy week on aboriginal policy in Canada with the sideshow going on in Toronto that has dominated the news headlines? This week has seen heightened aboriginal engagement not through the protests we typically see covered by the news but through lesser-known venues that the news tends to ignore.
The Aboriginal Affairs Working Group (AAWG) and the Assembly of First Nations (AFN) Youth Summit are taking place this week and these are proving to be positive signs of aboriginal engagement. Last night Rob Clarke, an aboriginal MP, private members bill took another crucial step to becoming reality of eliminating the paternalistic aspects of the Indian Act and creating a forum for its eventually replacement or elimination. The AFN Youth Summit has shown that aboriginal youth are engaged as close to 400 attended this conference to discuss solutions to issues that face young aboriginals of today. This youth engagement is crucial in forming aboriginal policy as the youth make up the largest portion of the aboriginal population in Canada.
At the Aboriginal Entrepreneurs Conference and Tradeshow that took place earlier this month aboriginal youth engagement in the business sector was evident in people like Lisa Charleyboy who took an active role at the conference as a young aboriginal entrepreneur. She was named one of Canada’s top fashion bloggers and has recently launched a new venture Urban Native Magazine aimed at creating positive change amongst aboriginal youth through Indigenous articles on news, lifestyle, and culture. While we often do not hear of the positive stories that are taking place amongst aboriginals in Canada the events that have taken place this month have shown that success is taking place.
This begs the question of what role the government plays in current aboriginal policy where engagement of aboriginals and aboriginal youth is on the rise and shows no signs of slowing down?
Aboriginals like Lisa Charleyboy, Chief Clarence Louie, CEO of the Osoyoos Indian Band Development Corporation and Chief Terrance Paul of the Membertou First Nation have shown success both on and off reserves is possible through aboriginals entrepreneurial spirit. This success has been gained under the current failed system of the Indian Act and the governments almost sole focus on social spending and little to no economic development spending.
Aboriginals historically were very entrepreneurial people as seen through the very fur trade that established Canada and clearly still are since they were slowly granted back rights lost by the Indian Act. Imagine what would be possible if the government removed elements, or eliminated, the Indian Act, and changed the failed policies of almost solely spending on social programming and directed more of those resources towards supporting economic development.
If this week and month has shown anything it is that many aboriginals, and notably aboriginal youth, are not waiting for the government to address the issues that face them rather they are facing them themselves. From Chiefs and aboriginal youths entrepreneurial spirit to an aboriginal MPs private members bill, not the governments, taking action on addressing the Indian Act aboriginal engagement is on the rise. Government’s role should be to support this entrepreneurial spirit through supporting economic development and letting aboriginals and most importantly aboriginal youth take the lead.
Every time a natural disaster strikes in North America, reports emerge of retailers increasing prices in some locations. This, of course, is generally prohibited, and leads to public shaming. There are, however, good reasons why price gouging needs to happen. The most obvious reason being that high prices are the simplest method of rationing during a shortage. But another important reason for allowing prices to increase is that it can encourage outside firms to ship goods into the affected area. Given the risk of entering a disaster area, there has to be a risk premium for potential sellers.
While there are no shortage of columns defending "price gouging" (see here, here, and here), one of the most interesting examples I've read actually comes from an old science fiction novel by Isaac Asimov. In his Second Foundation novel, an interplanetary war erupts, resulting in a food shortage on the planet Terminus (home to the titular Foundation). One character from the planet Trantor elucidates the mutually beneficial opportunity for a short term increase in trade:
"I was thinking about the war....I wish I could carry food to them.
You know, I'll bet the Foundation would be willing to pay smuggler's prices for food right now. Double and triple and more. Gee, if any co-operative, for instance, here on Trantor took over the job, they might lose some ships, but I'll bet they'd be war millionaires before it was over. The Foundation Traders in the old days used to do that all the time. There'd be a war, so they'd sell whatever was needed bad and take their chances."
The beauty of good science fiction is that it allows us to think about issues dispassionately. While we might like to think that people ought to simply risk their own well being to truck goods into disaster areas, stepping back allows us to see why we often don't. Taking the risk of, say, having part of a trucking company's fleet washed out in a flood, can have serious repercussions for a company. Given that retail sales have less than a five percent profit margin on average, the odds are strongly against making any profits whatsoever without the ability to charge higher than ordinary prices. Add to that the need to pay overtime to their employees, and the need to create temporary shortages elsewhere, and the company is essentially delivering goods to the affected area at a loss. While it is nice to say that everyone should make sacrifices during a time of crisis, it is unreasonable to expect companies to do so en masse at potentially huge losses.
As tempting as it is to view price increases during disasters as pure greed, they serve a function. Unfortunately, many journalists and activists seem to view profits (no matter how small) as inherently evil. As well intentioned as they are, advocates of anti-price gouging laws do more harm than good.