Federal Liberals are bungling needed tax reform

The federal Liberals have certainly opened up the proverbial can of worms with their proposals for changing the taxation rules affecting small businesses. If there were such a thing as a Richter scale for backlash, this one would be closing in on 9.0.

Opposition has been growing since the mid-July release for public comment of the details underlying a Liberal campaign promise to stop highly paid individuals – including physicians – from using the small business tax regime to reduce their taxes. The Coalition for Small Business Tax Fairness has organized doctors, farmers, lawyers, shop owners and other small businesses across the country to fight the changes. In Nova Scotia, some Liberal MPs have held town halls for feedback, and received it in spades from overflow crowds. The previously slumberous provincial Conservative opposition has launched a petition demanding that the McNeil government call on the feds to stop planned changes “before they cause damage to our economy and make healthcare worse” by driving doctors out of the country.

Atypically for such a complex subject, the news media have been all over the story, tossing around terms like “income sprinkling” and “passive investments” as if they were topics of everyday discourse. And the pundits have been hammering the Liberals. A columnist for a national newspaper accused them of declaring class warfare, pitting the pampered wage earner with her employer-supported pension, paid vacation and parental leave against the rugged individualism of the small businessperson. Locally, the Chronicle-Herald’s Jim Vibert saw murderous intent. The feds, he fulminated “are killing small family businesses, discouraging initiative and risk-taking and aiming a bullet at the brain of weak economies, like Atlantic Canada’s.”

While some are forewarning the apocalypse, the Liberals are trying to frame the debate as an effort to level the playing field between the middle class and the one per cent. How it plays out won’t be known for a while, with consultations continuing officially until next month. But so far it is not looking good, either for Liberal competence or for real progress in making the rich and the large corporations pay their fair share of taxes.

Doctors pose a problem 

The hysteria that has been building all summer morphed into pathos last week when female physicians conducted a roundtable at the very same Kelowna hotel where the Liberal parliamentary caucus was holding its pre-session retreat. The doctors’ discussion was summed up by Dr. Gigi Osler, newly elected president of the Canadian Medical Association. As the CBC reported, Dr. Osler maintains that the proposed changes could cause women to leave the profession, or as she put it, force them “to chose between their dream job and being a mother.”

That’s likely not the kind of response our flamboyantly feminist Prime Minister wanted to hear when he set out, in the name of tax fairness, to change the rules affecting small business. But it was not surprising.

For years now private practice doctors, along with other professionals, have been setting themselves up as small businesses. Doctors Nova Scotia says that 75 per cent of this province’s physicians are incorporated.

Whether the Nova Scotia government encouraged them to do so as a backdoor way of increasing their incomes is not known, but that is what happened in Ontario. According to Michael Wolfson of the University of Ottawa, the Ontario government changed the law in 2005 to allow spouses to become shareholders in a small business set up to receive a doctor’s income. The number of private doctor companies in Ontario began to explode after that, from under 1,500 in 2004 to more than 20,000 now.

This has created a thorny problem, one that makes more relevant the Nova Scotia Conservatives’ petition calling on the McNeil government to speak out. In light of reduced federal health transfers it’s hard to imagine Nova Scotia or any province wanting to pay higher fees to compensate private practice doctors for bigger tax bills that result from the feds changing the small business rules.

Political games

With Nova Scotia and other jurisdictions worried about a shortage of family doctors it seems politically dumb to be messing with their incomes – fairly taxed or not. And in a time when politicians attack “red tape” and join the media in venerating the entrepreneur, the same can be said for the small business sector in general. The Liberals claim they are only going after the highly-paid professionals, not the corner store or restaurant owner. But tighter rules to nail the wealthy dentist, doctor, lawyer or accountant will also affect the mom-and-pop operation.

Moreover, the way in which the Liberals have handled the issue over the last couple of years is not likely to reassure small business. The commitment to crack down on wealthy Canadians setting up small businesses surfaced before the 2015 election campaign as a “gotcha” for the Liberals after some economists described the NDP’s promise to cut the small business tax rate to 9 per cent as primarily benefitting the rich. As the University of Calgary’s Jack Mintz put it in a Jan. 28, 2015 Huffington Post article, “[It’s] something to make the rich richer…We find that 60 per cent of the small business deduction goes to households with more than $150,000 in income.”

Mintz suggested that the NDP rethink its policy on the small business tax. The NDP didn’t take that advice, but the Liberals were listening.

The Liberal platform committed to the same rate reduction as the NDP but – outflanking the NDP on the left – added a commitment to ensure that small business status “is not used to reduce personal income tax obligations for high-income earners rather than supporting small businesses.” During the election campaign, Justin Trudeau reiterated the gist of that plank in his one-on-one leaders interview with Peter Mansbridge. But he ad-libbed a serious misstatement, claiming that “a large percentage of small businesses are actually just ways for wealthier Canadians to save on their taxes.”

That was wrong. None of the expert studies that preceded the Liberal policy on the small business tax suggested that a large – or even significant – percentage of small businesses were set up as tax shelters. What they claimed was quite different – that the largest percentage of the benefits from the business tax regime went to high income earners, who represented only a small percentage of small business owners.

