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Andre LeDressay's Opening Statement to Senate Standing Committee on Aboriginal Peoples

3/10/2015

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To watch APPA Meeting No. 57 in its entirety, go to ParlVU.

Honourable Senators,


Good morning, and thank you for this opportunity to appear before the Senate Standing Committee on Aboriginal Peoples to discuss how to improve First Nation housing outcomes and access to long term infrastructure capital.

My name is Andre LeDressay, and I am the Director of the Tulo Centre of Indigenous Economics, affiliated with Thompson Rivers University in Kamloops, British Columbia.

I have had the pleasure to read your interim report on these matters. You are asking good questions: Why are we not making more progress to improve aboriginal housing and infrastructure? What are the causes of policy failures? How do we build a foundation for more success?

You have collected important information about housing and infrastructure gaps between aboriginals and other Canadians. As you point out, the current policy approaches will never close these gaps.  

You have identified important root causes of the problems. First Nation laws, policies and procedures are missing. Administrative capacity needs to be developed to deliver policy change. More fiscal resources and powers are required to raise the quality of services and infrastructure to national standards.

It is good that the Committee’s next report will be about specific achievable recommendations.  Once again you are asking good questions. What changes will work? How does Canada support effective aboriginal policy change?

For these questions, I hope some of our research and work is helpful to you. Tulo provides two university accredited certificate programs in First Nation Tax Administration and Applied Economics. These are the first of their kind in Canada and we believe in the world.

Twelve of our courses have original curriculum. They are based on a 15 year economic study on the causes of First Nation poverty. Over 100 students have taken our courses. A few weeks ago we released a free open text book for students and universities who want to learn and teach from our work.
Building a Competitive First Nation Investment Climate is now available.  

One of our chapters focuses on the requirements to support residential markets on First Nations lands, another on improving First Nation property rights and another on building better infrastructure. I hope this resource is helpful to you in your work.

With respect to housing, we have gathered anecdotal information that the market value of a certificate of possession First Nation home is significantly less than a comparable home off reserve lands. We have found examples where a Certificate of Possession (CP) home has sold for about 10% of a comparable property in a neighboring jurisdiction. Think of how much home equity you would have if you could only sell to other Senators.   

This lack of equity has dramatic consequences. It prevents business start-ups. Imagine how many First Nation entrepreneurs have been thwarted by not having access to home equity. It has been estimated that about 50% of business start-ups are financed by home equity.

A lack of home equity, prevents saving. It prevents the cycle of wealth generation that every other Canadian takes for granted. Consider how many First Nation youth have to start from scratch because they don’t receive bequests of home equity like other Canadians.

The current “market” based housing program does not generate home equity for First Nation participants. As such, First Nations continue to forgo the benefits of home ownership that other Canadians enjoy.

We have also found examples where leasehold developments on reserve have equal or higher markets values to comparable lands off reserve. To provide our favourite examples, an acre of land in Westbank First Nation sold for approximately $10,000 in 1989 and today that same acre is leased at over $1 million. In Sun Rivers, an acre sold for $8,000 in 1996 and today that same acre leases for about $700,000.  

How did this happen? It was not magic or good luck. It was a simple recognition that First Nations market institutions were largely removed by the Indian Act and that First Nation have to legislate their way back into the economy. 

The proof is that the costs of doing business on some of the best located First Nation lands are four to six times higher than off First Nation lands. This is one of our research results that this Committee cited in a previous study.

Market economies need a legal and administrative framework that support property rights, facilitate trade and provides investor certainty. They need a stable fiscal framework that pays for quality services and builds competitive public infrastructure. Our research suggests it can be up to four times harder to finance infrastructure on First Nations lands.

The study of the frameworks that support markets is called institutional economics. It is supported by a substantial literature. It is the basis of a recent bestselling book – Why Nations Fail.

Westbank and Kamloops restored their market institutions and the predictable market results occur. Building the legal, administrative and infrastructure framework to support markets is what our courses are about at the Tulo Centre of Indigenous Economics. It is the purpose of the text book that we wrote.

