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.

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...

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.  

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 1^st.  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.

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. 

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.

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 30^th 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.

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. 

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.

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 21^st 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.
 

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 22^nd 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.

Employment Growth Strongest in Ontario’s Golden Triangle: How the Major CMAs Stack Up

Employment is always an important indicator of economic growth and success and the figure below provides a good perspective on how some of Ontario’s major centers are doing when it comes to job creation.  Employment data from Statistics Canada is used to compare total employment growth between 2001 and 2016 for 15 major CMAs.  These major CMAs are ranked from highest to lowest and their employment growth ranges from a high of 38.8 percent for Oshawa to a low of -2.4 percent for Thunder Bay.

Northern Policy Institute Finally Announced!

Today, the Northern Policy Institute was finally announced by the Ontario government simultaneously at Laurentian and Lakehead Universities with the news that the institute will be jointly housed at Lakehead and Laurentian with a 10 member board overseeing the operation and with the search currently underway for a CEO.  This is a process that has been a long time in the making starting from the original North Superior Planning Board Report in 2007 on a policy institute for Northwestern Ontario and then the morphing of the concept into a pan-northern institute through the 2008 Rosehart Report and then the 2011 Northern Ontario Growth Plan.  The idea of  a policy institute definitely caught the interest of the provincial government given that during this long interim it provided 5 million dollars to University of Toronto to fund the Mowat Centre in 2010 - a public policy institute to research issues from an Ontario perspective.

According to the press release:

The institute, an independent, not-for-profit organization, will monitor the implementation of the Growth Plan for Northern Ontario and make provincial policy recommendations for the region. It will work with northern municipalities, post-secondary institutions, research groups, Aboriginal organizations, francophone groups and industry to set priorities and directions for northern development.

This is very good news for Northern Ontario as it provides the recognition that there needs to be research and policy analysis on economic, social and business issues in the North.   The Presidents of both Lakehead and Laurentian are to be commended for their work leading up to today’s announcements as are many of the local community leaders and politicians who devoted time to what at many times seemed to be a byzantine task with no end in sight.

Having followed the Northern Ontario economy and regional economic development policy for over twenty years and researching and commenting on issues affecting the region, it is reassuring personally for me to know that in a sense it will be possible to pass on the torch and finally move on confident in the knowledge that there will finally be the commitment of resources for the study of Northern Ontario issues.  Despite popular perception (even at the university where I work), as an academic economist, research and public commentary on northern Ontario or the Thunder Bay economy was never my main area of academic interest.  My fields are public finance and economic history and “northern” work took much time away from those endeavors.  While I enjoyed interacting with the local media and was always treated very well and fairly by all, this activity also took a great deal of time in the sense that it often meant completely interrupting your train of thought.  Over the last while, I have been devoting more time to interests in health economics and economic history and less to the North and so the actual operationalization of the institute comes at a good time.

I was born and raised in Northern Ontario and as an academic I made the sustained effort to apply my skills and knowledge to local and regional public policy because I felt it was important to give something back to the community and there was so little analysis of northern Ontario issues.  Over the years, many have thanked me for this work via conversations and personal notes whether it was for columns in the Chronicle-Journal, interviews on TBT or CBC Radio and most recently for my blogging on Northern Economist.  Of course, in the process I also  irritated a great many people.  I do not apologize for that.  Politicians and society’s leaders need to realize that true university academics are passionate and committed researchers who speak their minds and not cheerleaders to be trotted out as a pretty backdrop at a moments notice for the pet issue of the day.  Those politicians who think academics should simply provide blanket endorsements for government actions and policies reveal just how little respect they have for knowledge and education and the people employed in those fields. 

As for the future of the Northern Policy Institute (NPI), I would be remiss as an academic in not offering a final frank and honest assessment.  It is a great idea and concept but the fact that its role will be to “monitor the implementation of the Growth Plan for Northern Ontario” in essence undermines both its independence and its effectiveness as an advocate for the region.  Of course, these are just the words of a press release and the reality will be in implementation but the board of the NPI needs ensure that the institute sets its own research and policy agenda in terms of collecting data on economic, social and business issues that reflect the region’s priorities.   If it is simply a mouthpiece to support the latest government policy initiative in the North, then what is the point?

That’s all folks!

For additional blog postings on public policy and economics, visit my material on Worthwhile Canadian Initiative.  You will be able to continue to access Northern Economist 2.0 postings on this blog as well as my previous material at the old Northern Economist site for the next while.

Does Ontario Need Another Growth Plan?

Last Saturday’s Globe and Mail (February 18, B6) ran an article titled “Rebuilding Ontario: A Plan for the Way Forward” which laid out a discussion of Ontario's economic future. For Northerners, all the talk of decline and the need for diversification was strangely familiar.  Indeed, one can best describe what is happening as the “Northern Ontarioization” of Ontario’s economic discourse as Ontario tries to decide how to grow its future economy in the wake of the Drummond Report, which seems to have finally crystallized the fact that Empire Ontario has slipped into decline.  Of course, some of us saw the eclipse of Ontario a bit earlier than that (check out End of Empire, National Post, February 19, 2005, FP19) but better late than never.

