Canada West Foundation Blog

Three new publications from the Canada West Foundation highlight the variety of views western Canadians have about environmental, energy and water issues. The results from a survey commissioned by the foundation are compiled in three separate reports under the Attitudes to Energy and the Environment Initiative.

Reading the Meter: Western Canadian Opinions on Energy Issues outlines the variety of views western Canadians have about energy issues including the economic importance of the energy sector, support for green energy, and the future of the oil sands.

Green Expectations: Western Canadian Opinions on Environmental Issues highlights a fundamental tension in the public mindset: Canadians need and want energy but worry that energy production and consumption are damaging the environment.

Water Worries: Western Canadian Opinions Toward Paying More for Water shows that western Canadians are worried about the long-term supply of fresh water and that they are willing to pay more for water if doing so results in more conservation.

“As westerners, we know that the energy sector helps butter our economic bread by providing jobs, stimulating investment and generating government revenue,” notes the survey’s principle investigator Robert Roach. “At the same time, there is a strong degree of apprehension about one of the country’s (indeed the world’s) largest natural resource assets—the Alberta oil sands. While outright opposition to the oil sands is quite low in the West, large numbers of westerners would like to see better environmental results, even if this means slowing the pace of development,” adds Roach.

The results examined in these three publications are drawn from a survey conducted by Environics Research Group Limited. The survey was conducted by telephone in late 2010 with 1,202 western Canadians (300 per province) 18 years and older. The results are accurate +/-2.8 percentage points 19 times out of 20.

Attitudes to Energy and the Environment is part of the Canada West Foundation’s Powering Up for the Future Project, which focuses on public policy challenges at the interface of the economy, the environment and energy.

To download the Attitudes to Energy and Environment publications, click here.

The latest research conducted by the Canada West Foundation shows that a small locally-levied sales tax, dedicated to municipal infrastructure and implemented only if voters agree in a referendum, would help western Canadian cities close the gap between their huge infrastructure needs and the funding dollars available.

The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments by Casey Vander Ploeg, Senior Policy Analyst, measures the projected infrastructure needs facing western Canadian seven biggest cities over the next ten years at over $40 billion.

“Our work shows that a small voter-approved penny tax, combined with regular and comprehensive reporting by governments, could be the most visible, transparent and accountable tax in Canada,” author Casey Vander Ploeg explains. “It has so many benefits to recommend it. One that is very important is how the tax would ensure that all individuals coming into a city and use the infrastructure also help pay for it.”

The penny tax would be a tax unlike any other in Canada because of the unique features built into the tax. Such features include a capped rate so the tax cannot be raised, voter-approval for implementing the tax, and dedicating all revenue to specific municipal infrastructure projects that would also be subject to voter-approval.

“The features I like the most in our proposal is the automatic sunset and the refund of excess revenue back to taxpayers,” said Vander Ploeg. The penny tax could only be used across two municipal election cycles, after which the tax would lapse. For the tax to be used any longer than six years, voters would have to vote the tax back in along with a new set of infrastructure projects. A sales tax can also produce revenues that exceed expectations. This tax revenue could be returned to local taxpayers.

While there are challenges that require further exploration before a penny tax could be implemented, it is clear that this innovative tax option would do much to maintain, renew, and rehabilitate existing infrastructure, as well as invest in new infrastructure. Across the globe, local governments are implementing such innovation tax solutions.

This report is part of the Canada West Foundation’s Smart Financing Project, which focuses on innovative solutions to Canadian public financing challenges.

To download The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments, click here.

by: Robert Roach, Senior Researcher and the Director of The West in Canada Project

Majorities are not evil
Majority governments are the norm in Canada, so it is a bit odd to hear a large number of commentators acting like a Tory majority is some sort of evil aberration out of Tolkien’s Land of Mordor. It is true that the Harper government will be able to pursue its agenda without the restrictions of a minority Parliament, but this is exactly the same as it was for Trudeau, Mulroney, and Chretien. We are back to business as usual and not—as some seem to think—out on a crazy limb that will break and send the country into freefall.

In addition, majority governments like to win more than one majority. Hence, while they can pursue their vision for the country without constant fear of a non-confidence vote, they tend to keep one eye on the next election cycle. In other words, radical policies that will alienate large chunks of voters remain unappealing regardless of majority status.

Regional fault lines remain
From a regional perspective, the outcome of the election is very interesting. You barely need two hands to count the Conservative seats in Quebec whereas the NDP have become the de facto representatives of Quebec in the House. This is a new dynamic. In some ways, Quebec has become like Alberta in that it has chosen to side with the opposition rather than the government. Not that long ago, it was Alberta MPs who had only a small presence on the government side of the House.

