Northern Economist 2.0

Showing posts with label ontario. Show all posts
Showing posts with label ontario. Show all posts

Friday, 8 June 2018

Ontario: The Road Ahead


Ontario has elected a new majority government and Doug Ford is Premier Designate of Ontario.  In the end, Ontario voters have voted out the Liberals and opted for a major change in government.  Congratulations to Mr. Ford and his team on their election victory and a thank you to all candidates in this election who chose to run and campaign.  Political life is a challenge and one cannot say enough about how important it is to have people willing to run for office and serve the public interest.  In the end, any democracy is only as effective as the people who are willing to participate whether as candidates or voters.

It is the day after and as of this morning the PCs hold 76 seats with 40.6 percent of the popular vote. Their share of the popular vote was in the end higher than the polls predicted.  The NDP hold 40 seats with 33.7 percent of the popular vote and the Liberals are down to 7 seats with 19.3 percent of the popular vote.  The Liberal collapse has reduced them to virtual islands of support - three seats in the GTA, three in Ottawa and 1 in northern Ontario.  The Green Party has also managed a positive showing electing 1 – their leader – in Guelph with 4.6 percent of the vote.  It is a majority government and for those concerned about uncertainty, a minority government would have created more uncertainty than a majority government.  Any concerns about uncertainty with respect to policy direction are now entirely in the hands of the new elected government.

With respect to northern Ontario, the region has diverse representation that includes members of the governing party as well as opposition voices to air issues and concerns.  The elected PC members are also spread across the north and include Greg Rickford (Kenora-Rainy River), Vic Fedeli (Nipissing), Norm Miller (Parry Sound-Muskoka) and Ross Romano (Sault Ste. Marie).  As mentioned in an earlier post, these are good and effective members of the incoming team with proven talent and the north will be well served by them.  Indeed, there is also cabinet material among them. Vic Fedeli is in my opinion a leading candidate for the finance portfolio while Norm Miller and Gred Rickford would make good ministers in portfolios such as northern development, natural resources and transportation.

In terms of the road ahead, the next few weeks will provide some indication of what the actual direction of the new government will be.  While many have criticized the lack of specifics of the PC campaign, it should also be noted that as a campaign strategy, presenting fewer targets for criticism can also be effective.  However, the campaign is over, and after the new government and cabinet is sworn in one can expect quick movement on a few high-profile platform items such as immediate lowering of the gasoline tax in order to demonstrate action on promises made.  However, longer term action will require more methodical work not least of which will be a budget and direction on the province's finances. 

With respect to the province's finances, as a start, I would suggest an expenditure growth target of 2+1 (2% inflation and 1% population growth) which would allow provincial expenditures to grow slower than historical revenue growth rates thus bringing the budget into balance sooner rather than later.  I would also urge  the establishment of a new independent capital expenditure review process to help better assess the approval of the capital projects which have been adding to the provincial debt.  I of course as always have a few other ideas and they are available here in more detailed format. I am also looking forward to how things are going to shape up also when it comes to initiatives for northern economic development.

So, there you have it.  The election is over and there will now be a few days in which to reflect on what has happened and why, but ultimately there is a province to run and a northern Ontario economy to build.  We have been sent a new government and despite the slings and arrows and acrimony of any election campaign, hope is always greatest at the outset of any new government’s mandate.  While there are concerns about the new government being a “wild ride”, one should always remember that as important as a party leader is, under our system of government the premier is in the end simply first among equals. 

Saturday, 2 June 2018

What Should Northern Ontario Voters Do?


With a few days left before the June 7th provincial election, northern Ontario voters face important choices and consequences.  The governing Liberals appear headed for defeat if one is to believe the evolving poll trackers.  Indeed, Premier Wynne has acknowledged the election is lost.  This means that come June 8th there will be a new government with consequences for the region in terms of public policy.  Public policy is of importance to the region given government’s role in health, education and transportation, the dependence of the region on government employment for economic sustenance and the stalled regional economy, which has seen little net employment growth compared to the rest of the province.

