Nation Building and Northern Ontario

 

Yesterday’s Throne Speech emphasized that the world has shifted and is more uncertain but that it is also a time of opportunity to reforge Canada’s economic and political relationships and embark on economic nation building that could be the largest transformation of the Canadian economy since WWII.  There was a commitment to major national infrastructure projects as well a movement to remove federal barriers to internal trade to enhance the Canadian economic union.  However, the details of what is going to be done remain a work in progress and that suggests that there are still opportunities to put forth new ideas.  If Canada is going to embark on a period of building a larger internal economy and putting in place national infrastructure projects, attention needs to be paid to the transportation links that knit the economy together - in particular, the road network.

The highway and road transport network in Canada has been key in facilitating our trade and commerce particularly with respect to the United States.  Truck transportation accounts for nearly half of the Canadian exports shipped to the United States and nearly 70 percent of the goods imported from the United States.  The east west dimension of Canadian internal trade should also not be underestimated when examining the role of road transport in facilitating the Canadian Economic Union.  For example, it has been noted that “$528 billions of goods and services moved across provincial and territorial borders in 2022—equal to 18.8% of Canada's gross domestic product. Furthermore, one-third of Canadian businesses participated in internal trade by buying or selling goods across provincial and territorial borders in 2023.”

If there is to be more east-west internal trade within Canada as trade barriers are removed, it stands to reason that much of this commerce will flow through the Highway 11-17 corridors in northern Ontario.  However, the roads here are already severely stressed by the post pandemic increases in transport trucks and associated accidents.  According to the OPP, 60 percent of fatal crashes in Northwestern Ontario alone (21 fatalities) in 2024 involved transport trucks.  This is not surprising given the increase in truck volume as well as the two-lane nature of much of the highway system in northern Ontario. While there are more passing lanes in place than 20 years ago, in many respects little has changed in what is a vital zone of national transit.  As noted in a much earlier pontification on this topic:

“Canada is the largest developed country in the world without a system of fully grade-separated roadways that allow uninterrupted traffic flow between its major urban centres. The key roadblocks include the two-lane stretches from the Manitoba border to Sudbury and much of the route between the Alberta border and Kamloops. Most importantly, the Trans- Canada is still a two-lane stretch through the vital zone of transit through northwestern Ontario connecting the East with the West from the Manitoba border to Sudbury, leaving the nation's east-west flow of personal and commercial traffic subject to the whims of an errant moose. The slow travel times and disruptions make cutting through the United States an attractive option for east-west travellers, despite the absence of an Interstate route along the border, but U.S. border crossing formalities have also made this more difficult and time-consuming.”

If U.S. border issues were a concern two decades ago, they are even more significant now.  In improving the east-west highway link through northern Ontario, there are definite challenges of cost rooted in both distance and geography but if the Europeans can tunnel through mountains to build their autobahns and autostradas, then surely, we can deal with rocks, trees and muskeg.  There are two key highways – Highway 11 which can be termed the northern route and Highway 17 which can be term the southern route though both come together as 11-17 from Nipigon to Shabaqua.  While a portion of the stretch between Nipigon and Thunder Bay is being four-laned, after nearly 20 years the four-lane project here is still not complete.  Moreover, it remains that there is a bottleneck at Nipigon given the national highway system comes to one choke point at the Nipigon Bridge which is subject to disruptions.

What should a national project to improve the Trans-Canada through northern Ontario look like?  Here is my suggestion. Highway 11 from North Bay to Nipigon should be four-laned. The 400 from Barrie to Sudbury is nearly completely four-laned.  After Sudbury, constructing four lanes on highway 17 is more problematic for several reasons but Highway 17 from Sudbury through to Sault Ste. Marie to Nipigon should be subject to 2+1 upgrading – essentially a three-lane highway with a centre passing lane that alternates every two to five kilometers. 

While the Ontario government is planning to do this on Highway 11 north of North Bay, the entire stretch of Highway 17 from Sudbury to Nipigon should be done this way.  Highway 11-17 from Nipigon to Shabaqua should be four-laned.  Highway 17 from Shabaqua to the Manitoba border should be four-laned.  And, if more resilience is desired given the potential bottleneck at the Nipigon bridge, thought should be given to an additional crossing over the Nipigon River between MacDiarmid and Nipigon that would consist of a 2+1 highway to Upsala.  There is also the issue of Highway 11 past Shabaqua that ends in a U.S. border crossing leaving only one major highway crossing between Manitoba and Ontario that may need to also be explored. However, a bottleneck on flat land is in somewhat of a different league than one over a water crossing.