Trudeau’s misspeak was immediately pounced on by the other parties. The NDP demanded that Trudeau apologize “for smearing small-business owners as tax cheats.” Conservative Jason Kenney called small business “the heroes of our economy, but J Trudeau says ‘a large percentage’ are just tax dodges for the rich.”

If there ever was an apology or clarification of Trudeau’s remarks during the campaign or in the months since it has become lost in the rush of events. However, the Liberals’ attitude toward small business was reiterated in their first budget, which kept the rate at 10.5 per cent, postponing the platform commitment to reduce it by two points. So it’s little wonder that small business was riled up and in no mood to play nice by the time details of the proposed changes were released two months ago.

Better options

In addition to being politically risky, the exercise seems like small potatoes  in the big picture of government finance and corporate taxation. The government has estimated increased revenue of $250 million from cracking down on income sprinkling – the practice of diverting income from a business to lower-income family members. No revenue estimates have been produced for the other practices being targeted. But $250 million is barely a drop in the bucket of federal revenue that exceeds $300 billion a year.

And while pursuing – at least for now – small businesses set up by highly-paid professionals, the Liberals are giving a pass to highly-paid corporate executives. Citing concerns about stifling innovation they hit the pause button on a campaign promise to close down a much more costly $840 million perk exempting those executives from paying tax on 50 per cent of their income from cashing stock options. That same discount, applied to all forms of capital gains, is worth about $10 billion a year, according to Canadians for Tax Fairness.

Then there is the general tax rate on large corporations, cut nearly in half over the last 15 years. Although raising the rate by a single percentage point would yield close to $2 billion a year the Liberals have shown no interest in going that route – this despite recent polling showing that most Canadians agree that large corporations are paying too little tax, while only one in ten believe that’s the case for small business. If it’s more revenue they want, the Liberals should go hunting where the ducks – and potential votes – are.

So why are the Liberals spending political capital for what seems like such a small return? Why get in a brawl with two of the more admired groups in society – doctors and entrepreneurs – when there are many alternative ways to raise revenue? They may see it as a necessary first step in bringing about thorough tax reform. But aside from raising taxes on high income earners in their first budget, there’s little in their program or performance suggesting that to be the case. Another plausible explanation is that just as with electoral reform, the Liberals took a position to neutralize or embarrass their NDP competition during the election campaign, but in government are prepared to back off in the face of opposition.

Most people agree that First-Past-the-Post needs to be reformed, but getting it done isn’t easy. It takes leadership, commitment and compromise. Probably even more people would agree that the tax rules for small business should not be used to help the rich avoid paying their fair share. But again, working out the details requires leadership, commitment and compromise. The Liberals botched the electoral reform process, then killed it. They are in the process of mishandling small business tax reform, with a similar outcome a clear possibility.

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New Health Minister doesn’t mean better health deal

Although last week’s federal cabinet shuffle generated little excitement here, it was a different story in New Brunswick. There, the surprise appointment as Health minister of Ginette Petitpas Taylor, a rookie backbencher from the Moncton area, created considerable buzz.

Aside from the fun fact that the appointment gave the province with 2% of the population 6% of cabinet posts (Trudeau friend and Fisheries minister Dominic LeBlanc is the other New Brunswick cabinet minister) there was the added possibility that the new Health minister would be sympathetic to the health funding concerns of New Brunswick, Nova Scotia and the other smaller provinces.

Ever since the Harper government re-jigged the formula to the benefit of the wealthier provinces the other provinces have been trying to recoup some of their losses by arguing that the formula needs to be further adjusted to recognize greater needs in provinces, like the Maritimes and Newfoundland, with older populations.

This is a position that has been endorsed by the Canadian Medical Association, the Conference Board of Canada and most recently, by a committee of the Canadian Senate. The proposition has found no favour, however, with several other provincial governments, especially Ontario, nor with the outgoing Health minister, Toronto-area MP Jane Philpott.

Perhaps with Philpott’s replacement, coming as she does from a fiscally-challenged province with an aging population, the proposal would get a better hearing? Based on media reports, we shouldn’t count on it.

Province changed tune

Chantal Hebert, writing in the Toronto Star suggests the Moncton-Riverview-Dieppe MP’s promotion has mostly to do with her bilingualism and the impending legalization of marijuana. Petitpas Taylor, along with MP and former Toronto police chief Bill Blair and Justice minister Jody Wilson-Raybould will be on the front lines on that file. The new Health minister is the only one of the three who speaks French, important because the federal government’s legalization plans are encountering flak in Quebec.

And then there’s the gender balance thing. Symmetry was thrown off by the replacement of the retiring Judy Foote, previously the Newfoundland representative in the cabinet, with Trudeau friend Seamus O’Regan. Cabinet gender balance was restored with Petitpas Taylor’s appointment.

As for the minister herself, in an interview with the Saint John Telegraph-Journal she cited her social work background and experience in addictions and mental health counselling as assets she brings to the job. She acknowledged the challenge provincial governments face in serving a rapidly aging population. However, rather than address the funding formula Petitpas Taylor said only that she would look into a proposal from New Brunswick for a joint home care pilot project aimed at having more seniors cared for at home.