The Liberals have been in power since 2003 and their tenure encompasses the forest sector crisis and the stalled Ring of Fire.  On the one hand, the forest sector crisis was a function of a rising Canadian dollar, aging private pulp mills and increased competition from abroad.  On the other hand, the increase in electricity rates did not help.  As for the Ring of Fire, in the end it is not going anywhere until chromite prices rise no matter how much is spent on infrastructure.  The Liberal government’s short-term response to northern development was increased government spending in the region via assorted projects and initiatives including highway work.   The long-term response was the 25-year northern Ontario growth plan – which it must be noted actually predates the Wynne government.  Interestingly enough, to date the growth plan has not been accompanied by significant results and more to the point, there has been no mention of it during the current campaign.  Make of that what you wish.  However, given Premier Wynne has acknowledged the election is lost, thought must also be given to ensuring the region has some representation in any new government that is formed.

The NDP has surged in the polls since the election was called and their policies in health, pharma care, education, rent control and hydro seem mainly to be extensions of what the Liberals have been campaigning on.  For a region dependent on government job creation, an NDP government would be business as usual but with a more ideological bent away from market-based solutions to the region’s issues.  If one wants to differentiate the two parties when it comes to northern policies, one would have to say a key difference is that the pleasant Andrea Horwath is presently more popular than Kathleen Wynne.  However, when the rest of the team accompanying Horwath is examined more closely one wonders about the depth of talent available to serve in portfolios like northern development, natural resources and health not to mention finance.  Most of her team seems drawn from public sector, labor union, non-profit and social activism sectors.  Even the usually ubiquitous lawyers that dot politics are relatively scarce. Aside from a short–term continuation of government spending, the long-term economic benefits of an NDP government for northern Ontario are uncertain despite the claim of change for the better.

Just as uncertain are what the benefits of a Doug Ford government would be for northern Ontario given the lack of a detailed and  clearly articulated northern platform.  Natural resource revenue sharing has been promised as well as a jump start to the Ring of Fire but as noted earlier, the price of chromite is not going anywhere soon.  If the desire is simply for policy change, that would certainly be provided by a Conservative government more so than by the NDP but that change given traditional conservative values, is likely to not support the current orientation of the region towards public sector dependency.  On the other hand, given that we have been subjected to activist government economic development policies for several decades, it may be time for a different approach.  Moreover, whatever one might think of Doug Ford, it remains that his team would include some proven talent when it comes to northern Ontario – Greg Rickford, Norm Miller and Vic Fedeli come to mind.  Further reflection should also be given to the prospect that based on the distribution of votes, poll trackers are suggesting a high probability of a Doug Ford administration.

So what is a northern Ontario voter to do?  Good question.  Think about the region and its economy and the direction you think it should go.   Think about what the benefits and cost of each party and their policies might be to you and your families and friends.  Then make your decision and go vote.  None of the above is really not an option.  One must make a choice from the options available. On June 8th, the sun will still rise.  The northern Ontario economy will still face challenges and they will need to be tackled no matter who forms the government. That is the only certainty.

Friday, 18 May 2018

Ontario's Political Future: Yours to Discover


Ontario’s election may very well be decided over the next few days as Ontarians pause to take in the long weekend and use it to step back and ruminate over the political future of the province.  One of the most recent polls reveals that the PCs are poised to form a majority government with 40 percent support.  However, what is also interesting is that over the last little while this poll shows that Liberal support has plummeted to 22 percent while NDP support has soared to 35 percent.  All this suggests that there is still a certain amount of volatility amongst the voters as we head into the home stretch of campaigning into the June 7th election.

So, what do Ontarians want?  On the one hand, the recent policy initiatives of the Ontario Liberals are popular across a large swath of Ontarians especially in the larger urban centers.  Investments in transit and infrastructure, the raising of the minimum wage, rent control, more health spending and a general activist government approach to social and economic policy seem to be what many Ontarians want.  Indeed, these policies are much like those the NDP is advocating and if one combines the Liberal and NDP totals it is obvious that 55 percent of Ontarians seem to want some type of centre-left approach to government and the economy.

It seems that many Ontarians want Liberal-NDP type policies but seem tired of having them implemented by the Liberals and particularly by Premier Wynne.  Kathleen Wynne is undoubtedly the most capable of the three leaders in terms of her handling of issues and her analysis and discussion of policy issues.  Yet, she is also quite driven and intensely focused with a sort of self-absorbed messianic zeal that can be interpreted as exclusionary to alternate opinions. The Liberals have been governing since 2003 and Ontarians who like centre-left policies and would like to see a change in government are likely to shift to the NDP – hence the Andrea Horwath-NDP surge.

