Ottawa may be getting its fiscal house in order, forecasting a return to balance by 2014, a year earlier than scheduled. But several important provinces — Alberta, Ontario and Quebec — are running deficits that appear to be structural rather than cyclical.
This clearly is cause for concern. While it’s difficult to imagine oil-rich Alberta running a deficit and accumulating debt, that’s been the case on and off since the mid-1980s. From the University of Calgary, Herb Emery and Ron Kneebone tell of successive governments’ addiction to energy royalties to cover a gap between tax revenues and program spending.
BMO Deputy Chief Economist Doug Porter writes that Ontario has arguably faced the most challenging economic environment in the country recently, with manufacturing under stress from the soaring Canadian dollar, competition from China, weak US spending, and restructuring in the auto industry. “The tough economic climate put Ontario’s finances in a deep hole,” he writes, “from which the province is only gradually emerging.”
In Quebec, however, the budgetary situation is the result of neither the impact of the recession, nor of declining long-term economic performance, but rather of accelerating program costs and the increasing cost of servicing the debt, says Pierre Fortin. And demographic aging will only aggravate the situation: “It’s not Quebec’s past economic performance that is cause for concern, as much as its future performance.” From this vantage point, Luc Godbout and Stéphane Paquin recommend that the Quebec government increase the share of its revenues that flows from sales taxes.
Elsewhere this month, in Canada and the World, Tye Burt writes that Canada’s competitive advantage in the global economy begins with an abundance of resources the world needs, but also includes strong fiscal fundamentals coming out of the recession, as well as our “unmatched skill for finding, financing and extracting resources responsibly around the world.” The mining sector, of which Toronto is the global capital, is a prominent example of Canada’s competitive advantage. While lauding the development of this advantage abroad, he warns against protectionism at home, and sees no threat to Canada from the proposed merger of the TMX Group and the London Stock Exchange.
Colin Robertson proposes an agenda of engagement for Canada in the Americas, beginning with Mexico, our partner in the NAFTA. The last trilateral leaders’ summit was in Mexico in 2009. The 2010 meeting of “the three amigos” was postponed until 2011, and has yet to be scheduled. “Mexico,” Robertson writes, “should be our main target for aid and development.”
Yuen Pau Woo proposes a Canadian conversation on Asia. He shares with us the result of an Angus Reid poll on the perceptions and attitudes of Canadians towards the rise of India and China. Most Canadians agree that “looking 10 years into the future, the influence of China in the world will surpass that of the United States.” But in spite of our Pacific geography, “Canadians do not seem to identify with the region.”
Carolyn Tuohy writes that while Red Toryism may be virtually dead in Canadian Conservative circles, it’s very much alive in Britain, and it is shaping Prime Minister David Cameron’s drive “not so much to shrink the state, but to ‘reimagine’ its role as the facilitator and catalyst of social action.”
Jeffrey Church considers the economics of the current debate over wholesale usage-based billing (UBB) for internet services in Canada. Banning wholesale UBB, he concludes, “does not appear to be warranted,” since the competitive benefits from the resellers appear to be small.
David Mitchell and Ryan Conway examine the question of tenure of deputy ministers in Ottawa and find they are in their jobs for an ever shortening period of time. The average tenure is down to 2.7 years, a higher turnover rate than head coaches in the NHL. They’ve coined a term for it: “deputy churn.”
In an education Dossier, Dave Marshall writes that policymakers are finally “turning their attention to the revitalization of the undergraduate environment.” Any discussion of the state of undergraduate education in this country “must start from the understanding that Canada has a very differentiated group of universities” — 95 in all, ranging in size from 60,0000 students at the biggest schools, to 1,000 at the smallest. Then Irvin Studin proposes a Canadian languages strategy for the 21st century. He writes that teaching Spanish and other languages, in addition to English and French, would make Canada more competitive in the global economy.
Ilse Treurnicht, Chair of the Canadian Task Force on Social Finance, checks in with her group’s recommendation to develop “a social finance marketplace investing in social, environmental and economic returns.”
In Canada’s Cities, Harvey Schwartz asks how Canadian cities are governed and what causes them to grow. He also looks at the finances of Canada’s three largest cities and finds that only Montreal is running a surplus, while Vancouver and Toronto are in deficit. And Christopher Leo offers a case study of the funding of Aboriginal communities in Winnipeg.
In our Verbatim, former federal cabinet minister Jim Prentice has a coming out in his new role as vice-chair of CIBC. Speaking to the Canadian Club in Toronto, he argues that Canada must compete in the global economy while maintaining strategic resources such as the TMX.
Looking ahead, next month we will present a special full issue on the federal election. Don’t miss it.