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By Marco Navarro-Genie
President
Atlantic Institute for Market Studies

HALIFAX, N.S. / Troy Media/ – Budget season prompts us to reflect on basic economic questions. A good life rule is: don’t put all your eggs in one basket.

In public finances, balance is a sign of good management when the objective is a stronger economy and job creation.

The same economic wisdom also teaches there are no silver bullets. This cannot be repeated enough in Atlantic Canada. No single project or government program will miraculously rescue the region from its depressed economic waters.

For the sake of waiting for the next big solution or project to arrive, governments often pass up on smaller opportunities for needed fiscal reforms. The effect of small but bad policy decisions has a high cost.

For instance, continuous but haphazard tax increases keep hurting us. They seem small until you add them up.

In Nova Scotia’s Shameful Tax Facts, the Canadian Federation of Independent Businesses reveals our province to be one of the most uncompetitive jurisdictions in the country. The provincial income tax is the second highest in Canada. Someone earning $50,000 in British Columbia, which boasts the lowest personal income tax rates, contributes $8,633 in tax whereas the same person would pay $11,201 in Nova Scotia. That’s roughly 30 per cent more. Are we getting 30 per cent better services?

In addition, Nova Scotia’s basic personal exemption (the threshold before one begins paying income taxes) is $2,200 below the national average at $8,481. This hits low and modest income earners hardest. Although seven other provinces and the federal government adjust their tax brackets annually for inflation, Nova Scotia’s failure to do so means taxpayers are pushed into higher tax brackets by wage gains intended to offset the cost of living. This silent annual tax increase is called “bracket creep.”

Nova Scotia also features an uncompetitive business environment. The province’s small business threshold is $350,000, the lowest in Canada, and our corporate and HST rates are the highest at 16 per cent and 15 per cent.

The provincial fuel tax of 15.5¢ on each litre of gas, combined with the cost of regulating it plus our high HST, means residents and tourists pay the second-highest price for gasoline in the country. These taxes have an impact on everything transported in our province, from food to clothing.

We compete in a much larger world, so looking better than an Atlantic neighbour or Quebec is insufficient. We should measure ourselves with jurisdictions that are growing and give minimal subsidies to businesses, have lower debt and tax levels, lower gas and energy prices and more stable labour environments. These are among the many little things we need to address in Tuesday’s provincial budget.

The accumulated effect of getting the little things right is predictability. Evidence shows policy-driven uncertainty acts as a drag on economic growth. Beside the uncertainties of economic cycles, macroeconomic trends and world affairs, policy-driven uncertainty adds a detrimental layer to an economy. Such uncertainty, the Organization for Economic Co-operation and Development says, cuts investment and delays projects, reduces consumer confidence, makes it more difficult to find capital, slows down productivity, curtails research and development and reduces overall outputs. High policy uncertainty “coincides” with lower growth.

Focusing on getting budget policies right doesn’t mean big projects should be abandoned. The two are not mutually exclusive. Atlantic Canadians should push hard for the Energy East Pipeline. In fact, the better we take care of the little things, the more we will attract bigger investments.

The point of balancing our books is to diminish policy-induced uncertainty and set the conditions for growth. We should budget as a way to fix the many small things we need to get right in order to get on a robust economic track.

Marco Navarro-Génie is the president of the Atlantic Institute for Market Studies.

© 2016 Distributed by Troy Media

The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.

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BERKELEY, CA / Troy Media: Here is a tip that will quickly gain you the nonverbal advantage in any negotiation or important business meeting.

Want to know what the biggest ‘secret’ to body language experts’ success? They take the time to determine how a person acts under relaxed or generally stress-free conditions so that they can more accurately spot meaningful deviations.

It’s the same for you. Before you can assign meaning to a behaviour (arms crossed, slumped posture, frown, etc.) you need a baseline to compare it to. When you know what is normal for your counterparts/co-workers/interviewees, you will be able to quickly and accurately detect even minor shifts when their body language behaviour is out of character. For example, if the person you are interviewing habitually sits with crossed arms, it is a baseline posture. But if the crossed-arms gesture occurs only rarely, then you’d be wise to pay attention to those occasions, know that something meaningful is happening, and ask follow-up questions.

Of course, you need to gather baseline information before the interview (or meeting or negotiation) starts. So, while you are chatting informally, notice how the other person’s body looks when he’s relaxed. What is her normal amount of eye contact and her blink rate? How does he respond when discussing some non-threatening topic? If you ask a few questions that makes the person recall factual information (‘Who referred you to me?’ ‘How many years have you been working as a consultant?’ ‘How did you hear about this job offer?’), you can note if her eyes move to a preferred side when accessing truthful answers.