On the bright side, a Harper majority likely means that the federal government will do as much as it can to advance Senate reform (full reform still requires the provinces to get on board). This is good for the country, good for Quebec and good for the West. A properly designed Senate has the potential to ensure that regional representation does not depend on which party forms the government in the House. Maybe, just maybe, Canada will finally start to fix this broken part of our political system. Maybe.

The Rise of the NDP
Given the nature of the Canadian system, the Official Opposition in a majority Parliament is largely irrelevant in terms of policy. They have an important job to do trying to keep the government’s feet over the coals, but they can’t block government legislation. In this sense, it matters little which party forms the opposition. However, the rise of the NDP is important for several reasons: 1) it is the first time in Canadian history that the Liberal party finds itself in the third party position and it remains to be seen if it can recover; 2) the fuzzy mandate that Layton has from Quebec voters will be a factor but it is impossible to say how this will play out; and 3) the ideological differences between the Tories and the NDPs are relatively clear and will present Canadians with a black and white set of alternatives to watch over the next four years.

The West is Still In
This election shows that a party with a leader from the West and a strong base of support in the region can, by also appealing to Ontario voters, form a majority government. Regardless of your political stripes, the Harper government is not a bad thing from a regional perspective. A government with a strong western base will have a natural connection to the region’s needs and unique circumstances. Because they are governing a nation rather than a region, these needs will not always take precedence, but they should be at least understood and given a fair hearing. This does not mean that governments without a strong western base can’t do this, but in reality, it is much more likely when they do.

By: Tom Carson, Director of the Manitoba Office

Manitobans head to the polls on Tuesday, October 4, 2011, and with only 169 days to go it is not surprising that the budget tabled on April 12 seemed designed both to benefit the largest number of interests and to create the least possible controversy.

On the revenue side, no increases are planned for major corporate or personal income taxes and expenditure increases will be sprinkled across many sectors, reaching a very broad public. These increases include the freezing of administrative costs for the regional health authorities and tying tuition increases to the consumer price index (CPI).

However, there was also some disappointment, especially for those who viewed the budget through a lens where the economy and our future spending ability is of preeminent importance. While the minister stated that overall expenditures were expected to rise by 2.3%, year over year, spending on core programs actually rose by 4.89%.

Going into the preparations for this budget, consultations generated a few hot points:

• The Business Council of Manitoba had what seemed to be an unprecedented recommendation; in recognition of the serious impact that Manitoba's infrastructure deficit has on the economy, the leaders of Manitoba's business community actually recommended a 1% increase in the provincial sales tax to be applied for a ten-year period and used only for infrastructure expenditures. This was seen as an opportunity for municipalities to deal with their infrastructure problems with a revenue source that actually grows with the economy.
• The government responded with a commitment to spend the equivalent of one point of the provincial sales tax on municipal infrastructure and public transit. This looks like a bigger commitment than it is. Rather than being incremental to current infrastructure spending, this commitment blends current grants for infrastructure and public transit. While blending both grants identifies a secure and growing source, for the City of Winnipeg it would represent an estimated 9% increase from funds they already receive. Winnipeg will benefit by having this increase funded from a growth stream, whereas previously approximately 50 to 60% was funded in this manner. Over time the value of that growth will become more obvious, however, it is not a substantial investment and will not contribute significantly to correcting the infrastructure deficit.
• Comparatively, Manitoba's universities have been both underfunded and, due to a decade-long tuition freeze which ended in 2009, prevented from using tuition increases as a means to help balance their books. The government has committed to increased grants of 5% over the next three years and has reinstituted a tuition freeze, although this time tying it to growth in the CPI. Although this commitment is not enough to bring them on par with the support received in most other provinces in Canada, it does at least begin to reflect the importance of universities to our provincial economies.
• For those hoping that the budget would reflect a major commitment to cut spending, the tone of the budget speech demonstrates that it was clearly not something the government wished to lead with. The publicly stated commitments to restraint are quite narrow—they are striving to negotiate a 0% increase for the general civil service, freeze discretionary salary and operating expenditures, maintain last year's reduction in ministerial salaries and carry on a freeze on salaries for members of the legislative assembly along with their staff. They will be attempting to freeze salaries for senior management in the regional health authorities and generally seeking ways to foster innovative, cost-effective services. (Government will likely also expect all public-sector employers to seek the same wage freeze—presenting an interesting dilemma for university administrators).
  