As for the PCs, their policy platform has been less clear and it is difficult to see if they really are driven by conservative values and policies or are now simply a change party driven by the personality of their leader.  Doug Ford has a much larger appeal than urban elites in the Toronto-Ottawa corridor would have expected and his support is also diverse.  However, to date the policies and changes the PCs might bring to government have not been as clearly articulated as those of the other two leaders.  Much of the campaign is really a populist drive for change with a rhetoric directed at the “little guy” to contrast with perceptions of the Liberals as elitist. 

Put another way, you know what you are going to get if the Liberals form the government – more of the same.  If the NDP form the government, it will be essentially the same policies but more so and with a new leader.  In terms of fiscal management, there will be a very elastic budget constraint for years to come from either the Liberals or the NDP.  Yet it should also be noted that, to date none of the three leaders seem particularly concerned about the state of the province’s finances and one does not see the province’s debt abiding anytime under either Wynne, Horwath or Ford.

If the PCs form the government, it is not so clear what you are getting in terms of policy approaches to social and economic policy as well as fiscal management.  One might assume that as PCs, there will be an emphasis on deregulation or more efficient government but this is not clearly apparent to me.  There have been a number of promised tax cut announcements but this is not the same as a coherent tax reform strategy.  Yet, making it clearer might also coalesce support more strongly around one of the two centre-left options.  At this point, the PCs appeal cuts across a wide socio-economic range and perhaps their strategy is to promise change but not get too specific and split the left.

So, what is an Ontarian to do this long weekend as they think about the province’s future?  It should be to think long and hard about the direction of the province in terms what is the coherent big picture vision of the economy and the province’s finances these three main party leaders are offering.  To date, the campaign has focused on disjointed announcements of spending and programs designed to target key ridings or voter demographics. The money to pay for all of this is not a concern.  Ontarians of course deserve much more than this but are unlikely to get it.  All three leaders seem to believe that elections campaigns are not the time to articulate coherent economic and fiscal visions.





Saturday, 24 March 2018

Big Numbers, The Public Finances and Salary Lists

Well, in what has become almost a form of annual homage to Gilbert and Sullivan, Ontario released its public sector salary list yesterday and there are a lot of "victims" on this year's little list - 131,741 to be precise.  The number has grown steadily since the list was first published in 1996 with 4,576 names on the list and since the $100,000 threshold remains the same without any inflation adjustment, twenty years of salary progression has increased the number of names above the threshold.  Indeed, if you adjust for inflation, the threshold today would be about $150,000 and about 85 percent of names currently on the list would be eliminated bringing it down to about 20,000 which still is nearly a quadrupling of numbers since 1996.

However, there is a reluctance to adjust the threshold to account for inflation and as the Premier of Ontario herself has noted, the people of the province have a right to know what public servants are earning because after all $100,000 is still a significant amount of money to the "vast majority" of Ontario residents. This is a somewhat curious statement given what seems the Premier's lack of concern about other big numbers when it comes to Ontario's public finances.  For example, the provincial net debt is at about $312 billion which is indeed a significant amount of money as is the nearly $12 billion dollars annually required to service it.

Perhaps the problem is the difficulty many have in dealing with numbers that are so large that they are outside their daily experience.  After all, most people deal with numbers in the thousands when it comes to salaries and annual living expenses rather than billions.  What is needed here is perhaps some type of currency conversion mechanism that translates these large numbers into something the public can more easily grasp.

So, how many "Listers" at a threshold of $100,000 would make up  the Ontario public debt? That number comes out to 3,120,000 - which is still a very large number - and represents just under half of total employment in Ontario which is at about 7 million people.  However, a number in the millions is still very large.  Ontario this week will deliver a budget and the expectation is that the deficit may reach $8 billion.  How many "Listers" would make up an $8 billion deficit? Well, 80,000 which is a much more manageable number but as a number still higher than the median income of Canadians.  How many Presidents and CEOs of the Independent Electricity System Operator fit into the net public debt? About 416,000.  Ministers of Northern Development and Mines? You can get 1.89 million of those.  But I digress...

