Emergence of Canada’s economy from a coma must be done carefully

Canada’s economy has been placed in an induced coma since it was infected with the novel coronavirus. Arousal from the coma must be done carefully to avoid a devastating setback.

The Dirty Thirties. Image: Canadian Encyclopedia

Keeping the comatose economy on life support has been expensive. We’ve blown the wad on the first wave of the pandemic to the tune of one-quarter trillion dollars. We can’t afford an expensive relapse.

Canada’s debt, manageable now, could lead to consequences worse than that of the Dirty Thirties if the recovery is not done right.

Royal Bank of Canada CEO Dave McKay puts it this way: “We can’t screw this up because we don’t have enough fiscal firepower. We can’t fail the re-entry. We don’t have enough money for a massive step back.”

Bringing the economy back to life is as much an art as a science; a little wakefulness here, a few stimulations there. Hurry up and wait to see what happens. The patient’s urge to run must be tempered with the pitfalls that lie ahead.

Deep thinkers are at work. We need to listen to the advice of health professionals, who understand the mortal dangers of this virus, and to economists who appreciate the long-term social and economic costs of tanking the economy.

Unemployment already exceeds anything in the past century, except the Great Depression. The sheer number of people affected is staggering. A projected 8.5 million Canadians will receive $2,000 monthly from the Canada Emergency Response Benefit (CERB). That’s nearly 40 per cent of Canada’s work force.

Unlike Employment Insurance, the CERB does not require recipients to look for work. It doesn’t require them to accept a job offer. Recipients can only earn up to $1,000 a month, anything more and the CERB is lost.

The disincentives to find work are part of the induced coma. Rest and relaxation is the prescription. Workers must stay home to avoid contagion. To encourage workers to help wake up the economy, they should be allowed to keep a larger portion of the benefit as they return to work with a gradual clawback as earnings rise.

This would be a step towards a basic annual income for all Canadians –an idea supported by both the right and left ends of the political spectrum. Sheila Regehr, chair of the Basic Income Canada Network, is urging just such a change. The group issued a policy paper in January that proposed a $22,000 annual benefit for a single adult. Under that proposal, benefits would be reduced by 40 cents for each dollar of earnings and would be eliminated entirely after a person’s income rose above $55,000.

Child care is another knotty problem. Parent returning to work need affordable child care, but they need to assured that they are not sending their children into harm’s way. Any uncertainty about public-health risks at daycares and schools will prove to be a significant disincentive for many Canadians to return to work.

The next decade may well be known as the Dark Twenties. The economy that awakes from the induced slumber might not recognize its former self.

Kenney should be careful what he wishes for

Alberta Premier Jason Kenney wants Canada’s equalization formula adjusted to be fairer to Albertans.

image: Macleans

When it comes to equalization payments to provinces, Albertans think that there must be a mistake. They see themselves as contributors to Quebec at a time when Quebec’s economy is on a roll and Alberta is in the dumps.

Kenney is being disingenuous when he claims that the current formula is unfair. His government was the author of the current formula in 2009 when he was a cabinet minister under the Harper Conservatives.

Kenney surely knows that one of the reasons Alberta pays more into equalization is that the province has more high-income earners. While only eleven per cent of Canadians live in Alberta, 21 per cent of Canada’s $100,000-plus earners live there.

Of course, high-income earners mean little if you are unemployed.  In October, 2019, Alberta’s seasonally adjusted unemployment rate was 6.7 per cent compared to Quebec at 4.7 per cent.

Income is just one factor in determining equalization says business reporter Konrad Yakabuski:

“The basis for determining whether any province qualifies for equalization payments is whether its fiscal capacity – the amount of revenue it could raise if it applied average tax rates, combined with its natural resource royalties – is below the national average. Despite a recession in Alberta following the 2014 crash in oil prices, and a slow recovery since, that province’s fiscal capacity remains far above the national average (Globe and Mail, Nov. 27, 2019).”

Kenny would like to see Alberta’s natural resources removed from this calculation, presumably so that Quebec would receive less. That plan would backfire because Quebec, too, has vast hydroelectric resources. Quebec would actually receive more according to calculations prepared by University of Calgary economics professor Trevor Tombe.  Kenney’s plan would have seen Quebec receive $10.1 billion more in equalization payments over the past decade.

Kenney argues that unlike Quebec, Alberta’s resources are non-renewable and should be an exempt. Yet it was Kenney’s government that decided it would be unfair to distinguish between renewable and non-renewable resources.

Quebec is a convenient straw man for Kenney, deflecting attention from the fact that Alberta’s riches were used in averting a provincial sales tax and not saved for a rainy day. Oil production was unwisely increased without the infrastructure to deliver it to market –a remedy my pipeline, the “people’s pipeline,” is about to resolve with construction under way.

Quebec’s budget surplus has to do with taxes –Quebec’s tax rates are 30 per cent higher than the Canadian average, whereas Alberta’s are 30 per cent lower. Kenny doesn’t have the courage to address Alberta’s real tax problem: no provincial sales tax.

Alberta’s wealth is, in part, the result of my tax dollars being pumped into the oil and gas industry. The feds recently announced a federal aid package for Canada’s oil and gas industry amounting to $1.6-billion.

As an author of the current formula, Kenney knows that the equalization is fair and yet he prefers to whip Albertans into a frenzy of retaliation and separation.

