Federal Budget 2018 contains $338.5 billion dollars in spending, a $18.1 billion dollar deficit, a number of laudable goals, but very little of concrete value to address lagging Canadian competitiveness.
It isn’t rare to hear pundits opine that “Canada is falling behind,” and there are a number of reasons they do so. Business investment in Canada has fallen over the past decade. Worker productivity, or the amount of GDP produced per person, is weak relative to our international peers at just $49 per hour worked compared to the US at $63 per hour. The performance of the Toronto Stock Exchange reflects investor confidence in our countries businesses and that confidence is lacklustre. While the US markets have seen record returns, the TSX is within a couple hundred points of where it was a year ago.
Much of this weak performance can be directly attributed to a couple components; weakness of the oil and gas sector, and the Trump tax plan in the US.
While Canada has struggled with building pipelines and regulatory approvals for major projects, the United States has built thousands of kilometers of new pipelines, increased their energy independence, and slashed corporate and personal tax rates, incenting billions of dollars in new investment and shifting capital and operations to the US from abroad.
For years our O&G sector was the engine, driving the entire Canadian economy forward with impressive growth. Today it is a subdued shadow of its former self and with it, the economy as a whole, particularly so in Alberta. Ongoing constraints in pipeline capacity have faced Canadian producers with significant discounts for their products and reduced the incentive to explore and add production. Because of this, the Canadian Association of Oilwell Drilling Contractors predicts there will be even fewer wells drilled in 2018 compared to 2015, when our region was feeling the pain of the recession particularly hard.
Here in Central Alberta the impact is particularly worrisome. A quick drive around area industrial zones will show many vacant industrial lots and oil and gas companies with yards full of millions of dollars worth of equipment gathering dust. It should be particularly worrisome that the reason some equipment isn’t gathering dust is because it’s already been moved to greener pastures in the US or Middle East where it can be fully capitalized. This equates to thousands of skilled, high-paying jobs lost for our region.
We held some hope that Budget 2018 would contain measures to address Canada’s faltering competitiveness and the elephant in the room that is the Trump tax plan. Unfortunately, this hope proved to be in vain. Even a signal the Trudeau government was taking steps to explore possible options for attempting to deal with the new competitive disadvantage facing Canadian business relative to their American peers would have been a positive step. Similarly, some sort of gesture signaling the Canadians government commitment to seeing approved pipelines get built would have built serious goodwill for the business and investment community.
The budget with its $18.1 billion deficit also managed to see a decrease in infrastructure spending. Chambers of Commerce have been long time proponents of trade-enabling, critical infrastructure that allows the smooth and efficient movement of goods and services. It has been a long time ask of the Alberta Chambers of Commerce for a second 24 hour border crossing into the US. Consider that in 2016 Alberta exported $68 billion of goods to the US and imported $16.4 billion, yet has only one 24 hour border crossing into the United States.
This budget, which has been aptly described as being much more about the social agenda of the government as opposed to the typical financial and economic plans of the past, spends billions of dollars while achieving almost nothing of concrete value to the average Canadian business.
While there are certainly a number of green shoots and reasons for Canadians to be economically optimistic, but as CEO’s and politicians like to say, this is indeed a time for ‘cautious optimism.’ If successful, the attempt to increase workforce participation and the earnings of females will eventually prove to be a benefit. However those efforts may prove to be in vain if capital and investment continues to move to the US at the current pace. The good news is we have a highly skilled workforce, massive O&G reserves, with the long-term demand for oil and gas continuing to rise. The bad news is other jurisdictions we compete with have better market access and a more competitive regulatory and tax structure. Both problems this budget does nothing to address.
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