The Globe and Mail described four options for the province to get its “mojo back”. They were financial services, technology, health care and natural resources. Missing was that perennial Northern Ontario favorite - tourism.  Despite the talk of putting a casino in Toronto, it is unlikely to see Ontario reinventing itself as Vegas North. Vegas style tourism requires a degree of individual and entrepreneurial freedom that regulatory Ontario is unlikely to acquire anytime soon.

Of all these options, the one most likely to kick start Ontario’s economy is the natural resource sector. The mining frontier in Ontario’s North – especially the so-called Ring of Fire- can serve as an investment frontier for the rest of the province much like mining and forestry did in the late nineteenth and early twentieth century.  However, this does require that the province embrace its North rather than treat it as a remote relic of the economic past.  Here, the contrast is made with Quebec.  According to the Globe and Mail: “Rather than shun its expansive north, Quebec is emphasizing it, hashing out an ambitious 25-year project dubbed “Plan Nord”.  Quebec is betting its future on developing mining, energy and forestry resources located far north of its major cities. Ontario could adopt a similar scheme.”

Really?  How interesting.  The fact is Ontario has also developed a Northern Growth Plan – a point the Globe and Mail article seemed to have missed but then Canada’s “national” newspaper is based in Toronto.  Part of what is wrong with Ontario’s economy is a myopic economic vision that does not look outside of Toronto.  Perhaps that is why since the Northern Growth Plan has been released, all that has resulted is more planning.  Given the dominance of Toronto vision in Ontario and its government, the chromite deposits of the Ring of Fire could only be developed quickly if they were at the corner of Yonge and Bloor.

Ontario does not need a growth plan.  Ontario needs a set of concrete actions to develop its northern resource frontier as an investment frontier for the province.  The North can be a place for infrastructure investment and value-added processing that can drive economic growth in Ontario.  The North can be a frontier for the deployment of Ontario’s labour skills and human capital.  Given the capital and technology intensive nature of modern mining, the North can also be a frontier for high technology industries.  And, the financial service industry in Toronto got its start in the financing of mining ventures in Northern Ontario.  Financing new mining ventures in the North can once again be a source of growth for Toronto’s financial sector.  What is Ontario waiting for?

Drummond and the North

Wednesday will see the unveiling of Don Drummond’s recommendations for the repairing of Ontario’s finances.  Ontario is not experiencing the best of times.  Along with its deficit and debt, its economic growth has stalled, its population growth rate is slowing, its high electricity costs have been a factor in the manufacturing sector’s demise, and Ontario is receiving equalization. 

The Premier has promised a “relentless attack” on the deficit. Yet, it is difficult to visualize Ontario’s education and health Premier leading an attack on the spending programs he has invested so much of his reputation in.  Given that he has repeatedly stated he will not raise taxes, he is left with the options of expenditure cuts or economies via transformation and restructuring of government. In the end, there are really only three options for Ontario’s government after Wednesday – raise taxes, cut spending or some combination thereof.  While some of the recommendations Drummond makes may complement these courses of action, there will be no miracles.

Of course, if the Premier is waiting for the Drummond report to show him the way he is bound to be disappointed.  Many of the recommendations and suggestions have already been leaked and they make eminent sense.  The real question is how to go about implementing them. It will be interesting to see what suggestions if any Don Drummond has here. 

For example, universities can possibly save money by having professors teach more and Drummond has said as much in the media.  Yet most Ontario universities have collective agreements with their faculty that specify teaching loads.  Will the Ontario government pass legislation suspending those agreements?  Will the Ontario simply create new “teaching only” universities but which entail spending more money now to save money later?  Or will the Ontario government simply cut grants to universities with guidelines as to how the cuts are to be distributed and to increase teaching loads?  Yet, the grant stick has gotten weaker over the years.  Ontario universities now only get about forty percent of their revenues from government grants.  Will they be allowed to raise tuition more?

How about health care?  Can we transform its delivery by implementing electronic health records?  Sadly, it has already been tried once via the E-Health approach and look where that got the government?  How about more private-public partnerships to create efficient and innovative new service delivery?  Have we not tried that with ORNGE in the case of transport medicine – and where are we now?  How about efficiencies via regionalization in health care by dispersing more responsibilities to the Local Health Integration Networks?  Interestingly enough, Alberta, one of the pioneers in regionalized health care delivery has gone back to a centralized model.  One suspects it is easier to cut global budgets when they are centralized.