  

The question yet to be answered for Manitobans is whether the right policy choices are being made through the current budget. Were there alternatives which could have resulted in balancing the budget more quickly? If these choices were not made in this budget, will it be incumbent on the government formed after October's general election to initiate them?

It might be tempting to say that no government going into an election would choose to add 1% to the sales tax or to introduce themes of restraint and program redesign. However, Saskatchewan is also heading into an election in November of this year, and unlike Manitoba and most other provinces, has already posted a surplus. Both provinces saw greater revenues last year and both spent more than they had budgeted in 2010/11. Saskatchewan's revenues and expenditures have grown significantly more than Manitoba's, but their treatment of the budget challenge in 2011/12 is quite different despite the upcoming elections. While Saskatchewan plans to be spending 5.48% more than their printed estimates of last year, they will be spending 2.45% less than their actual previous year expenditures. And the untouchable—spending in the Department of Health will actually be reduced compared to the previous year.

Now, that would have raised eyebrows amongst those looking for more attention to the bottom line in Manitoba!

Students:
Since exams will be wrapping up soon and summer is just around the corner, put one of your most prominent skills to good use and write us an essay! This time, however, you’ll have a chance to receive more than good marks—there is $10,000 in prize money to be won:

• First prize: $5,000
• Second prize: $ 3,000
• Third prize: $2,000

This year's essay question is: What is the most important thing western Canadians need to do to ensure that the West remains a great place to live in the 21st century?

The best essay will have a clear position that displays strong arguments, solid evidence and research.
Once complete, mail your essay to roach@cwf.ca with “Jim Hume Essay Contest” in the subject line. To read the rules for this contest or to view past winning essays, click here.

We look forward to hearing your vision for western Canada. Good luck!

The Jim Hume Student Engagement Program encourages young people to become engaged and contribute to debate on public policy issues of importance to the future of western Canada and all Canadians.

Latest research conducted by Canada West Foundation has identified broad agreement that a well designed Canadian energy strategy would contribute to a secure and prosperous future for Canada.

Finding Common Ground: The Next Step in Developing a Canadian Energy Strategy by authors William Kimber, Vice President, Research and Dr. Roger Gibbins, President & CEO, was released today as part of the Canada West Foundation’s Powering Up Project.

Between 2009 and now, a wide range of stakeholder groups including: the energy industry, environmental organizations, leaders of Canada’s top enterprises and policy experts in academia and think tanks have released papers and statements calling for reform of Canada’s energy policy framework.

The Common Ground paper is the first to provide a synthesis of these various initiatives and points of view, and identifies eight interconnected themes from this impressive body of work. These common themes are:

• embrace Canada’s energy diversity as a strength;
• ensure robust environmental stewardship;
• set a price for carbon;
• transform the demand side of the energy system;
• strengthen Canada’s position in the world;
• promote energy security in the North American context;
• drive innovation and technological development; and
• understand that strategy is a dialogue.

“The research shows that there is much that diverse stakeholders across Canada can agree on.” Co-author Will Kimber commented. “The common view is that we need an energy strategy for Canada, and we need it now.”

While impressive progress has already been made, there is much more work to be done. The report therefore proposes three next steps to ensure that momentum for policy reform is not lost.

To download Finding Common Ground: The Next Step in Developing a Canadian Energy Strategy, click here.

Canada West Foundation has released a new report on the green economy and its potential to diversify the Western Canadian economy. The Green Grail: Economic Diversification and the Green Economy in Western Canada, by Robert Roach, Senior Economist, focuses on the connection between the green economy and its potential to contribute to the diversification of the western Canadian economy.

Eight representatives from western Canadian companies active in the green economy were interviewed to address challenges and prospects. These include:

• The hurdle of commercialization and the lack of venture capital at this critical point in the business development process;
• A domestic market that tends to shy away from home grown options in favour of what can be imported from Europe, the US or Asian and the tendency among Canadians to see early adoption as too risky;
• The preference for large and capital-intensive energy (especially electricity) projects over facilitating small-scale additions to the grid; and
• Politically inconsistent environmental mandates in jurisdictions where green companies are operating.

While the emerging green economy in western Canada faces a variety of challenges, growing cultural consciousness and the desire for government to create a positive framework around which green businesses can develop and flourish are promising.

To download the full report, The Green Grail: Economic Diversification and the Green Economy in Western Canada, click here.

By: Michael Holden, Senior Economist

On February 22nd, the Canada West Foundation released a new research paper examining western Canada’s trade relationship with Asia-Pacific. Through the Gateway: Unlocking Western Canada’s Potential for Economic Diversification by Expanding Trade with Asia-Pacific looks at the importance of Asia-Pacific markets to western Canadian exporters, their impact on economic diversification in the West and some of the policy options for further expanding trade with that region.