Of course, the element of cost here is paramount.  Estimates of the cost per kilometer for 2016 for northern Ontario alone suggest a range between $350,000 and $550,000 per kilometre. One suspects that in the wake of the pandemic like everything else, costs have grown substantially. However, we have both a Prime Minister who wants to nation build as well as strengthen the Canadian economic union and facilitate more internal trade as well as an Ontario Premier who wants to invest in nation building projects that includes a tunnel under the 401 and a deep water port on James Bay – not exactly cheap projects.  The transport infrastructure for a stronger east-west commercial union is necessary and yet has been strangely missing from both the national and provincial discourse.  

Nevertheless, it is somewhat refreshing to have a government that seems ready to embark on aspects of  sovereign reconstruction (after a decade of what I suppose can then be termed sovereign deconstruction).   However, when to comes to sovereignty and enhancing our national economic space, words are not enough.   There will need to be action and that action will require investing in transportation infrastructure that enhances Canada’s economic space as an economic union.  Improved highway links through Northern Ontario are key to doing this and a start would be our northern Ontario federal and provincial MPs and MPPs recognizing this and making the case. 

 

 

 

Canada's Effective Tariff Rate: 1870 to 2024

 

I had a recent piece in The Hub dealing with President Trump’s current tariff policies that included a chart on the average effective tariff rate on US imports from 1870 to the present.  In its wake, Almos Tassonyi contacted me and asked if I was planning to do something similar for Canada.  Honestly, it had not occurred to me but thanks to Almos for the suggestion and this post presents data on Canada’s effective tariff rate on imports.  It is just in time for Prime Minister Carney’s trip to Washington and he might like to point out that historically, Canada has had lower effective tariff rates on imports than the United States.  But then, that should not be surprising given that we have always been a small open economy with trade as an important contributor to our economy.

The accompanying chart plots both the US average effective tariff rate taken from the previous article on The Hub alongside the Canadian average effective tariff rate. The average effective tariff is the ratio of tariff revenues to the total value of all imports rather than tariff revenues to the value of dutiable goods imported. Since 1870, the average tariff rates on dutiable imports have been higher than the average effective rate.  And of course, the actual rates imposed are higher in relation to effective tariff rates whether based on the value of imports or the value of dutiable goods.  For example, during the National Policy Tariffs (1879-1897), the rates on manufactured imported goods ranged from 17.5 to 45 percent with some goods of course free of tariffs.

The data on tariff revenues and the value of total imports for Canada is taken from several sources: The Jorda-Schularick-Taylor Macrodata Base, Historical Statistics of Canada (H1-18), the 2024 Fiscal Reference Tables (Table 6) and FRED.  Figure 1 plots the Canadian average effective tariff rate alongside the US one and both have declined over time.  Over the entire 1870 to 2024 period, the average annual Canadian effective tariff on imports has been 9.9 percent compared to 12.5 percent for the United States – 21 percent lower. There have been periods when our effective rate has been below the US rate but also periods when it has been above. 

From 1870 to 1914, the annual average US effective tariff rate was 27 percent while ours was 17 percent.  During the WWI period (1914 to 1918), the Canadian average was 17 percent while the US fell to 10 percent.  During the 1920s, the average rates of the two countries tracked quite closely but after 1930, the trade war era of the Smoot-Hawley tariffs saw the average US tariff from 1930 to 1939 at 17 percent while Canada’s was at 14 percent.  The post-World War II period is marked by a steady decline in average effective tariff rates in both countries with the 1950s to the 1970s seeing generally higher rates in Canada than the United States.  The average annual effective tariff rate in Canada from 1950 to 1979 was 7.5 percent while for the United States it was 6 percent.  The late 1980s saw the arrival of the Canada-US Free trade Agreement and the 1990s saw NAFTA and in their wake, tariffs came down.  However, since 1990 the average US effective tariff rate has been higher than Canada’s. From 1990 to 2024, the annual average Canadian effective tariff rate on total imports was 1.1 percent while for the United States it was 2 percent – nearly double the Canadian rate.