A question you might ask is if it so easy why hasn’t it happened more often? Implementing change is hard, time consuming and expensive. It took years and millions of dollars for Westbank and Kamloops to complete their work. What can we do to reduce these costs and this time?

Last year, we looked at 15 proposed First Nation policy changes during the last 20 years or so – from the proposed Charlottetown Accord to the proposed First Nation Education Act. These changes were not successfully implemented but others such as the First Nations Land Management Act and the First Nations Fiscal Management Act did create positive changes.

Based on this research, we observed that successful aboriginal policy changes have four elements. First, they are First Nation led. Second, they are optional. Third, the changes are implemented by First Nation administrations and institutions. Fourth, other governments have the political will to support the changes in the face of opposition. Any changes this Committee recommends should meet this test.

Our role at the Tulo Centre is the third requirement for effective change. We are a First Nation institution that helps First Nations implement changes.

We focus on capacity development. By this, I mean the development of specific skills that help First Nation administrations implement changes such as passing laws using modern legislative frameworks like the First Nations Fiscal Management Act. We help students to effectively communicate an agenda that promotes higher property values to Chief and Council and membership. We teach students how to build administrative and tax systems that support residential and commercial developments and finance services and build infrastructure.  

In closing, here are four recommendations that I encourage this committee to support and include in its final report:

First, the First Nations Fiscal Management Act was passed in 2005. Amendments have been suggested to increase participation, raise investor confidence and improve administration. The Fiscal Management Act helps First Nation finance infrastructure. This committee should support amendments to this legislation.

Second, many First Nations are suggesting that they should receive a fiscal benefit from resource development in Canada. Many recent reports have suggested greater resource revenue sharing with First Nations. This committee should support fiscal options that provide stable revenues to First Nations to close the legal, administrative and infrastructure gaps.

Third, only an effective First Nation housing market will ever close the gap between First Nation housing demand and supply. First Nation homeowners must have equity and value in their homes. This can only be accomplished with tradable and secure property right and registry systems. This committee should encourage more leasehold housing developments and this committee should recommend the First Nation Property Ownership option being proposed by some First Nation leaders.

Finally, this committee should promote options such as the Tulo Centre of Indigenous Economics certificate programs that build the necessary capacity within First Nations to implement your recommendations.

Thank you.
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Governmental Economic and Fiscal Impacts from the Oil Price Shock and Strategic Considerations for First Nations

2/27/2015

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In our previous post we outlined some of the figures and preliminary impacts related to the recent significant drop in the price of oil. We noted that it will have both positive and negative reverberating effects on the Canadian economy. Although the longer term impacts on the Canadian economy are just beginning to be assessed, the table below summarizes some of the federal, provincial and First Nation economic and fiscal impacts in the next year based on the best available information at this time. 
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As can be seen in the table above, the impact of the significant drop in oil prices will be negative on certain provinces’ economies and government revenues, most notably those of Alberta, Saskatchewan and Newfoundland. Despite this, there may actually be more urgency in regards to the construction of proposed pipelines (Energy East, Keystone, Kinder Morgan and Northern Gateway) as there remains a price premium for Western Canada heavy oil shipped to tidewater.

However, this may simply mean a sectoral shift in our country. The fall in the value of the Canadian dollar relative to the US dollar will make many Canadian exports more competitive on the world market. This could boost exports and investment into industries in BC, Ontario and Quebec. Since the exchange rate is one of the most significant determinants of the profitability of investments into mining, the mining industry should do relatively well as a result of the fall in the value of the Canadian dollar.