One of the challenges in writing on current economic developments and trends is that the timing of major data releases does not always cooperate with research deadlines. Not long after Through the Gateway was launched, new trade data was released for the 2010 calendar year. With a new year’s worth of numbers in hand (along with some minor revisions to previous years’ figures), I thought it might be useful to revisit some of the key trends we highlighted in that paper to see if and how those trends are holding up.

As it turns out, data for 2010 continue to drive home the growing importance of Asia-Pacific market for western Canada. One of the most important trends we noted in Through the Gateway was the growth in western Canadian exports to Asia-Pacific—especially since the early 2000s. From 2001 to 2008, the value of goods shipped to Asia-Pacific markets rose from $14.0 billion to $26.7 billion, before falling to $22.6 billion in 2009 because of the impact of the global financial and economic crisis.

While exports to Asia-Pacific in 2010 did not recover their 2008 peak, they did rebound strongly, reaching $25.9 billion—the second highest value on record. Leading the charge was B.C., where exports were 28.9% higher than in 2009. B.C. now exports almost as much to Asia-Pacific ($12.2 billion) as it does to the United States ($13.7 billion).

Through the Gateway also observed that growth in western Canadian exports to Asia-Pacific was being driven by shipments to the region’s developing markets. In 2009, the total value of exports to wealthy countries like Japan and South Korea was about the same as the value of exports to China and other developing economies, but long-term growth in the latter group vastly exceeded growth in the former; from 1990 to 2009, exports to industrialized countries in Asia-Pacific had grown by about 25%, while those to developing economies had risen by 428%.

Although 2010 was a good year for western Canadian exports to Japan and South Korea, there was no competing with the continued boom in sales to China and other developing markets. Western Canadian exports to developing economies in Asia-Pacific rose by 18.1% compared to 2009 (reaching $13.5 billion), while exports to industrialized economies in the region increased by 11.1% (to $12.3 billion).

A final point worth mentioning is the need to consider trade flows with the United States when assessing the importance of Asia-Pacific markets. We noted in Through the Gateway that, while the share of exports going to Asia-Pacific rose from 12.5% in 2001 to 17.5% in 2009, it was hard to say how much of that increase was because of strong growth in trade with Asia-Pacific and how much was because of weak market conditions in the U.S. Factors such as a high Canadian dollar; new regulatory and security measures; the economic downturn in 2008-2009; and the resulting drop in commodity prices have all weighed on shipments of goods to the U.S. in recent years.

With the economy stabilizing in the U.S. and commodity prices recovering, western Canadian exports to the U.S. rebounded in 2010. From a six-year low of $92.1 billion in 2009, north-south sales increased to $102.4 billion in 2010. While this figure remains well below its historic high ($141.9 billion in 2008), it’s interesting to note that the recovery in exports to the U.S. did not come at the expense of growth in trade with Asia-Pacific. While the share of western Canada’s total exports to the U.S. rose from 71.5% in 2009 to 72.1% in 2010, the share going to Asia-Pacific markets rose by even more¬—from 17.5% to 18.2%.

By: Dr. Roslyn Kunin, Director of BC Office

In the 19th century, young men in North America who wanted to seek their fortunes were advised to go west. In the 21st century, those who are already in western Canada are advised to keep looking west, where Canada’s best opportunities to participate in the global economy lie across the Pacific Ocean. However, opportunities only become reality for the prepared. To benefit from growth in the trans-Pacific trade that is so important to Canada’s present and future wellbeing, western Canada must have the infrastructure and capacity in place to receive, move and dispatch goods in growing volumes. Otherwise, our growth may be limited not by lack of supply or demand, but by the lack of capacity at its ports and elsewhere to handle the flow, as illustrated in Brazil.

Fortunately, federal and provincial leaders in Canada have taken steps to remove this potential limitation. The Asia Pacific Gateway and Corridor Initiative (APGCI), now at the midpoint of its lifecycle, is a connected series of major projects to improve both port and inland goods moving capacity in western Canada.

First, we should note that the benefits will not be limited to Canada’s Pacific ports. This is because the APGCI deals not only with gateways (ports and related facilities) but also with hubs (inland distribution centres such as Edmonton and Regina). The results of this increased trade volume will be spread not only throughout western Canada but to the rest of Canada and the United States.

There are several advantages in western Canada that will be created or enhanced by the APGCI. One is the very short transit time from BC across the Pacific, especially from the port of Prince Rupert. The tonnage through Prince Rupert has been soaring given very strong markets for products like coal, and the port facilities have been enhanced to meet this demand. In 2008, volume through Prince Rupert increased 20%.