When the Conservatives were in power, the New Brunswick Liberal government was outspoken in condemning the feds for slashing the rate of increase in health transfers. The Gallant government changed its tune when the Trudeau Liberals embraced the Conservative cuts, adding some modest additional targeted funding for home care and mental health to cushion the blow. Indeed, New Brunswick was the first province to abandon the provincial common front and accept the federal offer.

Costly to provinces

As calculated in my post last March the capitulation that started with New Brunswick will cost the provinces dearly over the next ten years – for example a shortfall of at least $1.2 billion for Nova Scotia between what the provinces were seeking and what they accepted after the common front fell apart. Nonetheless, New Brunswick now appears content just to talk about a “partnership” with the federal government on a home care pilot project.

“Obviously, having Ginette Petitpas Taylor now as minister hopefully will advance those discussions,” Health minister Victor Boudreau told the CBC, adding that it can only be beneficial to the province to have a second New Brunswick minister at the federal table. “Not to say we don’t have a great relationship already with the Trudeau government.”

That’s the solid front of partisan politics talking there, but there are other voices. Unlike the media in Nova Scotia, which seem uninterested in the problem, the Irving-owned press in New Brunswick is ready to pursue it. In an editorial the Telegraph-Journal allowed that while the new minister faces challenges like cannabis legalization and drug overdoses the biggest issue is “what is the federal government going to do about the effect of an aging population on health care?” The answer, according to the newspaper is for the feds “to adjust the health funding model to account for population composition.”

And then there’s the Senate, another unlikely ally. In June, the Senate Finance Committee, headed by a Conservative Senator from New Brunswick and a Liberal from Ontario, put out a report calling on the government to consider demographics when calculating federal transfers “to ensure that all regions of the country have the resources to fulfill their responsibilities with respect to the aging population.”

Those are good arguments, but the new minister would have better luck selling them to her boss and cabinet colleagues if the Liberal governments and a few of the Liberal MPs in the Atlantic provinces had the political fortitude to speak up on behalf of the citizens of the region.

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Proclamation shines light on anti-worker Liberal agenda

For those of us wondering whatever happened to the government Nova Scotians elected three months ago it was a rude reminder. After a sleepy political summer disturbed by few signs of consciousness, the slumbering McNeil government woke up in a grumpy mood last week and, with proclamation of Bill 148, again turned its ire on public sector workers.

Signing the proclamation came as no particular surprise after negotiations with the Nova Scotia Government and General Employees Union (NSGEU) broke down a few weeks ago and the union asked for arbitration. In Trumpian terms, the Liberals have been “locked and loaded” in anticipation of such an impasse ever since Bill 148 was passed by the legislature almost two years ago. The bill, part of a string of assaults on collective bargaining rights of civil servants, imposed a three per cent increase over a four-year agreement and messed with long service awards. All it took was for a union to challenge the imposed framework by asking for arbitration, and the trigger would be pulled through proclamation.

It may be recalled that back in late December, 2015, passage of Bill 148 occurred at 7:45 in the morning after another of those all-night sittings of the House of Assembly that have become as much a part of the McNeil government’s repertoire as union bashing. Apparently the Liberals now believe that both tactics have been endorsed by Nova Scotians, claiming that achieving a majority in the recent election is sufficient mandate to bring the bill into force.

Any qualms about the significant reduction in that majority seem to have been overcome. Also of no apparent concern is the fact that eight of those Liberals who voted for Bill 148 back before Christmas 2015– including two cabinet ministers – were turfed by the voters on May 30th. But that doesn’t seem to matter to the survivors. Although the electorate may have spoken, only those four out of ten who voted Liberal were heard.

Leading the country

With proclamation of Bill 148 and the recent defeat of the Liberals in British Columbia the McNeil government can lay claim to top honors in the neoliberal “stripping public sector workers of their collective bargaining rights” sweepstakes. Indeed, they are becoming a pacesetter with Bill 148, officially dubbed the Public Service Sustainability Act. A new contender in the union-bashing race, the recently-elected Conservative government of Manitoba, brought in a similarly titled Public Service Sustainability Act bill two months ago, featuring an equally draconian wage pattern.

A fuller sense of how Nova Scotia stands can be had by visiting the website of the labour-sponsored Canadian Foundation for Labour Rights. The site lists 223 restrictive labour laws passed by Canadian governments going back over 35 years. Since coming to office with a phoney commitment to respect collective bargaining rights, the McNeil Liberals have carved out a prominent niche on that list. There have been 16 new entries since the beginning of 2014 – Nova Scotia has been responsible for six of them.

  • First up were 500 home care workers legislated back to work in March 2014 by Bill 30, the Nova Scotia Essential Home Support Services Act, which required the workers’ unions and their employers to negotiate an essential services agreement prior to a strike or lockout.
  • Bill 30 was followed a few days later by Bill 37, curtailing a nurses’ strike by extending the requirement for essential services agreements to another 35,000 public employees including nurses and hospital support staff.

