By DAVID MURRELL (AIMS Author) and JACKSON DOUGHART (Policy Analyst)
• Chronicle Herald, 08 Nov 2016
• Charlottetown Guardian, 09 Nov 2016
• Daily Gleaner, 09 Nov 2016
• Telegraph-Journal, 10 Nov 2016
A leading measure of economic health is the trend in business investment. Capital outlay – the money that is invested for the purpose of wealth creation – indicates demand, or the value of a jurisdiction’s products and services for sale on the market.
Much has been written about Canada’s turbulent economy of the last ten years, especially with the global financial crisis of 2008-9. Rightly, our own region has examined its financial state of affairs. Almost three years ago, the landmark Ivany Report in Nova Scotia sounded alarm about dipping economic conditions in that province. Realistically, its analysis applies fairly to New Brunswick and P.E.I., including a concern that we need to create a more entrepreneurial culture.
Unfortunately, investment trends have not figured prominently in our public discussion of economic health.
This is why we have published a new study for the Atlantic Institute for Market Studies, entitled Private Sector Investment in Atlantic Canada. The paper compares investment numbers from 2006 and 2007 – the two years before the Great Recession – to the last two years of 2015 and 2016.
Our findings confirm a stagnant economy in the Maritimes. Across Canada, a strong housing market and government infrastructure spending have allowed total capital spending numbers to rise. Other areas have done worse, including the three aspects of business capital spending: non-residential structures, machinery and equipment, and intellectual property production.
Nowhere is the drop more precipitous than in the Maritimes. Converted to a spending-per capita figure – or the amount of money invested for every person in the population – capital spending has dropped by a third in just a decade. Though government investment remains constant, private industry is buying less, including buildings and equipment.
Steady government investment masks the true depth of our region’s investment decline. For private-sector machinery investment, the decrease is 35 percent. For private-sector structures, it is 55 percent. (In New Brunswick, structures spending is down 60 percent.)
In 2006, companies spent on buildings $1,300 for every Maritimer. Today, they spend just $600. This figure accounts for inflation.
These decreases suggest that Maritime products and services are less demanded on the market. They also indicate that businesses may have less available money to invest, or doubt the region as a desirable destination for doing business.
Things are quite different in Newfoundland and Labrador. In that province, public infrastructure spending is up by more than 400 percent and business structures over 200 percent. However, the substantial government investment has wrought negative consequences for the province’s debt and deficit situation, given the crisis caused by the collapse in oil prices.
It appears that provincial governments have not been arrested by these worrying trends. We reviewed the budget speeches for all Maritime finance ministers of the past three years and none mentioned sagging private-sector investment as a concern. It is imperative that these developments be brought more centrally into our policy discussions.
Clearly, conditions outside of the Maritimes are a factor in these data. But so too are public policy choices that put our region at a disadvantage.
Chief among them is the failure of New Brunswick and Nova Scotia to develop greater local energy resources. According to another AIMS study from earlier this year, these provinces sit on substantial shale gas deposits that could create an energy boom. But moratoria on fracking – a process needed to extract many of these reserves – prevents their exploitation.
Strangely, Nova Scotia and New Brunswick don’t seem to mind the use of fracking in Alberta and Saskatchewan, from which they gladly accept transfer money. These provinces have long employed this technique to create wealth.
Secondly, Maritime tax regimes are discouraging of investment. By some measures, the Maritime Provinces are the highest-taxed jurisdictions in North America.
The problem is not just high taxes but inconsistent taxes. When it comes to substantial business investments in growth prospects like technology startups, energy production, and manufacturing, investors reasonably expect consistent tax treatment, borne of long-term strategies by government. Instead, they have come to expect a region where increased government revenue through tax hikes is a reflexive response to spending excesses.
Final is the high regulatory burden in the Maritimes. Adding to the frustration of red tape, there are discrepancies in standards and regulations even between the three small, and highly interconnected Maritime Provinces. Regulation imposes a real cost on industry.
The Western Canadian provinces have figured out the problem with differing standards, and have formed a common set of regulations through their New West Partnership. The Maritime Provinces should each join the NWP to expand trade, here and across the country.
Such better public policies would be an important step in reversing our economic trajectory.