Even a lie-seeking computer system relies on a baseline. At the University of Buffalo (New York) computer scientists developed lie detection software that tracks eye movements and blink rates, and correctly detects deceit more than 80 per cent of the time. The system employed a statistical technique to model how people moved their eyes in two distinct situations: during regular conversation (their baseline) and while fielding a question designed to prompt a lie. It was found that people whose pattern of eye movements changed between the first and second scenario were often lying, while those who maintained consistent eye movement were most likely telling the truth.

Try this: Before the next business meeting begins, look around the room and begin to notice – really notice – how your co-workers look when they are relaxed and comfortable. Then stay alert for changes in postures, gestures, and facial expressions. I think you’ll be surprised at how well you can ‘read the room.’

Troy Media columnist Carol Kinsey Goman, Ph.D. is an executive coach, consultant, and international keynote speaker at corporate, government, and association events

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By Charles Lammam
and Hugh MacIntyre
The Fraser Institute

VANCOUVER/ Troy Media: The federal Liberals appear to be considering overhauling Canada’s income support system with the creation of a guaranteed annual income (GAI). Jean-Yves Duclos, the federal minister tasked with the social policy portfolio, mused publically about the benefits of a GAI. In fact, his government has gone so far as to invite experts on GAI to participate in the pre-budget hearings.

There is certainly some merit to the concept of a GAI, and there even seems to be growing public support. The question, however, is what would it take to create an effective GAI? A lot.

A GAI is a cash transfer to individuals or families that ensures a minimum level of income, without conditions such as requiring participants to work or look for work. It’s generally conceived as a single program that would replace all – or at least a significant portion – of the existing income-support system (broadly defined as the complex web of programs and tax measures that increase a recipient’s income through cash or in-kind transfers).

Indeed, this sort of reform appears to be what Duclos has in mind, which is a good sign because being a replacement rather than an add-on is a critical feature of any serious GAI proposal. After all, a main conceptual appeal of the GAI rests on the potential to reduce government administrative costs by simplifying the income support system, which now consists of numerous, often-overlapping programs at the federal, provincial and local government levels.

In theory, the potential for administrative savings is substantial. A non-trivial portion of spending on income support currently goes to administration rather than directly on transfers to people. And many Canadians who need the support often have a hard time getting it due to a complex and potentially overwhelming bureaucracy.

But what would it take to create a GAI in practice?

First, consider the magnitude of a reform that replaces the existing income support system with a single GAI program. In a study published last year, we estimated the cost of the existing system at $185 billion in 2013 or roughly 10 per cent of the economy (this includes spending and tax measures by all levels of government targeting people with low-income, the disabled, the elderly, and parents with young children). By any measure, GAI reform would be a major undertaking, perhaps one of the most fundamental government reforms in Canadian history

Much of that spending is done by the provinces, so a federally administered GAI – as many propose – would require the provincial governments (and local governments to a lesser extent) to agree to relinquish their role in income-support programs such as welfare. Effectively, this means provincial governments would cede some of their powers and responsibilities to the federal government, something that many provinces have traditionally been reluctant to do.

Putting aside the need for federal-provincial agreement, creating a GAI would also require consolidating existing programs, many of which have different specific purposes or target different groups. And there are difficult questions surrounding program design such as the basic benefit amount and whether it should vary depending on people’s circumstances (where they live, how old they are, whether they have kids).

More broadly, a GAI would presumably require the large-scale lay-off of bureaucrats to achieve substantial administrative savings, a move that would obviously face strong internal political opposition.

All that said, there is much to like about the idea of a GAI that would simplify Canada’s income-support system. But in practice, the process would face many hurdles that undermine the case for reform. Perhaps a more realistic path forward is to reform existing income-support programs in ways that improve their functioning and effectivess, with the additional goal of simplifying the system by consolidating existing programs that serve similar purposes.

Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study, The Practical Challenges of Creating a Guaranteed Annual Income in Canada.

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The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Ubiq TV/Troy Media.

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Ontario’s net debt is projected to reach $298 billion in 2015/16, by far the highest level in its history. This amounts to just over $21,600 in provincial government debt per Ontarian. Ontario’s net debt has increased dramatically since 2003/04, with the province running budget deficits in 10 of the past 13 years. These annual deficits have ranged from $1.6 to $19.3 billion, averaging $9.7 billion over the whole period.

The primary reason for Ontario’s persistent deficits is spending growth over the past decade, which has significantly outstripped key economic metrics. Between 2003/04 and 2015/16, provincial program spending increased by 71.6% from $70.4 billion to $120.9 billion. On average, program spending  increased by 4.7% annually during this period, greatly surpassing the average annual rate of inflation plus population growth (2.8%) and of economic growth (3.2%) in the province.

