May 11, 2012
New Brunswick Needs Financial Reality and Leadership
In recent months, commentators on New Brunswick’s economic performance have been repeating old ideas about New Brunswick’s poor economic performance and what to do about it.
These commentators focus on insufficient attention on the province and region from the federal government.
One commentator talks about the location of wartime factories seventy years ago as a cause of present problems. Others focus on the allegedly harmful impact of the national policy of the nineteenth century with its high tariffs even though the world and North America have experienced successive rounds of tariff reductions since the Second World War ended.
In a fast changing world where everybody competes with everybody else in a global economy, these views are like artifacts from another geological era.
There is another point of view and it is one recently expressed by the Chancellor of the University of New Brunswick. He argued that the province is failing from too much financial attention and assistance from the federal government, not too little and that this dependence is destroying any real hope for a vibrant economic future.
The scale of subsidies coming from other Canadians to a small province is breathtaking:
-equalization for New Brunswick will total $1.5 billion in 2012-13
-stealth equalization in the form of disproportionate federal government employment in the province is about $400 million annually;
-over 25% of the labor force collect EI at some time during the year, many who routinely work for 14 weeks and collect EI for the rest of the year. Much of the funding for EI in New Brunswick – now exceeding $1 billion annually - comes from Ontario;
-there are many hidden subsidies in ordinary federal operating programs that have never been identified or tabulated.
In short, if attention and funding from the federal government solved economic problems, New Brunswick would be leading Canada, not lagging.
In fact, huge federal subsidies have caused New Brunswick, like the rest of Maritime Canada and Manitoba and Quebec, to have low productivity public sector driven economies in a high productivity market driven world. The subsidies have enabled outlandish growth in the public sectors of these provinces.
If the scale of federal funding continues, the province will never be competitive and will continue to be a fiscal dependency of people who can no longer afford the largesse or who no longer want to pay for it.
UNB’s Chancellor is right.
There is another path, however.
The first part of this path is recognition of financial and economic reality.
Excessive debt, slow growth, excessive infrastructure, financial dependence on others who cannot afford the outlay and an economy out of phase with the world around it is what failure looks like. These facts don’t lend themselves to any other interpretation.
Real leadership would involve recognition, not denial, of this reality.
The second part of the path is being open to change. Over the years, many ideas have been proposed to end the dangerous dependency syndrome evident in the three Maritime Provinces, Manitoba and to a lesser degree Quebec. They involve transferring GST revenues in exchange for elimination or reduction of regional subsidies, some federal assumption of provincial debt in return for transfer payment changes and many other creative approaches.
The New Brunswick government could study these, find a combination that works and propose that combination to the federal government, either alone or in collaboration with Nova Scotia and PEI.
Einstein once defined insanity as doing the same thing over and over again and expecting different results. After fifty years of the same financial insanity – constantly seeking more from others - the people of New Brunswick should take that admonition to heart.
The third part of the part of the path is getting excessive public spending under control.
The Maritime Provinces are among the easiest places to deliver public services in North America because they are compact and have relatively homogenous populations.
However, in Canada they spend the most.
In health care alone, New Brunswick has 50% more nurses than Ontario in relation to population, many more doctors and much greater hospital capacity.
The same patterns apply in the rest of the public sector including post secondary education.
This problem should be addressed with an independent examination of provincial expenditures along the lines of the recent Drummond report in Ontario.
The fourth part of the package would be genuine, deeply rooted collaboration among the three provinces.
The ritual communiqués about collaboration by the Council of Atlantic Premiers do not count. They look much the same as they did twenty five years ago.
What would count is new collaboration that would permit drastic reductions in the public services of each of the Maritime Provinces and Newfoundland. The Atlantic Institute for Market Studies notes that each of these public services is excessive in relation to the population of each province and more highly paid in relation to the rest of the economy than in others.
This builds in huge and unnecessary costs and is very poor public relations as well. Everyone in the rest of Canada who looks at the AIMS data is outraged by the extent to which funds from hard pressed taxpayers in other regions have been wasted on gold plated public service bureaucracies.
The final element in the new path is a new look at risk.
It is exceedingly dangerous to be addicted to something, including money that comes from others because the flow of the substance to which one is addicted can be stopped abruptly
Governments in the Maritime Provinces, Manitoba and Quebec have for decades been misleading their publics about this risk. They have stated that equalization payments are guaranteed by the constitution so the risk is low.
Equalization payments are not, however, guaranteed by the constitution. All that is guaranteed is commitment to the principle of equalization, a commitment that can be fulfilled at any substantial level of program funding and which in any case is vague and probably not enforceable.
Sometimes the greatest risk is doing nothing and that is almost certainly true about the combination of New Brunswick’s excessive public expenditures and its dependency on taxpayers in other regions.
In summary, New Brunswick is at a fork in the road. It can continue with current policies in which case its dependency on others and its government driven economy in a market driven world will ensure poverty and pain for decades to come.
New Brunswickers could choose the second path which is admittedly difficult but would lead to a much better future for future generations.
New Brunswickers need to step up to the plate and ensure that their leaders take the second path.
a native of Prince Edward Island, was awarded a Bachelor of Arts degree (honours economics) from Dalhousie University and an MBA from York University. He was awarded a Centennial Fellowship by the Canadian Imperial Bank of Commerce and York University to study at York, Harvard and Oxford Universities as well as the European Institute of Business Studies. Mr. MacKinnon served as Director, Planning and Economics and Executive Director, Development Strategy in the Nova Scotia Department of Economic Development from 1976 to 1981. He later served in several senior capacities in the Ontario Public Service, the Bank of Montreal and as CEO of the Ontario Hospital Association from 1996 to 2003. Mr. MacKinnon is a Public Member of the Council of the Ontario College of Physicians and Surgeons and is the Chair of its Finance Committee and a member of its Executive, Complaints and Outreach committees. He serves on several Boards of Directors, including the West Park Health Centre. He recently finished my five year term on the Standards Council of Canada and was subsequently elected to the board of the Canadian Standards Association. He has advised the Ontario Chamber of Commerce and other Ontario organizations on fiscal federalism issues particularly on the impact of regional subsidies on recipient and source provinces. He is currently the Chair for the Ontario Institute for Public Policy www.oipp.ca.