These two pieces of essential services legislation at least had a plausible story line – they were enacted to head off strikes by home care workers and nurses, and were further justified by the government because all other provinces had such laws. But the next big blowup was over something that likely baffled many Nova Scotians while exposing the government’s anti-union bias.

The ostensible purpose of the Health Authorities Act was to streamline collective bargaining by slotting health care workers into four bargaining units, each unit represented by one of the existing unions. That seemed reasonable enough, but the hidden agenda was to reduce the membership and clout of one of those four unions, that is, the NSGEU. After much ado over a six-month period the government compromised, allowing health care unions to keep their membership while establishing four Councils of Unions as bargaining agents.

Finished with the health care unions, the Liberals turned to the universities with Bill 100, introduced in the spring of 2015. The legislation allows universities in financial trouble to suspend collective agreements and ban strikes. Next came the just-proclaimed Bill 148, followed last winter by the Teachers’ Professional Agreement and Classroom Improvement Act that imposed on teachers the wage and service award terms contained in Bill 148.

Six tough labour relations bills in three years is quite a feat for any government. How much of this blitzkrieg will survive legal challenge is now the multi-million dollar question.

Troubles ahead

Ransacking of the long service awards is reportedly saving the government about $40 million a year, but the move involved taking away benefits employees achieved through collective bargaining. Last November the Supreme Court of Canada, in a case involving British Columbia and its teachers, ruled that governments can’t take back through legislation something they agreed to at the bargaining table. So perhaps there should be an asterisk on a big chunk of the surplus the Liberals are so proud of.

The essential services legislation is also fraught with difficulty. Under Bills 30 and 37 unions are prevented from striking unless there is an essential services agreement in place. Agreeing on a definition of essential services could prove difficult. The Wall government in Saskatchewan brought in legislation with such a broad definition that the Supreme Court of Canada found it effectively removed the right to strike. The Saskatchewan government subsequently rewrote the legislation to meet the Supreme Court’s objections. It’s an open question whether Nova Scotia’s law, passed before the Supreme Court decision, would pass muster.

The McNeil Liberals’ heavy-handed approach to labour relations is not only standing out nationally, it is securing for them a dubious but distinctive place in Nova Scotia’s political history.

There have been some high profile battles between government and organized labour in this province’s recent past:

  • The John Savage government of the mid-1990s imposed unpaid leave, a wage rollback and a three-year suspension of bargaining rights on public sector workers;
  • The Hamm government imposed back-to-work legislation on paramedics (1999) and nurses (2001);
  • In a move opposed by the McNeil-led Liberals, the minority Conservative government of Rodney MacDonald tried unsuccessfully in 2007 to remove the right to strike from health and community care workers;
  • Even the Dexter government was forced to swallow hard and end a walkout by paramedics a few months before their defeat in the 2013 election.

But those episodes, spread over two decades and four administrations, pale by comparison with the current hardball Liberal approach to labour relations. With key elements still in play because of potential court rulings the issue will likely continue to fester into the future. Making the potential for strife even more certain is the sense of betrayal caused by the fact that, over six years in opposition under Stephen McNeil, the Liberals presented themselves as supporters of collective bargaining rights for health care workers and others. [i]

The president of the NSGEU raised eyebrows last week when he referred to McNeil as “a snake.” Going by the Oxford English Reference Dictionary (1996), “snake in the grass” (a treacherous person or secret enemy) may have been more precise, but the sentiment is understandable.

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[i] For example, from Hansard, November 2007, here is McNeil, the former idealist,  speaking against a Conservative government bill stripping health and community service workers of the right to strike. “There isn’t a single person who wants a strike, including those very health care workers you’re taking away the right from. What they want, though, is to have the right to sit down with the government and bargain in good faith and make sure that they have that tool to be able to not go to work… the easiest thing for me and this caucus to do would have been to support this government. I think it’s fair to say to the members who are here, who are the leaders in the union movement in the Province of Nova Scotia, they don’t vote, quite frankly, for me, and I think most of them would tell you that, nor do they vote, I would suggest, for the government. But this to me, quite frankly, is not about politics. When I asked to be the Leader of the Nova Scotia Liberal Party, I didn’t be ask to be Leader so we could divide Nova Scotians and take away their rights. I asked to be the Leader of the Nova Scotia Liberal Party so we could put forth good, constructive solutions to the issues facing Nova Scotians.”

 

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Domesday File #2: Missing the news in the stats

Domesday File: An occasional series inspired by the Domesday Book, the medieval survey of wealth and human resources 

It is interesting to track media coverage when large amounts of data like this week’s Census report on families are released. For many people, what reporters and editors chose to highlight will be the extent of their exposure to the vast amount of information collected during last summer’s intelligence gathering exercise. Taking their cues from Statistics Canada on-line release, most of the national media went with what the agency suggested was news – the fact that as the Globe and Mail headline writer put it “Canadians are increasingly going it alone.” The CBC took a similar tack, also reporting that for the first time one-person households were the most common living arrangement, edging out the former number one, couples with children.