It remains that the list is needed as an indicator of public sector spending as well as to provide transparency as to what the public sector spends notwithstanding what has become an exercise in showmanship without any effort to gain some additional insight and understanding about public sector spending.  Indeed, the fixation on the large numbers in the annual release masks the fact that there should be some serious concerns expressed about how the list is constructed, transparency and indeed what it tells us about people and what they are paid and how that information is used.

First, while the "List" was supposed to be an accountability device that would somehow restrain the growth of public sector salaries it remains that it has not.  Indeed, I would venture that making the salaries public has actually provided a basis of individual comparison that has resulted in driving salaries up in the broader public sector not just in Ontario but across the country.  You don't hear about private sector salaries being driven up in part because that information is usually considered proprietary or confidential and its absence hinders the ability of individuals to make comparisons and decide they deserve more and make use of it to negotiate a higher salary.

Second, the list is inequitable because it separates public servants based on an arbitrary threshold that was selected because at the time it seemed like a big, round number - $100,000.  However, for true accountability, all public sector salaries should be reported.  There should be two lists released every year - a public sector salary disclosure list with those making over $100,000 and another with those making under $100,000.  Yes, the list would be very very large but that would be the point.  There are a large number of broader public sector workers and public  sector spending in Ontario is not just driven by the 131,741 people making over $100,000 but also by the over 1 million people in the broader public sector making under $100,000.  Would it be an invasion of the privacy of those individuals making a more modest income of say $80,000.  Well, what do you think releasing a list of the salaries of someone making $100,000 actually is in a town with only 100,000 or 5,000 people?  We don't all have the relative anonymity of living in the GTA.

Third, the list also needs to be expanded to truly reflect the spending of public sector money on compensation. A case in point, universities must report all of their employees making over $100,000 because they are a public sector agency but it remains that universities in Ontario today only directly get between 40 and 50 percent of their funding from the Ontario taxpayer. The rest is own source revenue generation and tuition and while you can argue that many Ontario students get loans or even free tuition from the taxpayer that still does not sum up the public sector funding share to 100 percent.  University professors do not get 100 percent of their salaries from the Ontario taxpayer and yet 100 percent of their salary is reported.  On the other hand, physicians who are nearly 100 percent taxpayer funded are not on the list (unless they are directly salaried or employed by a public agency) because they are independent contractors.  Two points here: 1) a taxpayer dollar is a taxpayer dollar no matter how it is spent and 2) I'm surprised universities have not been more enterprising in redefining how their faculty are paid thereby removing large numbers of them from the list.

So, there you have it.  I think the list released under the Public Sector Salary Disclosure Act is important and part of the mechanism of accountability and democracy in government.  However, by focusing only on salaried employees of public sector agencies and government making over $100,000 a year misses the point as to how large the public sector actually is when it comes to employment and the spending of taxpayer dollars.  The list should be expanded.  As the song goes, the task of filling in the names I'd rather leave to you.

Sunday, 11 March 2018

Toursim and Travel in Ontario: A Target for Northern Ontario Tourism


My last post was on border crossings into northwestern Ontario at Pigeon River and Rainy River.  This type of data has always interested me because my academic career began approximately when the Canadian cross-border shopping frenzy of the late 1980s and early 1990s took place. In 1980, Canadians made 22.1 million same day auto trips to the United States and this rose to 25.2 million in 1985 and hit 53.2 million in 1990.  As the graph below shows, the peak was in 1991 at close to 59 million trips before a decline set in and today the numbers are not even half that peak at 21.5 million for 2017. These trips by Canadians to the United States were a tourism flow into the US and a function of exchange rates, income, and relative prices of goods.  


What is also interesting when examining travel flows is province level numbers for the number of tourism visits, their origin, as well as the spending amounts.  The figure below plots total visits to Ontario from1998 to 2015 based on data from Ontario’s Ministry of Culture, Tourism and Sport which in turn is based on Statistics Canada travel survey data.  Total tourism visits in Ontario in 1998 were 129,646,000 and in 2015 they were 141,902,000.  The average annual growth rate of total trips was 0.6 percent - which does not seem that high. The average annual growth rate of trips in Ontario originating from Ontario was 1.7 percent, compared to 1.1 percent from the rest of Canada, 1.6 percent for overseas trips and -5.3 percent for the United States.  Ontario has been its own best growing tourism market accounting for 71 percent of visits in 1998 and 85 percent in 2015. The biggest decline has been in American visitors which over the period fell from 23 percent to 8 percent.