If the government had restrained program spending growth to the rate of nominal GDP growth since 2003/04, the province would be facing a projected $10.7 billion surplus this fiscal year instead of a $7.5 billion deficit. If program spending had been held to the pace of inflation plus population growth over this period, the surplus in 2015/16 would be even larger.

Under both scenarios of restrained spending growth, Ontario would have run just one budget deficit over the past 13 years instead of 10, and the large-scale run-up in provincial net debt since 2003/04 would have been avoided.

Authors:

Ben Eisen

Associate Director, Provincial Prosperity Studies, Fraser Institute

Charles Lammam

Director, Fiscal Studies, Fraser Institute

Milagros Palacios

Senior Research Economist, Fraser Institute

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CALGARY, Alberta/ Troy Media: The Criminal Code makes it illegal to do anything with the intention of alarming the Queen. I’m not sure our courts have ever found someone guilty of violating this law but, regardless, Canadians are expected to treat Her Majesty with a certain minimum standard of decency.

The same is true for our governments’ treatment of Canadians. Section 12 of the Charter prohibits our governments from treating us in ways that are shocking or alarming. In fact, no government in Canada can treat anyone in ways that outrage Canadians’ standards of decency. And this is a very good thing. None of us want to live in a country where the authorities can impose grossly disproportionate and brutal penalties for relatively minor infractions.

And talk about brutal. On January 13, the City of Calgary sold Lukas Pesut’s truck after impounding it 36 days prior. The regulations of Alberta’s Traffic Safety Act permit the city to deem a vehicle abandoned after 72 hours and then sell it 15 days later after giving notice by ordinary mail to the owner’s last known address.

Lukas’ truck – worth approximately $100,000 – was heavily modified for his work in the Northern Alberta oil patch. It contained an estimated $35,000 worth of tools in locked boxes, a hydraulic hoist worth over $10,000, and a bed valued at more than $40,000, not to mention other customizations for work in the pipe industry.

This highly valuable truck was necessary for Lukas’ job and yet it was sold at auction by the city for a mere $18,500.60. And if Lukas wants any of the money from the sale – minus the City’s costs for towing, impounding, and selling, of course – he needs to fill out a form and allow 90 days for the claim to be processed.

How did this happen? It started when Lukas drove his truck from Grand Prairie and parked it in front of a friend’s house in South West Calgary. Lukas was in a rush to catch a flight to Germany so that he could spend the holiday season with his mother who had recently been diagnosed with breast cancer. As it turns out, the truck was in a two-hour residential parking zone and Lukas failed to request a free permit from the city. A neighbour complained and the truck was impounded.

Lukas’ friend contacted the city to try to resolve the matter after the truck was impounded. She was told by parking officials that they couldn’t help her since she didn’t know the vehicle’s plate number. She was also unable to reach Lukas to get the plate number since he had lost his phone en route to Germany. And since only registered owners may remove items from an impounded vehicle, she could not even retrieve the truck’s contents for Lukas.

Like a Rube Goldberg machine, the neighbour’s complaint triggered a series of events that led inexorably to the sale of the truck. Did none of those involved think in a moment of self-doubt that what they were doing to Lukas might be unethical, immoral, or illegal? Apparently not, since the entire process continued on until an unknown buyer purchased the truck at far below market value.

Here’s the problem: proportionality. No one – not even Lukas – thinks that parking in a two hour zone without a permit should go unpunished. That is a parking offence. But similarly, no one with a moral compass thinks that losing a $100,000 of property for a mere parking offence is appropriate either. What should have happened? Parking tickets? Yes. Impounding the vehicle? Sure. Selling it at a fraction of its market value and only relinquishing the proceeds upon request? That’s beyond the pale.

Section 12 of the Charter protects us from two categories of government treatment: those that are inherently abhorrent and those that are grossly disproportionate. No Canadian government – including Calgary – can treat us in a fashion that is far out of proportion with what is appropriate considering the circumstances.

So ask yourself this: is it appropriate for Calgary to take $100,000 in property and undermine Lukas’ ability to earn a living for failing to get a free permit?

By Derek James From, Contributor, Troy Media

Derek James From is a lawyer with the Canadian Constitution Foundation.

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The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.

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VANCOUVER, Troy Media: The ongoing decline in commodity prices has hit Canada’s economy hard, depressing incomes, and triggering layoffs and capital spending cuts.

The U.S.-dollar prices of most internationally traded commodity products have slipped, hammering hundreds of resource companies (and their suppliers), and hurting business and consumer confidence across swaths of the country.

