Well, it is the New Year and as always it is a
time of reflection and looking ahead to see what the New Year might bring for
Canada, Ontario, northern Ontario and naturally The Most Serene Kingdom of Thunder
Bay where there is always optimism. Of course, 2017 has been a pretty
tumultuous year but 2018 is also looking turbulent given the
changes poised to take effect as well as events around the globe. However, on
the bright side, the global economy is expected to do reasonably well according
to Goldman Sachs or then perhaps not if you listen
to Morgan Stanley. At least, Canada will not be
Venezuela which FocusEconomics expects to be 2018’s most miserable
economy though Canada is expected to be in the top ten for nominal GDP.
Nevertheless, this year will certainly be a test of the aspiring nature of current economic policy in Ottawa and Queen’s Park. At the top of the list, the United States will dramatically lower business and personal tax rates effective January 1st. The last time this happened in the 1980s, Canada countered with the federal tax reforms that lowered rates and broadened the rates. This time, no such response appears to be coming despite the fact the federal business tax rate in the United States is expected to fall from 35 to 21 percent. A saving grace is that new US corporate tax rates will match rather than fall below Canadian ones.
If the US economy booms in the wake of its tax
cuts, Canada might be expected to benefit from increased trade. Yet, federal economic leadership is adrift on
the trade front given the United States is playing hardball on NAFTA and talks
with China and the Asia Pacific are stalled.
The aspirational tone of current trade talks is not bearing fruit given Chinese and American
reactions. Indeed, the possibility is high that Trump will pull the plug on
NAFTA early in the New Year.
On the plus side, we can take solace in the
fact that while the United States is playing hardball on trade, Donald Trump
considers Justin Trudeau a “friend”. One
can only imagine our trade talks with the Americans if Donald Trump was dealing
with enemies. Perhaps we can look forward to a
visit to Canada by President Trump in 2018.
At the federal level, we can also take cheer in
the most recent Federal Department of Finance’s long-term projections (a few days before Christmas when no one is paying attention)
that the federal budget is now expected to be balanced by 2045 compared to the
2050s as forecast in last year’s long-term forecast. Given the international situation with North Korea, the United States, Russia, China, and the Mid-East, the world should last so long. Where is Lester Pearson when you need him?
Added to all this are expected increases in
interest rates for 2018 and the tightening of mortgage rules with a new stress test. The stress test will effectively
function like an increase in the interest rate for home buyers without the added
stress of implementing an actual increase for the Bank of Canada. These changes
are anticipated to have a
depressive effect on Canadian housing markets especially outside of Toronto
and Vancouver. As for Toronto and
Vancouver, being in an economic world of their own, they should only slowdown a
bit.
Things are marginally better when moving into
Ontario. Ontario’s economy has done relatively well in 2017 though NAFTA talks
are inevitably keeping Premier Wynne awake at nights. While Ontario is expected
to balance its operating budget, debt will continue to grow based on the
forecast capital spending ranging from public transit to high speed rail. Yet, it is also not a done deal that Ontario’s era of deficits is over given what appears to be a
ramping up of spending with implications for the future. Moreover, the increase in the minimum wage and other regulatory changes that
are being phased in with respect to employment standards, scheduling, and
overtime mark the debut of a massive experiment. How much change can employers absorb before
throwing up their hands and scaling down their operations?
Ontario is also on track to a June election and
many of the progressive initiatives of the current Wynne government are designed
outflank the NDP given the Conservatives under Patrick Brown have sailed into
the centre of the political spectrum with their policies. The
Wynne government’s policies are aspirations for a more socially just Ontario with less weight placed on trade-off
between equity and efficiency. Along
with the guaranteed annual income experiment, there is also a new youth pharma care
program.
In the end, all three political parties in
Ontario appear to be placing themselves along a centre-left alignment meaning
that Ontarians can expect government spending and debt to maintain their current
trajectories no matter who wins.
Of course, more government spending will be
seen as good news for northern Ontario given the economic dependence on
government. While the resource sector saw some marginal improvements in 2017,
the development of the Ring of Fire still appears to be quite distant though
2018 being an election year one can expect to see a number of positive inspiring announcements with respect to its future.
As well, it will be interesting to see if there is any mention of the “success” of the Northern Ontario Growth Plan in the next provincial election
campaign. Any mention of the 25 year plan to boost the economy of northern Ontario that started in 2011 will likely mention the wonderful things yet to come - after all, we have yet to reach the halfway mark.
As for Thunder Bay, its economic engine is government
activity as the core sector with subsequent commercial and retail activity an
economic multiple of this core. It is a
recipe for stability that works given that the city’s economy has been static
in terms of employment for several decades.
Rising public sector salaries and incomes provides a base for municipal
taxation and further local public-sector employment and the process will
continue until the flow of public money is constricted – which does not appear
to be any time soon.
Why tamper with perceived success? This means
the current batch of local politicians – provincial and municipal – will all be
re-elected come June and October and everyone will go back to sleep. The northern Ontario economy and Thunder Bay in particular have
become a sort of economic Brigadoon – an isolated sleepy region coming magically to
robust economic life every 100 years.
Yet, despite the evidence of slow economic and employment
growth from Statistics Canada and the Conference Board, its boosters have often maintained that Thunder Bay is one of the fastest growing cities in Canada and with some of the
lowest unemployment rates in the country.
That the low unemployment rates in Thunder Bay's case also mean the labour force has been shrinking faster than employment is apparently not seen as a cause for concern.
I suppose it depends on what indicators you wish to measure growth with and your interpretation of the evidence. I guess who am I to argue with Thunder Bay’s ruling political class when it comes to the interpretation of economic arguments and indicators. In the end, their attitude towards and understanding of economists is best summarized by the line once made by one city politician:"You want to listen to economists? They record history. They don't make history."
I suppose it depends on what indicators you wish to measure growth with and your interpretation of the evidence. I guess who am I to argue with Thunder Bay’s ruling political class when it comes to the interpretation of economic arguments and indicators. In the end, their attitude towards and understanding of economists is best summarized by the line once made by one city politician:"You want to listen to economists? They record history. They don't make history."
Given the last real boom period in northern
Ontario was the resource commodity and baby booms of the 1950s and 1960s, we can expect the
regional economy to again awaken circa 2050 – roughly the same time the federal budget is
expected to balance again. By then,
perhaps the federal government will carry the public sector spending ball for
northern Ontario and give the provincial government and municipalities a rest.
Happy New Year and may God save us all.