When total spending by these visitors is examined in the chart below, it suggests that spending has grown faster than the number of visitors particularly for overseas visitors to Ontario.  Indeed, spending by Ontarians visiting within Ontario grew at an annual average of 3.7 percent, that by other Canadians 3.7 percent, Americans -1.2 percent and overseas visitors by 6.9 percent.  Indeed, overseas visitors have definitely been punching above their weight when it comes to their spending on tourism visits to Ontario indicating that this is definitely an area where Ontario might wish to direct its marketing activities.  Spending by overseas visitors to Ontario surpassed that of Americans in 2013 and in 2015 was 50 percent higher. 

 

How important is this tourism visitor spending to Ontario’s economy-approximately 2 percent of Ontario’s GDP – but is has not changed much over the period 1998 to 2015.  It has not been growing as a share of GDP given that during this period there has been a decline in American spending that has counteracted the rise in spending by overseas and Canadian travelers.  

When it comes to marketing tourism in northern Ontario, the above data suggests two main targets for our energy: the rest of Ontario and the overseas market.  For the time being, the American market appears to have sunk into decline.

Thursday, 1 February 2018

Ontario's Fiscal Paradox

My latest on Ontario's public finances...

Ontario has wrapped up its 2018 pre-budget public consultations as it prepares to deliver its next provincial budget. Ontario Finance Minister Charles Sousa confirmed in the fall fiscal statement that Ontario’s 2018 budget will be balanced, as will budgets over the next two years. However, the average Ontarian may be confused by the fact that despite a future of projected balanced budgets, the provincial net debt will continue to increase.

Indeed, recent years have seen the provincial debt grow by amounts exceeding that year’s deficit. For example, in fiscal year 2014-15, Ontario’s budgetary deficit was $10.315 billion but the net debt rose by $17.386 billion. In 2015-16, the deficit was $3.515 billion but $10.796 billion was added to the net debt. In 2016-17, the deficit was $0.991 billion but $6.276 billion was added to the net debt.
So how can this happen? See here for the rest of the post on the Fraser Blog...

Monday, 1 January 2018

Looking Ahead to 2018


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.  

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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."

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.

Tuesday, 28 November 2017

Is Income Inequality Responsible for Thunder Bay's Deteriorating Social Fabric?


Thunder Bay has seen a number of deteriorating social indicators over the last few years which include rising homicide rates, tragic deaths of indigenous people and increasing use of foodbanks.  In looking at the causes of what appear to be increased poverty and violence, one might consider that these trends are the result of rising income inequality.  Income inequality in both Canada and the United States has been rising over the last few decades and researchers have been drawing links between health status and economic inequality as well as the role of inequality in fostering environments conducive to crime and violence.

We had a talk last week at Lakehead University from Martin Daly whose book Killing the Competition makes the case that most homicides are the result of competition between males over goods that are distributed inequitably.  In other words, economic inequality drives the homicide rate and all things given one would expect more unequal societies to have higher crime and homicide rates.  Of course, this raises the question as to what income inequality has been like in Thunder Bay over the last few years and whether it too has trended up.

Needless to say, information on income inequality at a CMA level is not easy to obtain or construct.  However, there is tax filer data available from Statistics Canada obtained from Revenue Canada and it is possible to obtain annual data on median total tax filer incomes for the top 1 percent as well as the bottom 50 percent and construct a ratio. One can construct a simple dispersion or inequality measure by taking the ratio of the median income of the top 1 percent to the median income of the bottom 50 percent on the tax filer total income distribution.  If this ratio goes up over time, it implies increasing income inequality while if it goes down it implies decreasing inequality.

The figure below plots this measure of income inequality for the period 1982 to 2015 for Thunder Bay as well as Greater Sudbury and Ontario.  The results are intriguing.  In 1982, the median total income of the top 1 percent of tax filers in Thunder Bay was 11.9 times that of the median for the bottom 50 percent - $78,200 versus $6,600.  By 2015, the ratio was 12.34 - $236,900 versus $19,200. While income inequality in Thunder Bay has gone up somewhat over time, much of the increase was actually between 1982 and 2001 when the ratio rose from 11.9 to 14.2 and has actually moderated since.