While it was newish, this development was hardly dramatic. The previous 2011 census had reported a virtual tie, with couples with children ahead of one-person households by just 75 households, the continuation of a trend going back at least to 2001. And the ascent of the one-person household was old news in Nova Scotia. In this province and in New Brunswick that category overtook the couple with kids grouping sometime between 2006 and 2011. And in Newfoundland, it hasn’t happened yet – there one-person households are out-numbered both by childless couples and couples with children.

Another focus in some of the national reporting was on the increase of adult children living with their parents – a particular concern in Toronto, and a valid story at the centre of the Canadian media universe: 20-34-year-olds camping out with Mom and/or Dad jumped from 44.6% in the 2011 Census to 47.3% in 2016. But in Nova Scotia, the percentage actually dropped from 30.3 in 2011 to 29.7 in 2016 and has not increased since the 2001 Census. It also dropped in Newfoundland, but went up about one percentage point in New Brunswick and PEI.

In times gone by when local newspapers had more resources and a greater commitment to their readers there would have been some good localized coverage of the latest Census release. That may still come, but in the meantime, local media either ignored the Census story or took the same approach as the national media. One of the few places to try a Nova Scotia spin on this is the Nova Scotia Finance department website here.

The Finance department number crunchers give some context to the living alone phenomenon, pointing out that the trend has been most noticeable in the Atlantic provinces, “reflecting the faster aging of the population in the region.” The department’s post goes on to report that “the rise of one-person households, multigenerational households and couples without children can be interpreted as a result of the aging population. As the large baby boom cohort ages into later stages of life, a growing number of widows and widowers live alone and households headed by baby boomers are increasingly ‘childless’ as their children reach adulthood and move out.”

Lone-parent families 

Our aging population is a familiar story, but the Finance report on the Census identified another category in which Nova Scotia – and in fact all of the Atlantic provinces – stood apart. The percentage of lone parents and children living in lone-parent families increased from Census 2011 to Census 2016. Finance reported the fact that 26.0% of children aged 0-14 lived in a lone-parent family, up from 25.1% in 2011.

As one might expect, Finance did not delve into the numbers, the media are supposed to do that. But further examination of the Census data reveals that with more than one-quarter of its children living in lone-parent families, Nova Scotia is far above the national average. Nationally less than one in five children (19.2%) live in lone-parent families. Six provinces are above the national average, led by Nova Scotia, which at 26.0% is followed closely by New Brunswick (24.3%) and Newfoundland (23.2%). All six above the average, except the newly affluent Saskatchewan, are among the traditional “have-not” provinces. Wealthy Alberta, at 16.1%, is the lowest.

Nova Scotia also had the highest percentage of kids living with a single parent in 2011. Only New Brunswick had a bigger increase between 2011 and 2016 while the four western provinces all saw decreases. This correlation between lone-parent families and economic geography applies within Nova Scotia as well, with Cape Breton showing the highest percentage of lone parent families and Halifax the lowest.

The connection between one-parent households and poverty is well established. Nova Scotia not only has a higher percentage of lone parent households than any other province, the income gap between lone parent households and couple families is greater here. Moreover, in Nova Scotia, 40% of lone-parent families (representing 50,000 parents and children) are low-income. The Canadian figure is 36%. The only statistical factor preventing Nova Scotia from having the highest rate of child poverty appears to be that lone parents here have fewer children than the three provinces with higher child poverty rates than Nova Scotia – New Brunswick, Manitoba and Saskatchewan.

Poverty stats under-reported

Fourth from the bottom on child poverty is little solace, given that the most recent low income statistics reveal that in 2015 Nova Scotia had the country’s highest overall poverty rate. At 17.5%, the overall rate was the worst since 1976 and represented only the second time since 1976 that Nova Scotia has claimed the dubious honour of the worst rate of poverty in the country.

Surely that’s news worth ferreting out and reporting. But like the facts about lone-parent families, the poverty stats have pretty much flown under the radar since their release by Stats Canada in May. The indifference is even harder to accept, given that the release came towards the end of a provincial election campaign during which one of the major parties made the poverty issue the central focus of its platform. And it wasn’t just the poverty rates that were troubling. Other highlights of the release (CANSIM 206-0041) included:

  • Nova Scotia families had the lowest median income in Canada;
  • Nova Scotia families had the lowest median market income;
  • And also the lowest after tax median income in the country.

Perhaps the media and our opinion leaders have decided that the poor economy is no longer news. Maybe the facts about sagging employment, the aging population, economic stagnation and poverty have become routine. Or perhaps the media and our policy makers and opinion leaders have decided that there’s more profit in embracing a sunnier alternative reality.

A final note

Last month Stats Canada reported a big increase in unemployment in June, the result of an increase in working age population and the labour force, with very little increase in jobs. As suggested at the time, this increase in unemployment could have been a blip, and province-wide it appears it was. Unemployment in Nova Scotia in July dropped sharply from the previous month and from July 2016. This was the result of a modest increase in employment (a good thing) and a larger drop in the labour force (not such a good thing but positive for the unemployment rate).

In Halifax, where the June increase in unemployment was most marked, the glass continued to be half full (or empty). Employment, full-time employment and labour force were all up from June and unemployment was down a bit. However, compared with July of 2016, the news is still not great. As the table shows, employment is still down and unemployment way up from a year ago.