And it’s important to realize that the commodity carnage isn’t restricted to oil. It’s also affecting natural gas, coal, base metals, potash, various industrial raw materials, and some segments of the agri-food sector. Lumber prices have also beaten a hasty retreat in recent months.

The World Bank’s January 2016 commodity market update provides a comprehensive summary of the gruesome statistics.

In 2015, worldwide energy prices plummeted 45 per cent from the previous year’s levels, while non-energy commodity prices were down by 15 per cent (both measured in U.S. dollars).

Relative to their peaks in early 2012, the main industrial commodity price indexes tracked by the World Bank have plunged by two-thirds in the case of energy goods, and by more than one-half in the case of metals.

Agricultural commodity prices have dropped by one-third from their most recent peaks.

There are few reasons to expect a sharp turnaround in commodity markets. For most natural resource products, prices are expected to bottom out in 2016 before staging a marginal recovery in 2017.

The table below compares the average U.S.-dollar prices for a number of commodities in 2013 and 2015, along with the World Bank’s forecasts for the next two years.  By 2017, most commodity prices are expected to still be significantly lower than they were in 2012-13, when the decade-long global commodity boom had not yet come crashing down.

U.S. Dollar Prices for Selected Commodity Products (annual average)

bbl –barrel; mmbtu – one million British thermal units; mt – metric tonne.
Source: World Bank, Commodity Market Outlook, January 2016

Faltering economic growth in emerging markets is a key factor dampening commodity prices. In the case of certain commodities, such as oil, natural gas and some base metals, an expansion in global supply is also playing a substantial role in keeping a lid on prices. Economic growth projections for the vast majority of emerging markets have been revised down for the next two years, on the heels of the deceleration seen in 2014-15. The World Bank points to a risk that “. . . a faster-than-expected slowdown in major emerging market economies – especially if combined with financial stress – could further reduce commodity prices, setting back growth in commodity exporters and [for] the global economy.”

For Canada, all of this amounts to a notably inauspicious start to 2016. After all, natural resource-based products account for half of this country’s merchandise exports, one of the highest shares among all developed economies. And until recently, more than two-fifths of business investment in Canada was driven by the energy, pipeline, mining, agriculture and forest products industries. As these sectors struggle or contract, the Canadian economy will continue to feel the pain. It’s that simple.

The Bank of Canada recently estimated that the dramatic decline in oil prices is costing our economy $50 billion in lost income annually, equivalent to $1,500 for every Canadian. And that’s just oil. Add in the effects of the broader commodity slump and the income losses to Canadians are many billions of dollars greater still.

While consumers and some Canadian industries are benefiting from lower prices for energy and other resource products, the overall economy is suffering. And if the World Bank is right, the suffering isn’t about to end any time soon. For this year and probably into 2017, Canada’s economy will be challenged to eke out even a smidgeon of growth, amid an epic worldwide commodity downturn that has extended to many of our most important export products.

Jock Finlayson is Executive Vice President of the Business Council of British Columbia. Jock is included in Troy Media’s Unlimited Access subscription plan.

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The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.

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Monetary policy is having less and less impact on interest rates in developed economies such as Canada because the demographic relationship between borrowers and savers has changed dramatically. Based on financial and demographic data for 29 developed countries, Why Are Interest Rates So Low? presents a ground-breaking new model of how interest rates are determined by focusing on changing demographics—not monetary policy.

This paper is the latest version of my attempt to convey to others the sense of a model and my understanding about current financial markets that I have been developing and using for my own financial planning and my advice to others since 2009. It is an amalgam of some simple observations and statistical regularities with some comments about the economic theory toolbox that is in widespread use but which is not functional in current circumstances. One of my economist mentors and a founding member of the Fraser Institute’s Editorial Advisory Board, Harry Johnson, used to say that most things about economics are simple; the problem is to recognize simplicity when you see it.

At the core of this paper are a few simple observations. The first is that while the virtues of saving and the evils of indebtedness are widely understood and universally supported, the fact is that every saver who wants to earn a return needs a debtor as an accomplice. Because of the anonymity of financial institutions, the connection is not appreciated and indeed most people taking a loan or a mortgage think they are getting it from the bank or credit union. Of course, they are getting it from a saver/depositor who needs the borrower as much as the borrower needs the saver.

The second observation is that our theories or models for describing whole economies rely on the extrapolation to the national level what we observe in the behavior of individuals. So, the standard theory about interest rates and saving is based on how an economy would behave if it were the simple aggregation or summation of all households on the assumption they all behave like a typical household. As long as the typical household is representative, that is not a problem. However, there is strong reason to believe that in the current economy of the world, typicality, if I can call it that, has broken down; as a consequence, the inferences made using the standard model are incorrect.