Given that homicide rates in Thunder Bay trended downwards from the early 1980s to 2007 and surged since 2007, there does not seem to be much correlation here.  Moreover, Figure 1 also plots the same inequality measure for Greater Sudbury as well as Ontario as a whole.  Since the late 1990s, Greater Sudbury has actually been more unequal with respect to this inequality measure than Thunder Bay and yet its homicide rate is now lower.  As well, both Thunder Bay and Sudbury have a much more equal distribution of tax filer income than Ontario as a whole which saw its ratio rise from 15.3 in 1982 to peak at 24.9 in 2006 before declining to 22.2 in 2015.

So whatever is disturbing the social fabric of Thunder Bay, income inequality does not appear to be the obvious culprit. 

Friday, 3 November 2017

Left Behind



The good news continues for the Canadian economy as the latest job numbers from Statistics Canada show a net increase in employment of 35,000 jobs in October. Indeed, one has to wonder why the Bank of Canada does not go out and raise interest rates a bit more given that should the economy slowdown it would give them some scope to lower rates to counteract the slowdown.  At the moment we have large deficits at the federal level and low interest rates - really, how much more direct stimulus does the Canadian economy need at this point?  What do we do if the economy goes into recession?

For Ontario, however, the picture is more mixed as employment there was virtually unchanged.  Indeed, over half of the net employment growth in Canada came from Quebec and most of the remainder from Alberta.  Ontario’s employment story got another interesting assessment from a Fraser Institute Report showing that almost all the recent employment growth in Ontario has been concentrated in the Toronto and Ottawa areas.  Many of the CMAs outside of these two regions experienced employment declines.  The figure below taken from the Fraser Institute report shows that quite a few Ontario CMAs - including all of those from northern Ontario saw employment drops.




Needless to say, when it comes to employment Ontario very much seems to have become a two-track economy with the North, East and Southwest portions of the economy not doing as well as the Toronto-Ottawa core.  A notable exception is Windsor which has managed to create employment since 2008 despite the manufacturing downturn.  Some of the cities that have been doing well - Guelph, Oshawa and Kitchener-Waterloo-Cambridge are all part of that area within direct and short range of the GTA.  

Yet, the October numbers suggest Ontario as a whole has slowed down in terms of job creation even in the Toronto-Ottawa core.  This does not bode well for the effects of the minimum wage increase coming in January.  If an employment slump continues, it also introduces a new dynamic into the provincial election coming in June.  If the feeling of being left behind gains momentum even in previously economically  buoyant areas such as the GTA then the prospects for political change will rise.



Wednesday, 18 October 2017

Will It Be a Wynne Win Situation in June?


The consensus seems to be that Ontario’s current Liberal government and Premier Kathleen Wynne are headed for defeat come the June 2018 election.  Recent polls have seen the government trailing third behind the Conservatives and the New Democrats.  An IPSOs poll in mid-September also suggested that most Ontario voters –- 76 percent -- want a change in government.

Two cabinet ministers (Treasury Board President Liz Sandals and Deputy Premier Deb Matthews) recently announced that they will not be seeking re-election which some may interpret as a signal that there is not a lot of confidence in the government’s future past June.  This is on top of Economic Development Minister Brad Duguid who announced last month he won’t run for re-election and Environment Minister Glen Murray in the summer.

As well, the Premier’s personal approval rating is low.  There is the baggage of nearly 15 years of Liberal government rule including the demise of the manufacturing sector, high electricity prices, the high debt and deficit, and the gas plants scandal to which can be added the current trial underway in Sudbury.  And the electricity sector seems to be a problem that never seems to diminish in scope given the recent Auditor General’s report that the Wynne government’s plan to reduce electricity prices will eventually be higher cost in the long run.

Yet, one should not count Kathleen Wynne and the Liberals out yet.  Recent polls have suggested there has been a bit of a rebound in Liberal support with a September 30th Forum poll suggesting the Liberals and PCs are tied for support in the vote rich Toronto area. Given the recent rebound in Ontario’s economy, the electorate may be less keen to turf the governing party in favor of gambling the PCs might do a better job with the economy.   As well, there have been a range of initiatives –the minimum wage hike, changes to real estate rules, the basic income pilot that are likely to sway NDP supporters.  And most Ontarians will not understand that a lower electricity bill today will eventually mean much higher bills tomorrow under the current Liberal plan. As for the departing cabinet ministers, another interpretation is that after 15 years one can expect to see the departure of veterans and renewal of candidates.