Very simply, the impacts will be negative on First Nation economies and governments that are dependent on oil royalty revenues and positive on First Nations that export non-oil or oil substitute resources and goods. First Nations may be on either side of the spectrum depending on the nature of their economies. As such, First Nations must think strategically about decisions related to their resources and economies. Some strategic considerations for First Nations in relation to the recent oil and foreign exchange events are as follows: 
  1. Federal Government Expenditures – The federal government is strongly committed to balancing its budget in an election year. Federal revenues (royalties, income and corporate taxes, excise and sales tax) related to oil production will fall. They will have to reduce expenditures to balance the budget.  They will not cut transfers to provinces and individuals but they may cut transfers to First Nations to maintain a budget balance. This will increase tension between the federal government and First Nations and could increase First Nation interest in developing their own revenues through taxation.
  2. Oil Industry Impacts – Many First Nation members have employment and businesses in the oil industry. Unemployment could rise and businesses could fail if lower oil prices are sustained for these First Nation members. To maintain their employment and businesses they will likely support initiatives that raise the viability of oil production. This includes initiatives to raise revenues (selling at world price instead of US price) or cut costs (transportation or production improvements).
  3. Oil Royalty Revenue – Some First Nation governments are reliant on oil royalty and other oil related revenues. They will have a significant drop in revenues this year. They will have to consider a combination of expenditure reductions and new revenue options. This could create political uncertainty and increased interest in other taxation options in these communities.
  4. Oil Price Differential Opportunity – Lower short term oil prices increase pressure to get oil to tide water because of the significant and possibly growing price differential resulting from increasing US oil supply between Western Canada heavy oil sold to the US and world prices. This is a good time to propose a First Nation tax on proposed pipelines or the product that flows through pipelines in First Nation territory.
  5. New Competitive Advantages – Lower oil prices reduce the value of the Canadian dollar relative to the US. This creates a price advantage for Canadian resources and products sold to the US or for resources or products that Canada’s competes with from the US. Some First Nations may be positioned to participate in these competitive advantages and will be interested in initiatives that improve their investment climate associated with these opportunities related to land development (taxation, property ownership and capacity development).
  6. Other Resource Opportunities – The reduction in the value of the Canadian dollar relative to the US will make mining ventures in Canada significantly more profitable.  At the same time, the federal and different provincial governments will be more interested in developing such projects as a substitute for oil revenues.  Gold is particularly interesting because the price of this commodity is rising.  This is going to make provincial governments with mining projects more interested in developing these and if necessary cutting a deal with the First Nations where they are located.
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Understanding the Oil Price Shock and its Impact

1/30/2015

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Oil has been a major Canadian export and the oil industry has generated very substantial tax and royalty revenues. This importance is highlighted by the immediate and sharp decline in the value of the Canadian dollar. However, the longer term impacts on the Canadian economy are just beginning to be analyzed and quantified. Finance Minister Joe Oliver is delaying the federal budget until at least April as the impacts unfold. The federal government based its budget projections on West Texas Intermediate averaging around $81USD over the next few years. This seems overly optimistic at this time. 

In the interest of context, consider that within the last 8 months, the price of a barrel of West Texas Intermediate Crude has fallen by about 58% from a peak price of $107.95USD in June 2014. The price of Brent has fallen by approximately 60% from $115.19USD in the same month and the price of Western Canada heavy oil has fallen by about 50%, since a peak of $86.56USD in June 2014. The price fall is mainly a result of rapidly increasing world supply and in some cases falling demand. A relatively conservative short-term outlook (next 6 to 12 months) is for prices to remain below $60USD per barrel.[1] Some have suggested a potential bottom price in the $20USD per barrel range.[2]

The impact of the significant drop in oil prices will be negative on the Alberta, Saskatchewan and Newfoundland economies and their government revenues. It will also be negative on those First Nation economies and governments that are dependent on oil royalty revenues. The effect will be ameliorated somewhat if Canadian oil can more easily reach tidewater, since the current discounts are much harder to bear with low prices. As of December 2014, the price premium for Western Canada heavy oil shipped to tidewater was still about $19USD.[3] This may actually lead to more urgency being attached to proposed pipelines (Energy East, Keystone, Kinder Morgan and Northern Gateway).

The fall in the value of the Canadian dollar relative to the US dollar will make many Canadian exports more competitive on the world market. It could boost exports and investment into industries in BC, Ontario and Quebec. It could also lead to increased investment, employment and government revenues in First Nations that export non-oil resources and goods.