The third observation, though not so obvious, is that the only time the representative household model will work for understanding interest rates and most likely for other economic magnitudes is when there is constant population growth. Constant population growth ensures that there will always be a “typical” relationship between borrowers and savers. That typical relationship is that there is always a greater volume of incipient borrowing than incipient saving. So interest rates perform the function of “rationing” the number/volume of borrowers/borrowing to pair up with the smaller number/volume of savers/saving or encouraging more savers/saving to occur. The paper explores the implications for interest rates when, as at present, population growth is not constant and when, as a consequence, a relative shortage of borrowers emerges as saver cohorts dominate the population.

The conclusions are that:

1. Interest rates in the 29 economies that make up 90 percent of the world’s GDP are low because—and to the extent that—these economies are experiencing a dearth of borrowers and hence a relatively high saver-to-borrower ratio;
2. The dearth of borrowers has removed the power of monetary policy to increase the inflation rate in many countries because the potency of monetary policy as currently operated is derived from loan growth in the banking system;
3. The Japanese deflation experience has been badly misdiagnosed because the standard model used in the diagnosis does not work in Japanese demographic circumstances;
4. The world’s largest economies are rapidly approaching Japan-like demographics—and the deflationary implications of that situation;

This paper explores various implications of these main points and performs several statistical tests that support the paper’s findings.

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CALGARY, EDMONTON OUT

By Kenneth P. Green and Steve Lafleur
The Fraser Institute

CALGARY, Alta./ Troy Media: On Friday, Jan. 29, the Government of Alberta released the long-anticipated report of the Royalty Review Advisory Panel. The review, a campaign promise by the NDP government, was the source of some anxiety in the province.

As evidenced in a recent Fraser Institute bulletin, investor confidence in Alberta dropped sharply from 2014 to 2015, with potential investors expressing the most concern about political stability in the province, followed by concerns over the Alberta’s “fiscal terms,” which, in addition to tax regimes, would include the way royalties are treated.

A similar fall had been observed following the 2007 (former Premier Ed) Stelmach royalty review, which so rattled investors that it took years for confidence to rebound.

Thankfully, Alberta might dodge that bullet this time around. The panel concluded that Alberta’s existing royalty structure was both competitive with other oil-producing jurisdictions, and was delivering a “fair share” of resource revenues to the people of Alberta, who own its natural resources in common.

The panel also found ways to improve the royalty regime for oil and gas by simplifying the calculation process and removing outdated aspects of the regime that no longer reflect current technology and market conditions. They did their best to bolster investor confidence: there is a 10-year delay in royalty changes to existing projects, and the new regime is designed to match the revenues of the old regime, beginning in 2017.

So, kudos to the panel and the Notley government, for having the humility to acknowledge that the prior royalty scheme was pretty fair and that there really isn’t any spare cash to “grab” in the sector at this time.

While the review mercifully avoided punitive changes to the royalty regime, there is one suggestion in particular that is potentially problematic: the recommendation that the provincial government “seize opportunities to enhance value-added processing.” Admittedly, the report had to discuss this, as it was part of their original mandate by the government, and is part of the Notley government’s emphasis on diversifying the Alberta economy.

Specifically, the panel recommends that the government “develop a value-added natural gas strategy for Alberta” and “examine opportunities to accelerate the development and commercialization of partial upgrading and alternative value-creation technologies for bitumen.” They’re also bullish on providing financial support to develop “partial upgrading” of bitumen in Alberta, allowing producers to ship less controversial product at higher volumes by eliminating the need for diluent. But outside of the upgrading, and coal power displacement with gas, the report is vague on just what opportunities are to be seized.

The province should avoid the temptation of politically appealing though dubious market interventions that economics and experience have shown to be troublesome, such as government subsidization of particular types of energy production and particular technologies. The $26 billion North West Upgrader fiasco is but one example of how the seemingly simple solution of state-driven diversification can go awry.

If the provincial government truly wants to seize new economic opportunities it should focus on broad reforms, rather than attempting to pick winners. There are several options available, such as aggressively working to secure access to foreign markets for Alberta’s natural resources; regulatory streamlining; easing the movement of skilled labour; and improving Alberta’s tax competitiveness.

Though Albertans should breathe a sigh of relief, the provincial government still has a long way to go to ensuring the long-term health of the oil and gas industry, as well as the provincial economy.

Kenneth P. Green is Senior Director, Natural Resource Studies and Steve Lafleur is a Senior Policy Analyst, with the Fraser Institute.

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