It all comes down to the campaign.  The Liberals in Canada, whether at the provincial level or the federal level tend to campaign from the left and then govern from the right.  They are usually quite successful in running campaigns with policies that take enough votes from the NDP to gain office.  They are somewhat less successful in governing like PCs when it comes to economic matters given that seems to be a congenital Liberal predisposition to grand social, economic and industrial interventionist strategies.  However, demonstrating this to the public requires a strong, inspiring and methodical policy campaign by the PCs and to date PC leader Patrick Brown despite any lead in the polls has yet to capture the imagination of Ontario voters.

In the end, one can imagine that Liberal support bottomed early enough this summer to allow the Liberals to position themselves as “the underdog” and come back from behind.  Indeed, one wonders if this was not the strategy all along to allow the opposition parties to capture the lead in the polls and peak early.  Of course, such a strategy can still backfire despite the recent policy stage being set by the Liberals if events deal them economic or political shocks.  And there is always the strong possibility that the opposition leaders might finally get their act together and campaign more effectively. 

It is going to be an entertaining next few months in the lead up to the election.

Wednesday, 13 September 2017

Household Incomes in Ontario: Northern Exceptionalism

Statistics Canada has released the figures for median household income in Canada from the 2016 census providing comparisons for the period 2005 to 2015.  The median total income of Canadian households rose from $63,457 in 2005 to reach $70,336 in 2015 - an increase of 10.8 percent.  This growth was led by the resource intensive provinces and Ontario appears to have done particularly poorly- it had the lowest growth rate at 3.8 percent.  Even Quebec did better at 8.9 percent - the second lowest growth rate.  Almost every metropolitan area in Ontario saw growth below the Canadian average - with an interesting set of exceptions.

What is interesting in these numbers given Ontario's poor performance is the performance of the major northern Ontario cities, what I like to term the N-5: Thunder Bay, Timmins, Greater Sudbury, Sault Ste. Marie and North Bay.  Incomes in three of these five  cities all grew above the Canadian average - a much better batting average than the rest of the province.  Moreover, all five of these cities grew above the Ontario average.

Figure 1



Of course, median household incomes in these northern Ontario cities are still below the Ontario median (See Figure 1) but over the course of a decade they appear to have closed the gap substantially despite the forest sector crisis and other assorted slings and arrows.  Indeed, as Figure 2 shows that median household incomes in Timmins, Sudbury and North Bay all grew above the Canadian and Ontario average.  Thunder Bay and the Sault did not top the national performance but they still topped the provincial performance.

Figure 2



If you are wondering about income growth in some other Ontario cities, for the record: Toronto (4%), Hamilton (5.3%), Ottawa (4.4%), London (-2.1%), Windsor (-6.4%).  The urban north of the province appears to have done surprisingly well in the median household income sweepstakes and this probably represents another factor in why house prices to date have been as robust as they have been in places like Thunder Bay and Sudbury. 

Tuesday, 27 June 2017

A Tale of Two Revenue Sources: The LCBO & OLG


With the aversion of a strike by Ontario’s LCBO workers, most of us will probably turn our thoughts to immersion in our favorite beverage as we move into the Canada Day long weekend.  What the recent dispute should also spark is some introspection regarding the special importance of Ontario’s crown corporations – namely the Liquor Control Board of Ontario (LCBO) and the Ontario Lottery and Gaming Corporation (OLG) – as sources of Ontario government revenue.

Sunday, 4 June 2017

Comparing Homicide Rates: Why Thunder Bay Has a Problem


From a peak reached in the early 1990s, police reported crimes rates in Canada have been on a downward trend.  This is also the case for homicide rates, which have been on a downward trend nationally since the early 1980s.  There is of course variation from year to year in homicide rates so some type of regression smoothing procedure is helpful in establishing what the longer-term trends over time are.  What quickly emerges from an examination of long-term trends is that Thunder Bay followed national trends in homicide rates until the early 21st century but that since then there has been a substantial divergence.  It is not a “northern Ontario” thing because the Greater Sudbury CMA tracks provincial and national homicide rates quite closely.