The mining industry should do relatively well as a result of the fall in the value of the Canadian dollar.  The exchange rate is one of the most significant determinants of the profitability of investments into mining.  If the price of a commodity such as gold is on the rise, then significant investment interest should be expected. 

However since, most short-term projections are for oil to remain below $60 a barrel, the overall impact on the Canadian economy and federal revenues at this price will be negative in the short-term.

Medium-term projections and impacts are difficult to determine because there are two factors that could keep prices lower and two factors that could increase prices. Prices could stay low if OPEC and other oil revenue dependent governments maintain current production levels. Conversely, prices could rise if there is supply and political uncertainty in significant oil producing countries (Russia, Nigeria, Venezuela, Yemen, Iran, Saudi Arabia) or a sustained economic recovery.

It is no coincidence that the federal government postponed the release of its budget until it better understands the impact of the oil price decline on its projected revenues and expenditures.


[1] Shenk. M. (2015). U.S. Cuts Oil Output Outlook as Price Drop Slows Drilling. http://www.bloomberg.com/news/2015-01-13/u-s-cuts-2015-oil-output-forecast-as-lower-prices-slow-drilling.html.

[2] Kaletsky, A. (2014). The reason oil could drop as low as $20 per barrel. http://blogs.reuters.com/anatole-kaletsky/2014/12/19/the-reason-oil-could-drop-as-low-as-20-per-barrel/.

[3] This is represented by the difference in the monthly average Brent Crude Oil price and the Western Canadian Select Crude Oil price for December 2014.
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Irreversible Math

3/25/2013

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Brief 2013 Federal Budget Outlook

The 2013 Federal Budget probably disappointed people who might have been hoping for a change in the slow growth in federal transfers to First Nations or major new initiatives.  There was slow growth or cuts in most expenditures and a lot of tweaking around the edges.  However, this is going to be typical of federal budgets for the next twenty years.  We know this because an aging society means the costs of programs directed to the elderly are gradually but irreversibly crowding out spending in other areas.  The slow erosion of per capita funding to First Nations is similar to what is happening to a lot of so called "discretionary” expenditures.  
 
The math is irreversible.  Older Canadians are retiring.  They are putting pressure on old age security and provincial health care.  This must all be paid for from a workforce that is shrinking in relative terms.  When the number of people receiving government services (retired Canadians) rises faster than the people paying for those services through taxes(working Canadians) then something has to give. In fact, it would be accurate to say
that politics over the next twenty years is going to be very different from politics of twenty years ago.  In those days, it was still, “who gets what?”  Today and in the future, it’s “who is
going to pay for services to retired Canadians?” Or more accurately who is going to pay
for the costs of an aging society.

Answering the question “who is going to pay?” will imply a steady litany of funding cuts or tax increases. There will be serious differences between the political parties about who should bear the burden but regardless of the political party, tough choices will have to be made. The news however, is not all bleak for First Nations.

For the first time, federal and provincial governments are“discovering” First Nation potential.  In a 1999 pre-budget submission we wrote for the AFN we predicted this very outcome.  An aging society is making it more important that each person of working age be employed, and if possible, employed in a good paying job.  And First Nations are the fastest growing component of this labor force.  While there might be some pressure to reduce transfers, there’s more interest now than ever before in initiatives that create business on reserve and put First Nations people to work.  Also significant is the fact that there is a real shift underway in our major trading partners.  There’s strong demand emerging for Canadian resources in the so-called emerging economies. Some may balk at the idea of Canada being only “hewers of wood” but in fact, resource development is a high-tech industry in many respects and it brings high paying jobs and resource royalties and offers a real chance to affect some of the irreversible math that aging will otherwise have on Canada.  A significant number of these jobs are going to be in places where a large portion, or often a majority, of the workers are First Nations.  Any government is going to prefer training First Nations people for these jobs over bringing in foreign workers.  And finally, the government has recognized that in order to take advantage of demand for resources, it needs the support of First Nation governments.  
 