 

                                          July 2016         July 2017     Change

Working age population   353,600           358,900       + 5,300

Labour Force                       242,200           243,300       +1,100

Employment                         229,600           227,200       -2,400

Full-time employment       192,400           186,400       -6,000

Unemployment                       12,600              16,000       +3,400

Unemployment rate                   5.2%                 6.6%           27%

Is it a two-month blip or trend? As they often say on the news, time will tell.

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Surplus reliant on restraining health services

When the Liberals unveiled the latest Public Accounts yesterday showing an apparent budget surplus of $150 million for 2016-7, the opposition parties went straight to health care. Why, they asked, is the government running a surplus while Nova Scotians are unable to get the health services they need? And as NDP leader Gary Burrill said in a news release, a good chunk of the surplus is thanks to under-spending by the Department of Health and Wellness.

As Burrill pointed out, despite the fact that many Nova Scotians can’t get a family doctor or timely access to specialists or surgical procedures, the department left $27.6 million on the table last year. That’s the shortfall between what the government thought the department needed to spend on health last fiscal year and what it actually spent.

And it’s not even the half of it. Over the last three years the department has underspent by a total of $87 million, according to General Revenue Fund numbers published in Public Accounts for 2014-5 through 2016-7. Worse, this does not come about through much increased efficiency or some sort of health care breakthrough. It’s mainly the result of delaying expenditures – apparently kicking needed spending from one fiscal year to the next.

In the government’s words

Back in 2013-14, the department actually overspent its budget slightly, the result of greatly increased demands for health services. Here is how public accounts described the campaign to contain the bottom line despite these increased demands. (bolding mine)

“These overages were partially offset by savings of $28.0 million in capital grants as a result of construction delays, $6.5 million in other programs due to lower uptake in the expanded children’s dental age criteria and lower utilization in insulin and supplies, $4.0 million in provincial programs and initiatives due to delays in information technology projects, $2.2 million in Public Health due to surpluses in biologicals as a result of decreased drug costs and delays in Thrive related projects, $1.8 million in administration from vacancies and operational efficiencies, $1.5 million in Primary Care due to various projects related to the Primary Health Information Management system that were not completed in 2014, and $1.1 million due to other operational efficiencies.”

Three delays, an incomplete project, some slow uptakes and a couple million from something that looks like progress– lower drug costs. Otherwise, delay was the name of the game. In 2014-5, under-spending made its debut, despite the fact that the department was faced with over-spending of more than $30 million for services provided by the district health authorities, emergency services and home care. The department offset these cost pressures and more with lots of delay.

“Department of Health and Wellness expenses were $28.0 million or 0.7 per cent lower than estimate primarily due to savings of $24.6 million in capital grants as a result of delays of major construction projects, $9.6 million in Physician Services due to utilization savings in Fee for Service and Chronic Disease Management, $5.9 million in Long-Term Care due to later than planned bed openings and deferral of non-emergency capital projects, $6.3 million in provincial programs and initiatives due to delays and re-definition of scope in information technology projects, $4.2 million due to various project delays related to the Primary Health Information Management program, other Primary Healthcare Programs, and lower than anticipated call volumes for 811 Telecare service, $3.5 million in Addictions and Mental Health mainly due to later than planned implementation of addiction services programs and Together We Can initiatives…”

More delay

It looks like some progress was made there with payments for physician services, but otherwise, the response to cost pressures is mainly delay, delay, delay- the same in 2015-6. From the Public Accounts for that year:

“Department of Health and Wellness expenses were $31.3 million or 0.8 per cent lower than estimate primarily due to savings of $28.0 million in capital grants as a result of delays with major construction projects, $8.0 million in Health Authorities primarily related to prior year accounting accruals, $7.0 million in Physician Services for utilization savings and reduced costs in Master Agreement programs, $6.8 million in various programs including delays in information technology projects, program delays, as well as savings in Long Term Care…”

The department also claimed some savings from administration and operational efficiencies – good news if it can be verified. The same claim appears in this year’s Public Accounts – a cool $7.7 million less between estimate and actual expenditure on salaries and administration. But delay is still the go-to solution to cost pressures.

“Department of Health and Wellness expenses were $27.6 million or 0.7 per cent lower than estimate primarily due to $15.7 million in lower capital grants and amortization as a result of project delays and changes in cash flow requirements, $7.7 million in salaries and administrative reductions, a $6.1 million decrease caused by delays in information technology projects, $4.6 million in home care savings associated with lower than expected utilization, and net savings of $8.0 million in various other program budgets.”

It is beyond the scope of this essay to assess the impact of this litany of delays, but it can’t be good. Between 2012-13 and 2016-17 the Liberals have limited health spending to a bit above the rate of inflation. Delaying projects, along with wage restraint, have been the key elements of this approach. Neither is sustainable, given an aging population,health care workers’ claim to fair compensation and the public’s right to a national standard of health services. However, no one should get used to the idea that the recently unveiled surplus signals that good times are upon us and the choice now is between continuing surpluses or better health care.