Another advantage is the very efficient and competitive rail system that goes from Canada’s west coast ports across the country and into the United States, which is emphasized by the fact that Canadian rail transport systems are much more cost effective than those in the United States. A third, often called the hidden advantage, is that many people of Asian origin currently reside in BC and are increasingly spreading across the western provinces.

Not surprisingly, there are also challenges that come with developments of this magnitude. Much of the development is primarily focused on container movements, which is ideal for all the manufactured goods that are imported, since they travel in containers. However, it may be a limiting factor for what are western Canada’s biggest exports—commodities. Demand for minerals, food, energy and wood is strong and rising rapidly, particularly in Asia. In particular, China’s demand is not only increasing sharply, but China has become a dominant player in world markets for copper and other commodities. Other developing Asian economies are expected to follow. To take advantage of these long-term markets, our inland and port facilities need be able to handle not only bulk commodities like coal and grain, but also fluid energy sources like oil and, ultimately, liquefied natural gas.

APGCI developments, like any others, must deal wisely with the continuing realities that affect all major investment projects. First, agreements must be reached with affected First Nations on whose territories the developments occur. By negotiating in good faith, arrangements can be made that are win/win for all the parties involved. As always, attention must be paid to the environmental impact of any developments. Steps can be taken to minimize environmental impacts and to compensate for any unavoidable effects.

Finally, given that taxpayer dollars are contributing to the APGCI, Canadians must be assured that they are getting value for money. Cost benefit analysis is the best tool and should be comprehensive; looking at all costs including the environmental impact. Potential competition must be considered such as the newly widened Panama Canal.

We need to take into account all the benefits, many of which are long term. In comparing present costs against future benefits, we should not be discounting future benefits too heavily. Otherwise, we will find that we have lost long term benefits to defer short term costs.

Photo Courtesy: Prince Rupert Port Authority

By: Jacques Marcil, Senior Economist

This is the season of budgets and baseball spring training. While there is no true link between the two, one could not help think of Alberta Finance minister Lloyd Snelgrove as a relief pitcher.

Snelgrove was brought in last month as an emergency caretaker minister of Finance in replacement of Ted Morton, who resigned to join the PC leadership race. (One of the worst-kept secrets in Alberta is that Morton essentially resigned because his views on government cost-cutting were too drastic for outgoing Premier Ed Stelmach’s taste.)

There were no real surprises in the February 24 Alberta budget. Usually, the absence of surprises is considered to be a positive sign. Is this the case here? Yes and no.

On the expense side, the 2010 approach is somewhat repeated: sustained financing for health, education and other “social” ministries, with modest cuts to the other ministries to offset this. This results in program spending increases of 0.5%, 1.3% and 3.1% over this year and the two following years.

On the revenue side, nothing much is done except some service fee increases. However, Snelgrove expects Alberta revenues to grow solidly on their own, reflecting very positive forecasts for economic growth and for natural resource royalties. The latter are expected to jump by 23% and 16% in 2012-13 and 2013-14 respectively. (This is not impossible, but who knows?)

As a result, the province’s deficit gets erased by 2013-14, one year later than originally planned. This delay is not bad in itself given the severity of the recession in Alberta. The problem is that the balancing act is accomplished by drawing down most of the Sustainability Fund—a meager $1.7B is left in it by that date, one-tenth of what was in the Fund in 2009-10.

So the Alberta government has little margin of maneuver and lots of hope hanging on energy price forecasts. Past experience has taught Albertans that those prices are full of surprises, positive and negative. We might have reached the point where Alberta taxpayers have had enough of this uncertainty.

You can’t have your cake and eat it too—Albertans have long enjoyed low taxes, but if they want to enjoy the same level of services as other parts of the country they will have to start considering other sources of revenue for their provincial government.

Energy royalties are nice but they are irregular and unpredictable. The province pays for most of the steadily-growing cost of its services using rollercoaster energy money. If Alberta needs to reform its tax system, it should do so. Taxes are not an ideological issue, they are a practical one. Decisions on tax policy should be fact-based, period.

To return to my baseball analogy (a very agreeable thought when the windchill factor is -36ºC outside), walks are “bad things” but even the best pitcher sometimes has to issue an intentional walk depending on the game situation. No one likes taxes, but sometimes we need them.

Given the unpredictability of Alberta politics (a misnomer until a few years ago), maybe now is not the time to start complex discussions on what size of government Albertans want, or about what taxes are needed for its proper functioning.

Thinking again about it, maybe it is the right time.