That support is going to be difficult to secure so long as resource development creates far more revenues for the federal and provincial governments in a First Nation’s traditional territory than it does for the First Nation government itself.  In a nutshell that is what is going to change over the next five years.  It can be through revenue sharing, tax collection, or enhanced transfers but the federal and provincial governments are ready to make deals.  

That is not to say that these deals are going to be easy to make.  However, Fiscal Realities Economists can help.  We can start by making you aware of what kind of revenues a resource project will generate beyond royalties that only exist during the operating phase of a development.  We can help you identify how much of these revenues are flowing to First Nation services. We can help you to negotiate an agreement that provides sustainable revenues to raise the standards of First Nation services and improve community infrastructure. Generating independent revenues and building an economy from the resource development opportunities is the real name of the game for First Nation leaders in the coming
generation. 
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Facing the Fiscal Reality - Part III - The Impact on First Nations

4/20/2012

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This is the 3rd and final post of Facing the Fiscal Reality. This post will address what the current fiscal environment means to First Nations in Canada.

We can break this down into three points. 

First, federal support for First Nations is already not keeping up with inflation and population growth. The fiscal reality is that competition for federal revenues is going to grow substantially over the next twenty years because of cost pressures on age driven programs such as health care and old age security. The demographic reality is that the requirements of First Nations are going grow at the same time because of a higher birth rate. The political   reality is that increased First Nations need is going to be competing  politically with demands from people who are seeing themselves grow poorer. We believe that a strategy based on increasing federal contributions is going to be extremely difficult in that political context. 

A strategy based on developed on economic and fiscal powers now, will on the other hand find a growingly receptive climate. The appetite for initiatives which can be demonstrated to improve productivity is going to grow. The federal government is also going to be forced out of the current system of bureaucratic oversight and control because its per capita costs and personnel requirements dwarf the oversight afforded to local governments. The emerging fiscal and economic crisis is going to eventually lead to an acceptance of new a real reassignment of fiscal powers and responsibilities. Government is going to conclude that the present system of Departmental oversight and responsibility is simply unaffordable.  

Second, First Nations are a younger population than Canada as a whole. They are going to pay a relatively higher price as a population for past policies which transferred wealth from young to old.  
 
Finally, the Budget has framed the productivity challenge quite well. What it doesn’t say, but is nonetheless well understood, is that the First Nations share of this labour force is growing. If First Nations people remain underemployed the prospects of Canada growing collectively poorer will also grow. The government appears to recognize this and this likely provides a partial explanation for why it has chosen to actually increase funding for First Nations education at a time when many program areas are facing modest restraint.

We believe however that no First Nations development strategy is going to be truly effective without a strategy for allowing the market to work on First Nation lands. The former USSR was successful in educating population but not in raising living standards simply because it did not let the market work. A market strategy requires a new regime of property rights for First Nations, greater clarification of First Nation responsibilities and greater authority at the local level. At the present time, First Nations and Canada are simultaneously paying substantial bureaucratic oversight and the resources to navigate that bureaucratic system. It is generating some successes in developing First Nations. However, it is doing this one project at a time. This needs to change and the First Nations Property Ownership Act will change it, and it will change it in a way that requires less government. 

We are only at the beginning of what is going to be a long and potentially divisive process of addressing the implications of an aging society. Simply put, if we can’t improve productivity substantially, we are going to get poorer collectively. There are already substantial constituencies betting on this outcome and working towards ensuring that they don’t become poorer individually. We believe that the country would be better off having the question out in the open. People need to understand that full indexing of government salaries and double and triple dipping doesn’t enhance everyone’s economic security. In fact, it will make some people a lot worse off.  

If the pain is equally shared, there will be greater support initiatives which make us collectively better off and less towards strategies which divert the pain from one group to another. If the pain is shared equally then there will be broad support for strategies that rethink government in a way that improves productivity and efficiency. If the problem is fully understood, there will be a growing appetite for initiatives which lead to better educational outcomes for First Nations or increased participation by First Nations in resource development. 