The appearance of a surplus while health care needs go unmet will provide excellent talking points for the opposition in the months ahead, but the surplus is very shaky. The Public Accounts reveal that on the revenue side it is reliant on an unprecedented Prior Year’s Adjustment of $97.3 million in corporate taxation. On expenditures – aside from stiffing health care – the bottom line depends on a reduction of $134 million in “restructuring costs”- a perennial budget cushion. Without those two entries, a $150 million surplus becomes an $81 million deficit. Not the end of the world certainly, but at least a conversation changer.

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The Sage makes a rocky curtain call

Donald Savoie has mounted the barricades again. Called by some the Sage of Bouctouche for his long career of writing, teaching and advising governments, the septuagenarian University of Moncton political scientist has a new book out on Maritime economic development and its complaints.

The 400-page tome Looking for Bootstraps: Economic Development in the Maritimes comes along a decade after Savoie swore off the topic following publication of “Visiting Grandchildren: Economic Development in the Maritimes,” also weighing in at around 400 pages.

Grandchildren was a scholarly work published by the University of Toronto Press. A cover blurb called it Savoie’s “magnum opus” on the subject, and indeed it was. The book was a comprehensive review of economic development and the politics around it dating back to Confederation. It detailed how national economic policies have favoured the central provinces at the expense of the Maritimes and challenged many of the myths about the regional economy propounded by the national media, central Canadian politicians and neoliberal think tanks.

Writing a sequel to a magnum opus is no easy task, but Savoie has given it a go with the more populist Nimbus-published Bootstraps, looking back with some anger at most of the topics covered in his previous writing. And he is promoting the book through a four-part series appearing in the Halifax Chronicle-Herald and the Irving newspapers in New Brunswick.

In the intro to the book, and in media interviews Savoie, a much-honoured academic (two awards worth $150,000 in the past two years alone), does not pinpoint exactly why he’s back at it, other than that he has “become increasingly concerned about the future of my region and its ties to Canada’s national political institutions, how our provincial governments are planning for economic development and how the Maritimes view our economic future.” He says he wants to have a debate about those concerns.

New concerns

The reader may get a better idea of where he is coming from through the recent developments he chose to highlight in the new book, tellingly dedicated to the late K.C. Irving “a visionary, a builder and a deeply committed Maritimer”- and a native, like Savoie, of Bouctouche, Kent County, New Brunswick.

One new concern is the Ontario-dominated Trudeau government. Savoie has never pulled punches when it comes to criticizing the tendency of some Ontario politicians to confuse and conflate their province’s interests with those of the country. As Savoie points out, it’s getting worse. In Bootstraps he laments the continuing loss of Maritime political clout in Ottawa, evidenced by the minor cabinet portfolios now held by Maritimers. And he bemoans the fact Trudeau’s transition team consisted of “four Ontario-based individuals” and “all key actors in the Prime Minister’s Office are also Ontario-based individuals with ties to the Ontario government.”

In recent years that Ontario Liberal government has maintained an aggressive Ontario-first stance on issues like transfer payments to the have-less provinces. Sobering as the revelation is, it is good that Savoie is shedding light on the fact that this corrosive agenda has found a home in the PMO.

Not so welcome is another area of emphasis – an embrace of the notion that federal transfer payments to the Maritimes should somehow be contingent on us engaging in environmentally-risky resource development. Even before this book, Savoie was a critic of the Nova Scotia and New Brunswick moratoria on fracking for shale gas, questioning how on “both economic and moral grounds” those provinces can say no to fracking but “accept transfer payments from other regions that are generated largely by shale gas and oil development.” He also trots out opposition to uranium mining as a further illustration of our supposed unwillingness to shake off the status quo in favour of pursuing greater prosperity.

Besides urging Maritimers to embrace uranium and shale gas, Savoie floats a number of other reform proposals – a two-tier wage scale for public servants, tougher EI requirements, more skills development and better cooperation between provincial governments and institutions such as universities. He calls forth the old reliables, admittedly inspired by the Ivany report, “courage, imagination and a determination to do better.” And he makes the rather startling claim that without embracing such solutions the population of the Maritimes may shrink by three-quarters to about 500,000. (Think what that will do to property values).

Transfers downplayed

Like the Ivany report, Bootstraps is broad enough that it can be used to support both sides of the argument about inter-regional fairness. Those who believe that Maritimers are getting a raw deal from Confederation will find lots in the book to support their case. But the likes of the Alberta Wildrose and Saskatchewan’s Brad Wall will no doubt be delighted to cite Donald Savoie, the Sage of Boutouche, in making their arguments for curtailing equalization and other transfers.

And it is on the transfer issue that this book is most disappointing. While laying out in some detail the recent changes in transfer payments that have the potential to damage citizens of this region, Savoie appears to accept those changes as a done deal. In doing so, he does not even consider the equality of citizenship implied in Section 36 (2) of the1982 Constitution Act, landmark legislation brought into being through the leadership of the father of our current Prime Minister.

He ignores the central argument of my 2014 book Equal as Citizens that the federal government has an obligation to ensure that equalization payments are sufficient to provide all Canadians with a reasonable standard of public services at comparable rates of taxation. He he also gives short shrift to the case laid out by his younger colleague, Richard Saillant, in his 2016 book A Tale of Two Countries.