Minimum wage hike is boon to economy

Higher minimum wages are good for the economy but you would never know it from Ontario’s experience. Their hike to $14 dollars per hour has taken an ugly turn. Seattle’s experience was quite different.

image: Toronto Star

The upset in Ontario is centered on Tim Horton franchises. Cuts to benefits have triggered public outcry in support of employees. Demonstrations took place across Canada at Tim Horton shops last Friday organized by Leadnow.org.

The franchisees, themselves, have been abused by their owners: Brazil-based Restaurant Brands International Inc. RBI has been squeezing franchisees for more profits.

Franchisees in Canada have joined their American counterparts in suing the parent company. The Canadians formed the Great White North Franchisee Association and in their statement of claim, they complained:

“Since the time of the corporate takeover of Tim Hortons, the relationship between Tim Hortons and its franchisees has become more adversarial than amicable.”

It’s a toxic business plan that has left franchisees, employees, and customers with a bad taste in their mouth that a double-double won’t sweeten. The flap is damaging the iconic Tim Hortons brand.

Seattle’s experience was quite different. Employers took the wage increase to $15 dollars an hour as a challenge. Toronto-based Lending Loop surveyed of Seattle businesses. Their CEO Cato Pastoll explained: “It kind of forced people to make some just general good business decisions (Globe and Mail, October, 2017).”

Low wages discourage productivity because cheap labour can make inefficient businesses profitable. Higher productivity involves streamlining operations and introducing technology. It’s notable that these measures are changes that employers make -low productivity is not the result of “lazy” employees.

One Seattle furniture store eliminated low-wage entry level positions and empowered employees to become more productive. One employee was so motivated that he contacted condo owners and offered deals on furniture for new tenants. The store owner was pleased with the boost in morale: “Find out what makes your staff excited and empower them to be part of it with you,”

“It’s really easy to become angry and start acting in injudicious ways,” said an owner of a nail salon in Port Angeles, Washington. He and his wife could have cut back on staff, or turned them into commissioned workers, but they streamlined operations instead. The time taken for each procedure was standardized which meant that more clients could be booked. An automated time-keeping system eliminated the time to manually fill out time sheets. Under different circumstances, staff might have resented seeing more clients a day but with an increase in wages, they were more willing to focus on work.

Contrary to the calamity predicted by some doubtful business owners, higher minimum wages don’t result in more unemployment. Studies done by the Organization for Economic Co-operation and Development show those countries with higher wages shift employment from formerly low wage sectors such restaurants to higher wage areas such as technology.

The owners of Tim Hortons could improve profits though the introduction of technology.  I notice that McDonalds has automated kiosks where you can both order and pay for your meal.

Higher minimum wages are a boon to the economy because businesses save costs by keeping experienced workers and reducing training costs; productivity and profit margins are improved; and local economies are enhanced with worker’s new spending power.

B.C.’s Carbon Tax not as advertised

B.C.’s carbon tax is praised nationally and internationally as achieving the best of both worlds: reducing CO2 emissions (GHG) without weakening our economy. I wish that it were true because I take pride in B.C.’s  leadership.

carbon tax

B.C.’s economy has not been hurt, but that’s because our carbon tax is small compared to other taxes.  The carbon tax is only 7 cents per litre compared to 30 cents per litre for fuel tax, excise tax, and GST.

The only way that B.C. meets its target for GHG reduction is by buying debatable carbon credits, not through the carbon tax. Marc Lee, senior economist for the Canadian Centre for Policy Alternatives, explains the mischief:

“The B.C. government makes the dubious claim that they met their interim GHG reduction target for 2012 of 6% below 2007 levels. Even then, B.C.’s numbers showed only a 4.4% drop, which, as noted, involves a one-time drop from 2008 to 2009. The claim of 6% reduction is based on the purchase of bogus carbon credits (offsets), making it more fiction than fact.”

The trouble with the purchase of offsets is that there is no detailed reporting on how offsets were used. The whole scheme suffers from “massive credibility problems” after a scathing report by the auditor general.

The 4.4 per cent drop in GHG wasn’t because of the carbon tax. It was because of the Great Recession of 2008 when the world saw a reduction because of slowing economies. Even the U.S. reduced GHG. Between 2007 and 2009, emissions fell by 10 per cent, half of it due to less coal burned, half due to the recession. The Smithsonian magazine says:

“In effect, more than half the carbon decline was due to a drastic drop in the volume of goods consumed by the U.S. population.”

Even the claim that B.C.’s economy was not hurt by the carbon tax is suspect; all of Canada’s economy grew. From 2008 to 2013, B.C.’s economy grew by 12.6 per cent while Canada was 15.1 per cent.

“If we go to constant dollars, there is a very slight edge to B.C. over Canada, but it works out to 0.07% per year in GDP growth rates.”

Our carbon tax could be something worth bragging about if it was significant. With relatively low fuel costs, now would be the time to increase them. If the tax was increased from the current $30/tonne to $200/tonne, fuel prices would only increase to what they were last year.

And since the carbon tax is revenue neutral, there would be no net increase in taxes. Even then, a better idea would be to invest the tax in renewable energy and public transit to lower GHG further. Meanwhile, let’s get real about our carbon tax.

“We need to stop telling fairy tales about the province’s climate action policies and its carbon tax (and I say this as a general supporter of carbon taxes).”

B.C.’s Premier Clark has a lot of explaining to do. Her proposed LNG project will result in the province exceeding targets. Clark’s new plan to be released by December will tell us whether our pride in the carbon tax is warranted.