 

 

Going forward, the average US effective tariff rates are going to be higher, but it is uncertain where exactly they will land.  At present, estimates have ranged from 14 percent to over 20 percent, but these are likely to be unsustainable in a world that is more globalized and interdependent that current US policy makers seem to realize.  However, I would not be that surprised to see effective average tariff rates return to and stabilize at late 1970s to early 1980s levels which would bring us close to about 5 percent.  That does appear to be the time period where many of the current President's economic views, such as they are, were nurtured. Time will tell.

 

 

 

 

Making Major Decisions at Thunder Bay City Council-Part II

 

As noted in the previous post, the last few weeks at Thunder Bay City Council have been busy with three major decisions of particular note: not approving changes to council composition, approving the Kam River Heritage Park site as the location for a temporary village of tiny homes to address homelessness and finally, not shutting down the County Park location and adding Intercity Mall as the location for a new more centralized library.  These were particularly thorny issues to deal with on several fronts and my take is that the correct decision was made in two out of the three cases.  In the last post, I provided my thoughts on the two decisions I think City council got right: sticking with the status quo on council composition and not putting a large new central library in the Intercity Mall.  However, on the third decision – going ahead with the Kam River site for the tiny homes project- I beg to differ.  However, there may yet be a silver lining to the decision made if it is truly a transitional decision and time it buys used to bring about long term social and geared to income housing.

After several other tries at establishing a tiny homes village first on Miles Street (which is separate from another project by Alpha Court), then in Intercity, and then on Cumberland Street, the nod has now been given to the Kam River Heritage site – for now.  This has been somewhat of a merry go round in terms of location selection. There is still another meeting for final ratification, however, and this location decision has been made and reversed before. However, my feeling is given the cycling across locations, City Council will stick with this final choice if only to avoid further eroding their credibility. 

This has been a charged and emotional issue given the need to address the homeless problem and the presence of tent encampments under third world conditions.   There are also the many concerns as what the impacts of such a village will be on adjacent residences and businesses.  And to be fair, this is not just Thunder Bay’s problem, but the provincial and federal government’s problem given there are homeless encampments across the province and the country.

In the end, several reasons were advanced as to why the Kam River site should be selected including proximity to essential services, the fact the area already houses an encampment, and that it is in keeping with the City’s strategic plan.  After numerous delays, there is also a sense of urgency to put the project in place to not jeopardize provincial funding though making decisions to just get the money is never sound public policy.

However, a key concern raised has been safety of the residents given the proximity to water and rail tracks with the prospect of drownings up front and center.   The City Manager commented that “You can drown in six inches of water like you can drown in 12 feet of water. The depth is not really the consequential issue. It's clearly delineating it, making people understand the risks, and putting in some prevention measures."  This somewhat less than sensitive response in the wake of recent history along our waterways also omits the reality that a drowning is a drowning whether in six inches or 12 feet of water and if it is a municipally run village on city land there will inevitably be additional liability issues.  Safety is a big issue with this site.

As well, even with these tiny homes, encampments will still not be eliminated as the tiny home village is part of a city homelessness plan that includes three approved encampment sites. Also not addressed as a concern is the reality that this plan  - unlike the other sites considered - puts the tiny village essentially out of sight and out of mind by locating it where it will not be easily seen.  This will be a problem given that the project is supposed to run for only five years as “permanent” solutions are brought into play.  However, if the problem disappears from public view, it will be difficult down the road to generate the attention and the resources for permanent solutions.  The risk of hiding the problem is that long term solutions will go onto the back burner.

Then there is the cost.  According to the media reports, Thunder Bay will spend $5.5 million to construct an 80-unit "tiny home" village, with the province contributing $2.8 million of that, and has targeted operating costs for the first year at $1.5 million. So, over the five-year span of the project, the total cost for 80 units based on these numbers will be close to 13 million dollars.  Given the history of public sector capital projects at the public sector level in Thunder Bay, one can certainly expect cost overruns in the building and operation of these tiny homes.  Hamilton (always my favourite example) has also erected a “temporary” village to house its growing homeless population with the cost for 40 units (80 beds) originally forecast at $2.8 million but that has ballooned to $7.9 million or about $100,000 per bed.  Operating costs annually are apparently going to be $40,000 per bed. 