Figure 1 presents LOWESS Smoothed homicide rates for Canada and major regions from 1981 to 2015.  LOWESS is a particularly useful smoothing tool because it helps deal with “outliers” – that is extreme observations that can often distort averages taken over time. The data source is from Statistics Canada (Table 2530004 - Homicide survey, number and rates (per 100,000 population) of homicide victims, by census metropolitan area (CMA), annually).  Canada as a whole has seen a steady decline in homicide rates going from smoothed values of 2.74 per 100,000 in 1981 to 1.51 by 2015 – a drop of 45 percent.  This decline is a feature of the West, Ontario, Quebec and Atlantic Canada though Atlantic Canada sees a sight upturn after 2006.  In terms of regional rankings, homicide rates are now the highest in the West, followed by Atlantic Canada, then Ontario and finally Quebec.
 

Friday, 17 March 2017

Fire Services in the North: The Case of Sudbury



Sudbury is in a bit of a tizzy over proposed changes to its fire and paramedic services.  The proposed plan will see nine of the current 24 fire halls closed and a move to reduce the number of volunteer firefighters and hire more full time firefighters. The staff report estimates that the full-time compliment would go from 108 to 166 within the next decade, while the volunteer ranks would be almost cut in half from the current staffing level of 350.

Sudbury is a very large and dispersed municipality with the central core area served by full time firefighters and outlying areas served by volunteers who are paid part-time employees. Under the new plan, Sudbury's municipal government maintains that firefighters would be able to reach 90 percent of Greater Sudbury within nine minutes, as opposed to the current 69 percent.  Part of what is planned is an equalization of services to standardize and improve coverage and response times.  However, part of the plan also involves composite stations staffed by both full-time and volunteer firefighters, as well as increases in taxes in the areas currently served by volunteer firefighters.

It is useful to see where Greater Sudbury stands in its fire service costs relative to other cities in Ontario.  Figure 1 uses data from the BMA Management Consulting 2016 Municipal Study to plot the net per capita fire service costs (including amortization of any capital assets) for cities in Ontario with more than 100,000 of population as well as the Northern Ontario Five (N5) – Thunder Bay, Timmins, Sault Ste Marie, North Bay, and Greater Sudbury.  The results show quite a difference in per capita costs ranging from a high of $273 in Thunder Bay to a low of $102 in Milton.  Sudbury’s costs are quite modest coming in at $149 – the lowest among the N5 – and placing 22nd among the 27 cities in Figure 1. 
Of course, one can understand the concerns of ratepayers in Greater Sudbury that the proposed changes will raise costs and therefore raise taxes. The costs of fire fighting according to the BMA Municipal Study 2016 Report can vary as a result of a number of factors, which include:

1. The nature and extent of fire risks: The type of building construction, i.e. apartment dwellings vs. single-family homes versus institutions such as hospitals
2. Geography: Topography, urban/rural mix, road congestion and fire station locations and travel distances from those stations
3. Fire prevention and education efforts: Enforcement of the fire code, and the presence of working smoke alarms
4. Collective agreements: Differences in what stage of multi‐year agreements municipalities are at and also differences in agreements about how many staff are required on a fire vehicle
5. Staffing model: Full‐time firefighters or composite (full‐time and part‐time)

Costs in the end are an interactive function of the geographic area that must be served as well as the population base in that area that is available to cover the costs as well as its compactness - in other words, population density is a factor.  The importance of population density as a determinant of fire service costs is highlighted in Figure 2, which plots the net costs per capita of Figure 1 against population density (population per square kilometer) and reveals an inverse relationship when a linear regression is fitted to the data.  It of course does not control for any other variables and there is a fair amount of dispersion (the R-squared is also very low) around the fitted relationship but if Sudbury’s population density is plugged into the relationship, all other thing given, the per capita cost of its fire services rise to 181 dollars per capita.  Thus for Sudbury to be at 149 dollars per capita it must mean there are other factors affecting its costs or it is doing something to keep its costs well below – nearly 20 percent below - what is predicted by its population density alone.
It is the volunteer staffing model which has probably been a factor in keeping Sudbury’s fire fighting costs per capita relatively low given the large land area that must be served and the accompanying low population density.  Moving away from this model will probably bring Sudbury’s per capita costs more in line with other major Ontario municipalities.  No wonder ratepayers are upset.  At the same time, making the changes needs to weigh the improvements in service and response time that are expected to emerge against the expected additional costs.  It is an important cost-benefit analysis and should make for an interesting City council meeting in Sudbury on March 21st.