And what about Ontario's North?  The recent Census numbers show a stagnant population in a slower growing province.  In some sense, southern Ontario is becoming more like the North given the job losses, unemployment and slower income growth though that will not likely create any additional sympathy for the North.  When the empire is in turmoil, the legions are called back first from the frontier.  Any reductions in government services will have a major impact in our geographically dispersed and thinly populated region.  And what about the Northern Growth Plan and the need for government infrastructure investments in the Ring of Fire?  The government has been remarkably quiet on the Plan to Plan all Plans and one wonders if this means a shift in priorities when it comes to northern economic development policy - assuming that it ever actually was a priority.  Will the Drummond Report deal at all with how to invest in the North's economy in a cost-effective manner?  Will the Drummond Report urge an elimination of government economic development programs such as the Heritage Fund?  Wednesday should be interesting.

Where the Jobs Are – Ontario Edition

Statistics Canada’s labor force release on Friday revealed that in Ontario there was an increase in the number of people searching for work which pushed the unemployment rate up 0.4 percentage points to 8.1%. In the 12 months to January 2012, employment in the province increased with all the growth occurring in the first half of the period.  When the numbers are examined by major urban centre, it becomes apparent that a slowdown in employment growth has begun over the last six months with much of it is being driven by the Toronto area.  The two accompanying figures show the percentage change in seasonally adjusted monthly employment for major Ontario centers January 2011 to January 2012 (Figure 1) and August 2011 to January 2012 (Figure 2).

Year over year (Figure 1), there were employment increases in Ottawa-Gatineau, Kingston, Peterborough, Oshawa, Hamilton, St. Catharines-Niagara, Kitchener-Waterloo-Cambridge, Guelph, Barrie and Thunder Bay.  The cities with the largest annual percent increases in employment were Guelph, Peterborough and Thunder Bay.  The last six months (Figure 2) reveal that a slowdown has indeed begun with employment growth slowing just about everywhere except Peterborough, Thunder Bay and Hamilton – which all saw increases in their employment growth rate.  Toronto – which accounts for 48 percent of the employment in Ontario has seen a drop in employment of just under 1 percent over the course of the year.  Brantford has seen the largest percentage declines in employment.  Over the last six months, even the usually robust Kitchener-Waterloo-Cambridge and Barrie areas have slipped into employment declines.  Right now, the best places in Ontario for job growth are Peterborough, Hamilton, Guelph and believe it or not – Thunder Bay.

Balancing the Budget: The Ontario Plot Thickens

The Conference Board of Canada has waded into the Ontario pre-budget deliberation process with a report that says Ontario will be unable to balance its budget for a decade as a result of sluggish economic growth and shrinking government revenues.  Moreover, the Conference Board has focused on reining in health care costs as the most important factor in dealing with the budget balance – which hopefully can be achieved by 2021-22.  Aging and slower labor force growth can be expected to reduce Ontario’s economic growth and hence the growth of government revenues. 

According to a report on Global News, Premier McGuinty is disputing the prognosis of the Conference Board that Ontario will not be able to balance the budget.  I have to admit that while Ontario does have a serious budget problem, the Premier is probably right in not getting too obsessed with the Conference Board report.  The Conference Board is predicting a dismal decade of economic growth for Ontario but then it has also been predicting major upturns for Thunder Bay’s economy for at least five years and that has not happened either.  (See my post Forecasting Thunder Bay's GDP Growth).  The point is, circumstances change and predictions are revised.

Ontario has been experiencing slow economic growth for about a decade now.  During the period 2000-2011, its provincial government expenditures grew at an average annual rate of 5.7 percent while its revenues grew 4.5 percent.  For the period 2008 to 2011, expenditures grew at 6.7 percent while revenues grew at 3.0 percent.  In 2011-12, total revenue was 108.8 billion dollars and expenditures 124.8 billion for a 16 billion dollar deficit.

Let’s assume the following scenario.  For 2012-13, the Ontario government freezes total government spending at 124.8 billion dollars (note the Table is in millions of dollars).  The year after, it implements some of the recommendations of the Drummond Report and then cuts 3% in spending from the total Ontario government budget – a cut of about 3.8 billion dollars in spending.  After this, it allows spending to grow at 1 percent annually.  At the same time all of this is happening, we let total government revenue grow at 2.5 percent annually - below the average rate for 2008-2011.  The result, by 2017-18, there is indeed a balanced budget (see the Table below).  This is not a painless exercise. In real terms (adjusted for inflation) these represent real reductions in resources.  Assuming 2 percent inflation, between 2012-13 and 2017-18, total spending would rise less than 1% while prices would rise 13 percent.  In real terms, government spending would shrink 10 percent. 

The budget deficit could shrink even faster if economic growth recovers somewhat and revenues rise faster, which is not outside the realm of possibility given the slight rebound being detected in the United States to which much of Ontario’s economy is tied.  It could also shrink faster if larger upfront cuts are made.   It is certainly not going to be any fun governing in a decade like this but it will be possible to balance the budget ahead of schedule provided a government is able to set out a plan and stick to it in a disciplined fashion.