Is this a problem?  Well, in the case of Thunder Bay, think about it this way. Spending $13 million for 80 tiny units over five years works out to $162,500 per unit – or $32,500 annually. Thunder Bay is currently undergoing an apartment building spree financed by federal and provincial housing money which is increasing the supply of rental units but not necessarily increasing the stock of affordable housing because two-bedroom units in these new build apartments are going for as much as $2500 per month. At $2,500 per month, the annual rent is $30,000 per year.  Essentially, for the same amount of money, the City of Thunder Bay could simply house up to 160 homeless people in new existing two bedroom apartments for the next five years in very nice lodgings.  If older buildings at somewhat lower rents were put into the mix, then you could house even more homeless people.

Of course, this modest proposal of a solution is not going to happen. One suspects that current rental accommodation landlords in Thunder Bay are not terribly interested in helping solve the city’s homeless population problem in a manner that might affect the value of their investments or the building environment of their current mix of tenants.  This does however lead to what I think the longer-term solution could be. 

Given the private sector does not appear to be either capable or willing to provide new build affordable housing and given the amount of money that is being spent simply for tiny homes, there can be a public sector role in longer term housing solutions.  There needs to be more social housing – administered by the district of Thunder Bay Social Services Administration Board (DSSAB) and funded by the City of Thunder Bay, the Provincial and the Federal governments with local groups (such as Alpha Court as well as Indigenous organizations) in partnership.  The partnership approach is key and has been noted by others.  Small apartment style buildings providing social housing and geared to income units need to be built in multiple locations throughout the city with city owned and other public land in the downtown cores and city being possible locations.

Again, as outlined in a much earlier blog post, a good model here is Finland which has through the building of social housing complexes that provide places to live and a fixed address for those requiring access to government services dramatically rescued its homeless population. As I have noted, “People who are homeless need to be housed and housed without questions being asked.  Creating a complex or dispersed network of complexes of transitional emergency housing with very small personal units combined with social support such as a community kitchen, social workers and even a nurse practitioner and mental health workers and basic security on site would be one way of dealing with the homelessness crisis.”   And once lives are stabilized in these homes, the next step is placing them in geared to income units.  As far as I am concerned, tiny homes on a riverbank are at best an expensive band-aid solution.  If you are going to be spending tens of millions of dollars, you need to be leveraging that money into permanent solutions, not stop gaps.  True, the social housing approach is seen as more expensive, but it is more likely to solve the problem rather than dilute or obscure it.  Moreover, the tiny homes approach is not exactly cheap either.

Still, these are all complicated questions, and one certainly does not envy the people who must wrestle with them. I suppose getting two out of three decisions right is not a bad score but as my old high school motto would say - Agimus Meliora – let us strive for better things. And doing better in the case of homeless encampments given that the Kam River site is likely a done deal, is to gain redemption by using the next five years to fully implement long term solutions and not hide problems along a riverbank.

 

Making Major Decisions at Thunder Bay City Council-Part I

 

It has been a busy few weeks at Thunder Bay City Council with three major decisions of particular note: not approving changes to council composition, approving the Kam River Heritage Park site as the location for a temporary village of tiny homes to address homelessness and finally, not approving Intercity Mall as the location for a new more centralized library and shutting down the County Park location.  These were particularly thorny issues to deal with on several fronts and my take is that the correct decision was made in two out of the three cases.

First, let us start with council composition.  I have already opined on the shape of councils to come and the long and short is that City Council made the right decision in sticking with the status quo. My reasoning is not that City council might not benefit from a different model but replacing a seven ward and five at large plus mayor model with the proposed four wards with two ward councillors each plus two at large and one mayor did not represent a major improvement to either representation or decision making on municipal issues.  Cost savings from moving to fewer councillors was always a red herring because the few thousand dollars in savings from going to 11 members from 13 was minor and cosmetic given a  combined total capital and operating budget well over half a billion dollars.

The representation issue is more serious in that the proposed model would have essentially subsumed rural interests in Neebing and McIntyre wards and local neighborhood issues would have been lost in the new wards each with a mish mash of rural, urban, industrial and commercial interests.  Having two ward councillors in each of these wards seemed to be an attempt to have council composition resemble a more at-large system without having a fully at large system.  A “Larson” compromise it was not because the rejected model created more problems than it solved.