However, we should all recognize that “who pays?” is going to be a big question for Canadian politics over the 20 years and people who pretend it’s not happening are likely thinking, “you, not me”. This fundamental question may never be explicitly stated, but this doesn’t mean it won’t be answered. The people who don’t understand the question, for what it really is, are going to like the eventual answers the least, and pay the most.
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Facing the Fiscal Reality – Part II - Private Sector & Young Canadians Poorer

4/12/2012

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In Part I of Facing the Fiscal Reality we discussed how Canada has finally begun to address the implications of being an aging society. Part II focuses on the question "who pays?"

If we, as Canadians, become poorer these events will take place and they will be collectively borne by the Canadian public. However, how much of the burden we each shoulder individually will depend very much on decisions made by government and this is why it is important to be under no delusions about what this government or any government is deciding. They are deciding how much the public sector pays versus the private sector and they are deciding how much younger Canadians pay versus older Canadians. 

To understand this, we need to understand the current situation. Over the last forty years public sector employees have enjoyed a steadily growing wage premium over the private sector, in part due to a heavy subsidization of their retirement plans. A typical federal public servant contributes only 37 per cent of the costs of their pension benefits versus 100 per cent for a private sector employee. Stated more bluntly, private sector employees not only contribute to their own pensions but also to much richer, on average, public sector pensions. Public sector workers do not contribute to private sector pensions. Furthermore, this public sector pension is fully indexed against inflation and ultimately guaranteed by the taxpayer. In other words, if our current record of poor productivity growth continues, and we do get poorer, the current plan is for much poorer private sector workers to further subsidize this public sector plan. 

It’s not surprising in light of this that public employees retire younger and with higher incomes than private employees. It is a wide and growing inequity. This Budget is a watershed for one important reason. It takes the first baby step towards reversing this trend. The government has announced its intention to review pensions for Members of Parliament and federal employees. However, let’s not fool ourselves. A “review” is not a change. It’s simply testing the political winds. And make no mistake, the people who designed these inequitable policies also benefited from them, so do not expect any talk of rolling their pensions back, although this has happened in other countries. The plan appears to be one of imposing the change on future employee and future Members of Parliament. 
 
The apparent intention of the Government to ensure that only its younger employees bear the consequences of the adjustment provides a useful segue to the issue of how governments determine “who pays?” question across different age groups. It’s been remarked in some quarters that this Budget risks,“generational war”. This is a mistake. In one sense, generational war has been underway for forty years. It was really ushered in the 1970s, when governments began to run large program deficits. A program deficit is a situation where spending minus interest costs exceeds government revenues. The federal government ran program deficits for roughly ten years in the 1970s and most of our national debt was a result of our inability to control the resulting interest costs. In fact, what happened is that in the 1980s, governments were forced to run program surpluses despite large budget deficits. 

The practical meaning of these “program surpluses and Budget deficits” is that people entering the workforce in the 1980s began to get considerably less per tax dollar than the people who came before them and these inequities widened in subsequent years. The federal Budget deficit was, in fact, a large transfer of wealth and income from these generations to those that had come earlier. In light of this it is not surprising at all that this period  saw a concentration of wealth in older Canadians and income declines in younger Canadians. There was a steady decrease in retirement ages from the 1970s through to the 1990s. 

Stated another way, young Canadians are at the wrong end of an intergenerational wealth transfer. Their parents and grandparents paid less for their services than they were worth. They passed the rest of the bill to the young who have to pay more for services than they are worth. This is how one generation transfers wealth to the other. In previous generations the transfers used to go from old to young. 

This Budget actually exacerbates the intergenerational transfer of wealth from young to old. The decision to gradually raise the age of eligibility for old age security will not affect anyone over the age of 54. Now, there is little doubt that we need to rein in the costs of this program.
However, the decision to delay the implementation of these policies simply means larger adjustments will be forced on later retirees. It also means that the people responsible for creating the federal debt will pay the least for this adjustment. 

