Singing a Different Tune and Embracing the Unknown

Cape Breton Island has a rich culture and fascinating history, matched only by its scenic routes and picturesque landscapes. The Island is highly sought after by vacationers searching for a new spot and golfers looking to play a few rounds at the famous Highland Links Resort. In addition, it is renowned for delicious seafood, hearty people, and, perhaps most importantly, the infamous “East Coast Kitchen Party,” which is an organization that promotes Atlantic Canada’s art scene.

Tourism Nova Scotia and the Government of Canada touts this embellished description of Cape Breton Island, however, it conflicts with a harsher reality: 16 per cent unemployment rate, reliance on government transfers, and a median income well-below the national average–in 2012, $26,160, compared with $31,320 nationally. Furthermore, several rural towns have disappeared, poverty is on the rise, and thousands of Nova Scotians have left the province for a better future.

Fixing these issues requires a momentous shift in the mindset of Nova Scotians and their elected officials. A different approach to natural resource development, for instance, may be the most helpful.

Cape Breton Island, and, in general, Nova Scotia, have a tremendous supply of natural resources, from oil in George’s Bank to natural gas in the Lake Ainslie area, not to mention coal deposits spread throughout the province. There are multiple local groups, however, that have convinced the public that natural resource development is not worth the risk, culminating in the decision to extend the moratorium on hydraulic fracturing indefinitely. Prohibiting all things that carry risk is a dangerous mindset, though. On one hand, residents of Nova Scotia demand jobs, and on the other, shun opportunities that would produce them.

Cape Bretoners must begin to sing a different tune. Industry experts suggest that hydraulic fracturing–colloquially known as “fracking,” could generate nearly $1 billion annually in the province. Former “ghost towns” in Pennsylvania, for instance, have begun booming due to natural gas development in recent years: the unemployment rate in the state is 5.6 per cent, compared with 6.1 per cent nationally, and as a whole, the industry supports roughly 1.7 million jobs in the country. Moreover, natural gas is a much more sustainable and environmentally-friendly alternative to coal and oil. Lastly, the correlation between fracking and earthquakes is weak and instances of pollution occurred due to breaches of government regulation.

Although there are risks associated with fracking, as is the case with any venture, those who are concerned about them exaggerate their scale and probability. Instead of banning the practice, the sensible approach would have been to mitigate the chance of disaster through sound regulation. Furthermore, natural resource development can provide support for local communities. In the United Kingdom, for example, the chemical firm Ineos offered local communities 2 per cent of profits from wells in the area to support hospitals and parks, and 4 per cent of profits to residents who own land near drilling sites. Greenpeace described this practice as a “bribe,” however, it is a common one in the United States that has delivered massive benefits to local communities. A similar approach in Cape Breton Island, and in Nova Scotia, could benefit communities tremendously, and a sound regulatory regime would reduce the risk of environmental damage.

In addition to the picturesque landscapes in the Tourism Nova Scotia commercials, the province should hoist an “Open for Business” sign. At least we could then start to improve the lives of Nova Scotians. In the meantime, however, shunning all, and every, opportunity to create jobs and generate economic growth will reinforce the status quo.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

When it Comes to Balancing the Budget, Tomorrow Never Comes

Earlier this month, Finance Minister Jim Flaherty released his fall update of economic and fiscal projections.  In releasing the update, the minister notes that Canada has performed better than any other country in the G7 in the recent global economic crisis.  The update nonetheless projects that the government’s goal of returning to a balanced budget has been pushed back another year from 2015-2016 to 2016-2017.  The longer Canada remains in deficit, the higher our debt grows and the more vulnerable Canada becomes to future economic shocks and fiscal pressures.

Since 2009, the governments’ budget reports predict decreasing budget deficits in coming years. When those years come, however, the budget deficit is almost always greater than predicted.

Federal Budget Balance, Actual*, and Projected 

Budget Balance 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
2009 Budget Balance -29.8 -13.0 -7.3 0.7 NA
2010 Budget Balance -49.2 -27.6 -17.5 -8.5 -1.8
2011 Budget Balance -40.5 -29.6 -19.4 -9.5 -0.3
2012 Budget Balance -33.4* -24.9 -21.1 -10.2 -1.3
2012 Fiscal Update NA -26.2* -26.0 -16.1 -8.6

As the Finance Minister has acknowledged, one main reason why Canada weathered the recent economic storm better than most other industrialized countries is that it entered it in a better fiscal position than most. Canada has in fact experienced the most growth among G7 countries following the recession (5% employment growth through the years following the recession, with the US second at about 3.5%).  This can be attributed to two things.  First, Canada has been fortunate due to commodities: Canada is rich in natural resources, and commodities prices—though lower than expected due to reduced global demand—have created profits in the resource sector, which have benefited Canada through the higher capital to labour ratio.  Second, the government increased spending from 2002 through 2008 to cushion the Canadian economy from the spillover effects from the US sub-prime mortgage crisis and the European debt crisis.

When the Harper government first came to power in 2006, it committed to a fiscal plan of maintaining small budget surpluses and gradually paying down the public deplaned debt.  It deviated from that plan in the aftermath of the 2008 financial crisis, which began with the subprime mortgage collapse in the US.  The government’s 2009 budget introduced significant economic stimulus to offset the fallout from the financial crisis. That stimulus was to be temporary.  The 2009 budget called for large budget deficits in the immediately succeeding years, but a return to surpluses by 2013-2014.  As the table shows, however, the budget deficits have grown much larger than originally projected and the target date for returning to surpluses has receded further into the future.  As a result, the federal government will have accumulated nearly $100 billion more debt than it planned for when it first adopted its stimulus program.  To this mounting deferral federal debt, we should also add public debts accumulated by provinces and municipalities throughout the country.  Currently, all provinces but Saskatchewan are running deficits, adding to the debt burden of Canadian taxpayers.

Canada may be performing well relative to other economies currently, but emerging economies like China, India and Brazil are exhibiting steady growth.  Against China’s 8% yearly growth, Canada, at 2%, cannot remain ahead for long.

In the times ahead, it is likely the budget will only become more difficult to balance.  The volatile situation in the Middle East and influx in globally set commodity prices could further plunge Canada into debt.  The Eurozone has further contracted, and the US fiscal cliff is impending.

It is important that Canada remain fiscally robust not only because the global economic environment remains fragile and the short economic outlook is fraught with unpredictable risks, but because of the predictable demographic challenges that Canada faces in the years ahead.  Canada’s populating is aging rapidly and this trend will impose increasingly tough strains on the nation’s finances.  Currently, Canadians of retirement age make up about 13% of the Canadian population.  In a decade, they will make up close to 22%. With the large cohort of baby-boomers entering retirement and exiting the labour market, labour force growth will slow drastically.  Economic growth can be expected to slow, and consequently government revenue growth will slow.  On the other hand, pressure on government spending will increase owing to higher pension payments and increased demands for healthcare services.  The combined effects of these forces imply increasingly tougher strains on the nation’s finances in the years ahead.  Adding to those strains by passing on today’s bills to the future is neither prudent for the Canadian economy, nor fair to future taxpayers.

-Stami Zafiriou