A fully at large system would in many respects be the least favourable outcome given the reduction in accountability to ratepayers who would no longer have a dedicated ward councillor.  That is a major problem with any fully at large system given that residential ratepayers foot 70 percent of the operating budget tax bill.  The partial at-large system being proposed created a more complicated set of representation problems for ward councillors while at the same time confusing who was responsible for the ward by providing two councillors who each could behave as an at-large ward councillor if they wished to avoid more pedestrian local issues.  And in terms of the desire for change and “cost savings”, informal surveys suggested an eight member council plus Mayor  was desired by the public rather than what was advanced even though again the cost savings here would be relatively minor.

As noted in my previous post, the public desire rightly or wrongly favored a smaller council of eight plus a mayor and “Going down to eight councillors plus a mayor would likely save several hundred thousand dollars – again a small sum compared to a budget in the hundreds of millions – but enough to increase resources available to perhaps attract better candidates. This does not necessarily mean raising salaries for councillors but could even involve providing funds so that they can hire some independent research support so they can better inform themselves on issues.”  This option but as an eight-ward and not all at large model plus a mayor would have been my preferred option.  However, this model was never on the table and after the time spent of this process, council composition is off the table for many years to come.

Second, the nixing of the Intercity library location.  The current CEO of the Thunder Bay Public Library is rather energetic and persistent as  this was the second attempt to foster change and bring about a central library at Intercity Mall.  However, as can be the case with leaders who believe they see things that others do not, you cannot take people where they do not want to go.  Moreover, closing a neighborhood library (County Park which is indeed in a neighborhood shopping mall) to provide a more centralized location in the Intercity shopping area where no one really lives – is not necessarily a service enhancement.  While it may on the surface appear to be a more accessible and convenient location, for families with kids, heading to the library becomes more of a destination event rather than part of a routine.  Moreover, the focus on having a large, centralized facility is at odds with the dispersed nature of Thunder Bay.  It might work but it is an expensive experiment and the cost of the project – even with contributions from the mall owners – were substantial and not likely to be fully recouped on the operating side from closing the County Park branch.

But there is more.  The informal sentiment in Thunder Bay – and not mine - is that books are very 20^th century and that indeed you might want to look at having fewer libraries rather than more.  I see that sentiment as a more North American affectation given that if you go to Europe, bookstores and libraries with hard copy books still proliferate (try visiting Dublin).  It is possible that in years to come, books will indeed enjoy a renaissance as the inevitable reaction against e-books and technology and a desire for retro sets in.  If future libraries with books and electronic media that function as information and communication centers (rather than community hubs) eventually have a renaissance, the case can oddly enough be made that Thunder Bay is “under libraried”.  That is, Thunder Bay could probably use a system with more small and dispersed libraries but not necessarily a system that concentrates resources at a few locations.

For example, the Hamilton, Ontario CMA with a population of about 785,000 people in 2021, has a City of Hamilton library system consisting of one central library in its downtown, 22 branch libraries of varying sizes, and a book mobile.  However, the CMA also includes Grimsby (one library) and Burlington (seven libraries) Put another way, 32 library locations for a population of nearly 800,000 people.  The Thunder Bay CMA with a population in 2021 of 123,000 has four libraries.  Based on the population and total number of municipal public libraries in the Hamilton CMA of 785,000 to 32, Thunder Bay’s 123,000 CMA population should have 5 municipal public libraries rather than 4.

At first glance this seems to support the case for a library at the Intercity area given that there are already four branches in existence.  However, I would argue that there is a better case for six smaller libraries - none of which would be in Intercity.  Thunder Bay’s current library system is rooted in a population distribution that comes from its history as two cities.  So, there are two large central libraries and two smaller neighborhood libraries.  The downtown Brodie and Waverly locations in a sense are too large given that over 75 years population has moved away from the core areas.