Saillant, who is, ironically enough, director of the Donald J. Savoie Institute at the University of Moncton, has argued that due to our aging population and shrinking work force no amount of tweaking of the economy will save the five eastern provinces from being unable to afford “health care as we know it” without tax hikes that would “push residents to leave in droves.” It’s not clear whether Saillant’s “droves” would lead to the kind of drastic de-population imagined by Savoie. But unlike Savoie (and Ivany), Saillant emphasizes the responsibility of the federal government to prevent the emergence of two classes of citizenship – and mass out-migration – by transferring more money to older, faster-aging provinces.

Saillant does argue that we need to earn those additional transfers by changing our ways – increase provincial taxes, be more efficient in public service delivery and be more fracking-friendly. Some will not agree with this part of Saillant’s thesis, but at least he moved the debate forward, beyond the anger over past transgressions and the longing for a different economic reality that marks Savoie’s latest foray.

The contrasting views of the two professors would make for lively debate in the faculty lounge at the University of Moncton, but what’s really needed is getting the discussion into the public political arena. That’s a difficult task when the Maritime caucus and the three Maritime governments are solidly Liberal and the Prime Minister is all about spectacle and photo opportunities. But we could start with a family-friendly question for Justin Trudeau. How does he square the most recent health transfer deal with the equal citizenship of section 36 (2) of his father’s proudest achievement, the Constitution Act?

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PSAs I was writing this post, word arrived that the federal government is putting $65.6 million into twinning highway 103 from Tantallon to Hubbards. Does this good news for automobile travellers mean that a page has been turned, that the Trudeau government is rewarding Nova Scotians for their support at the last election? In a word, no. This funding comes compliments of the Building Canada Fund, initiated by the Harper government in 2007, extended by the Conservatives in 2014 and continued under the Liberals. Since its inception, Nova Scotia has qualified for up to $50 million a year under the program. The Highway 103 project will use up about $17 million a year which means there will be lots left over for other projects. Thanks Steve, wherever you are.

 

 

 

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Domesday File #1: Attract Yes- Retain Maybe

Domesday File: An occasional series inspired by the Domesday Book, the detailed survey of the wealth and human resources ordered up by William the Conquerer in 1085

Talk about raining on someone’s parade. While the weather outside sprinkled only a few drops of precipitation on Halifax last Friday, the monthly labour force survey from Statistics Canada unleashed a downpour on the economic aspirations of many.

The headline item from the monthly report is a sharp increase in the number of unemployed in Nova Scotia – up 13%, from 39,400 in June 2016 to 43,500 in June 2017. The details are summarized here, the website of Nova Scotia Finance and Treasury Board. That astonishing province-wide increase is eclipsed by the even more startling upsurge of joblessness in Halifax, from 13,500 in June 2016 to 16,900 last month, a jump of 23.7%.

Luckily, one swallow does not a summer make. As noted in previous posts like this one it’s not advisable to get too excited over a single month’s job report – a caution which may explain the lack of media coverage of Fridays’ figures. Monthly reports are based on surveys and are subject to sampling anomalies. Annual averages are much more reliable But with that caveat in mind, it is worth digging deeper into the June jobs report. Here’s why.

Labour Force Up 

It has been a constant refrain since at least the advent of the Ivany report that attracting and retaining immigrants is vital for the Nova Scotia economy.

Thanks to an expanded provincial nominee program and an influx of Syrian refugees, immigration to Nova Scotia has exceeded 6,500 since the beginning of 2016, helping to increase the province’s population to a new high.

Stephen McNeil talked proudly about this during the recent election campaign, as did Ray Ivany himself, last week on CBC radio. He pointed to population growth as evidence that progress is being made on the goals set out in the 2014 “Now or Never” report he authored. And the Canadian Press put out  a story last week claiming –based mainly on year-old immigration numbers and construction cranes on the skyline – that “Halifax is booming.”

And to be sure, there is some good news in Friday’s StatsCanada release. The surge in immigration and population is reflected by an increase of about 5,000 over the last year in both the working age population (15 years and over) and the labour force. That’s a boon for a province with an aging population and shrinking work force.

Employment Flat

But so far, that’s where the good news ends. The rest of the report is analogous to dark clouds overtaking the sun before the rain comes pouring down on the parade.

Job growth has not kept pace with the expanding work force. Province-wide the increase from last June was only 1,500, hence the spike in unemployment as a larger work force went after jobs that were not there in sufficient numbers. In Halifax, a small increase in the labour force (500) combined with a large (2,400) drop in jobs led to that stunning (except apparently to the news media) rise in unemployment.

This may turn out to be a thundershower, a one-month wonder, with employment rebounding in July and pointing the way to a brighter economic future. But if it isn’t, the recent and much celebrated population growth could be just transitory.

As we have heard repeatedly, the task in Nova Scotia and the rest of the region is to attract and retain immigrants. A number of factors determine whether immigrants to Nova Scotia stay in the province, but employment is a big one. Without jobs, most of the new immigrants to Nova Scotia could end up joining a different procession – the familiar one seeking opportunities somewhere down the road.

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