However, this raises another point. The generational war is still really a war of ideas. There are no shortage of older Canadians who have recognized the need to make social programs and living standards sustainable long after they have passed on. These are people who have argued for balanced budgets and a scaling back of unsustainable remuneration and double and triple dipping pensions. There is also no shortage of younger Canadians who have taken to the ramparts to defend policies which would exhaust social programs and leave them burdened with debts like Greece.

Subsequently, what does this all mean to First Nations in Canada?
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Facing the Fiscal Reality - Part I - Raise Productivity or Become Poorer

4/5/2012

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This is the first Part of three installments of Facing the Fiscal Reality:

Budgets are generally analyzed for their major initiatives and announcements. Typically they announce a new program or a major tax change. Yet, all too often their most meaningful aspects are not announced or analyzed at all. The 2012 Budget is like this. There was one major announcement; the decision to gradually raise the eligibility for old age security from 65 to 67. It might be concluded that there is little of great interest in this Budget. This would be a mistake.

This is a very fateful Budget and it can be boiled down to one issue. Canada has finally begun to address the implications of being an aging society. Being an aging society means, as the government points out, two workers will have to produce as much value by 2030 as seven did in the 1970s. If they aren’t able to do this, then we will become collectively poorer. If we become collectively poorer, the question become who will become individually poorer and
by how much.   

What does “getting poorer” actually mean? In its most obvious sense, it means less take-home pay or discovering that our money doesn’t go as far as it used to. However, it could also mean some combination of poorer health care, poorer pensions, larger class sizes or higher tax rates. In this sense, we would become “materially poor”. And it could also mean people having to work longer hours or retire much later in life. In this sense, we would become“time poor”.   

None of these consequences is very attractive. So the government, quite correctly, devotes considerable time in this budget to addressing how we can avoid becoming poorer.  

We can avoid becoming poorer by producing more value from each worker. If we’re lucky, the resource boom will continue. When resource prices rise, it automatically makes workers more productive. If we couple this with improvements in our resource management, trade arrangements and transportation infrastructure we would likely see productivity improvements. The Budget quite rightfully devotes some discussion to this and to the consequences of lengthy, sometimes confused, approval processes. 

The government also addresses two other items aimed at improving productivity: getting better value out of government and improving our innovation performance.

A detailed analysis of either of these things would require considerably more information than was available in the 2012 Budget. At present, we can just note that the challenge is correctly stated. If we can make government more efficient and improve our innovation performance, then we will improve productivity. 

To understand the issues concerning government productivity, we need to understand one thing. Costs in many program areas of the federal and provincial governments are already growing faster than our ability to pay. Cost pressures in many of the same areas will increase still further as society ages. Either we are looking at large tax increases, which will likely further dampen productivity growth, or we’re going to have to find other ways to provide
many of these services.  

Innovation refers to the application of ideas, such as scientific research, to products or production systems so as to increase the value of the products or reduce the costs of producing them. Either way, this increases productivity. Innovation lies at the heart of the productivity challenge. Successfully innovative economies eventually become the richest economies. The Budget again states the challenge well. Canada makes enormous investments in training and education. Despite this, our performance with respect to innovation lags well behind most First World countries. If this doesn’t improve then obviously our productivity challenge will become more difficult. 

While the Budget is very explicit in articulating the issues surrounding our productivity, it is just the opposite in framing the issue of “who pays?” if we fail to meet this challenge. In fact, it’s not stated explicitly at all. However, we should not be under delusions. If we don’t become more productive, we will become poorer. If we become poorer, it means some combination of the following events:
(a) taxes will rise;
(b) government services will be cut back;
(c) wages and salaries will decline;
(d) pensions will be reduced;
(e) price levels will rise;
(f) people will have to work longer hours; and,
(g) people will have to delay retirement.

The events marked (a) to (e) imply that we will become materially poorer. The events (f) and (g) imply we will become time poorer. 
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Welcome

2/23/2012

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Welcome to our new website. This is the blog area where we'll post interviews as well as our thoughts on current issues and other things we find interesting. 
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