What might work better is six libraries each about the size of a County Park or Mary JL Black.  So, what this might suggest is a downsizing and refurbishment of the two downtown branches – Brodie and Waverly – in terms of their collections with each having a collection about the size of a MJLB/County Park.  Furthermore, one would house the archives/reference section and the other library admin and storage (which is not far from current reality).  Two new smaller branches would be put in place – one somewhere in the Northwood area or perhaps Parkdale and the other in the Current River area.  Essentially a system with smaller branch libraries providing more neighborhood access.  Can this work? Maybe? Will it happen? Not likely.  Capital costs are capital costs whether for small, dispersed facilities or larger centralized ones.  One cannot discern any appetite for major new capital library projects in Thunder Bay given the focus is on recreation facilities. 

Next post - Conclusion.

 

 

 

Federal Platforms, Costing and Fiscal Sustainability

 

The two main federal parties have released their platforms and costing and inevitability the question of whether their fiscal programs are sustainable emerges.  Trevor Tombe at The Hub has already weighed in on the Liberal platform and notes that it “marks a clear break from the government’s previous approach to fiscal policy and proposes to move Canada onto a less sustainable track.” The Liberal Platform essentially adds $225 billion in deficits to Federal debt.  More specifically, Tombe notes that: “marks a clear break from the government’s previous approach to fiscal policy and proposes to move Canada onto a less sustainable track.”  The Conservatives have also released their platform with costing and they have no plans to balance the budget either and will be adding about $100 billion to the federal debt over the next four years. 

The question that arises is whether these additions to the federal debt will make federal finances unsustainable.  The answer to this is of course dependent on what your definition of sustainability is and what the growth rate of the economy is projected to be.  The latter is a big uncertain variable given that there is trade upheaval underway with the United States and much of the increase in projected spending deals with addressing the trade upheaval and associate issues such as national security.  As for the definition of sustainability, it depends. If your benchmark for sustainability is a good credit rating on federal debt and being able to meet the debt service costs relatively easily, then both platforms are easily sustainable for the foreseeable future.

However, public finance economists have a somewhat more discerning measure that is tied to the debt to GDP ratio.  In other words, if the debt to GDP ratio is flat or falling, then the fiscal course of the public finances is sustainable.  On the other hand, if it is rising, then it is not sustainable.  So, to examine sustainability using these measures, Figures 1 and 2 plot three scenarios (Baseline taken from the Liberal Platform, the Liberal Platform and Conservative Platform). I am going to take all their numbers at face value and not get into whether projected revenues or cost savings are realistic. Having said that, the results are dependent on the rate of growth of GDP.  For each scenario, the deficits going forward from 2025-26 to 2028-29 are added to federal net debt with 2024-25 set at $1.396 trillion. Meanwhile, GDP in 2024-25 is set at 3.173 trillion. 

Going forward, the growth rates for GDP are one of two scenarios.  Figure 1 plots the estimates with an assumption of nominal GDP growth annually at 4 percent.  This is a relatively optimistic scenario all things given but not unreasonable even in the wake of the recent IMF revisions to their forecasts which reduced Canadian real GDP growth for the next two years to 1.4 and 1.6 percent.  If inflation stays at 2 percent, we are looking at nominal growth ranging from 3.4 to 3.6 percent. Figure 2 however, reduces nominal GDP growth to 3 percent annually going forward and  at 2 percent inflation yjis translates to 1 percent real annual growth. 

 

 

The results show that at 4 percent nominal GDP growth, the Baseline and Conservative platform paths both show a declining net debt to GDP ratio.  The Liberal platform at 4 percent growth is essentially stable for the next couple of years and then turns down ever so slightly.  Of the three scenarios, one would expect the Liberal platform is the one that is most sensitive to lower GDP growth and that is indeed borne out in Figure 2.  With 3 percent growth, the baseline scenario reveals at upward shift in the net debt to GDP ratio for 2025-26 and then a decline making it sustainable going forward.  The Conservative net debt to GDP ratio remains on a downward trend even with lower growth.  However, the Liberal net debt to GDP ratio going forward is clearly not on a sustainable path going forward though one may of course quibble that going from 44 to 45.4 percent over five years is hardly the end of the world.  However, should there be a recession later this year and into next year, all these scenarios will be worse.

 

 

So, it appears that even with all the spending being proposed, the federal public finances do not appear to be on a widely out of control path going forward whatever party forms the government. However, strictly speaking, some scenarios based on these assumptions are more sustainable than others.