05 April 2007

Another Dan-didate?

Walter Noel, left, is a former provincial Liberal cabinet minister and a former federal Liberal candidate.

On Open Line with Randy Simms this morning, Noel said he had written the Premier suggesting the province commission a report to look at the economics of Confederation and show how Newfoundland and Labrador hasn't been receiving its "fair share" or getting "fair treatment".

Noel claimed that the 2002 Airing of Grievances didn't produce such a report.

Well, not exactly.

There is a report titled "Newfoundland and Labrador: Towards an Assessment of the Benefits of the Canadian Economic Union."

Here's the executive summary:
This report was commissioned by the Royal Commission on Renewing and Strengthening our Place in Canada to provide information regarding the economic, fiscal and other benefits to Canada and to Newfoundland and Labrador of the province’s presence in the federation.

In 1949, Newfoundland and Labrador joined Canada to secure a brighter economic future for itself – and its new country. In the ensuing half century, Newfoundland and Labrador has certainly become wealthier but has struggled to keep pace economically with the rest of the country and with its trading partners. Perhaps unfairly, the province has too often been characterized as a place with no jobs and dependent upon the transfer payments it became entitled to upon Confederation.

A region’s growth involves at least four kinds of external relationships: (i) trade, or the import and export of goods and services; (ii) migration of people, both in their capacity as consumers and in their capacity as workers; (iii) interregional “migration” of other production factors, notably investment capital; and (iv) the national government’s revenue collection and expenditure in the region. This report examines the current state and evolution of each of these external relationships and in doing so provides information to help assess the benefits to Newfoundland and Labrador from the Canadian economic union.

Fiscal Benefits

This report finds that the federal government’s net spending in the province has not been a major factor in the overall national fiscal position. Newfoundland and Labrador’s size meant that more populous provinces receive substantially larger sums of federal money and have a larger impact on the federal government’s overall fiscal position.

Federal spending in Newfoundland and Labrador has declined over the last few years. In fact federal spending in Newfoundland and Labrador as a share of spending throughout the country has fallen 0.5% over the last decade – the largest decline of any province – while over the same period Ontario and British Columbia have seen their share of Federal spending rise.

Trade Benefits

The rest of Canada has and continues to benefit from the economic union by exporting goods and services to Newfoundland and Labrador. Companies in Ontario and Quebec have benefi ted the most from trade with Newfoundland and Labrador. While consumers in Newfoundland and Labrador have benefited from lower prices for imported goods and services since Confederation, it is only now that Newfoundland and Labrador businesses are starting to see a significant increase in their benefit from the domestic market.

Investment in the development of the province’s major oil projects will continue to support high levels of imports for a few years. The production from these projects will, however, start to generate substantial export revenue and help push the trade balance towards a surplus position.

Labour Benefits

People from Newfoundland and Labrador can be found across the country making significant contributions to their local economy. This study estimated that for every 10 current residents in Newfoundland and Labrador, there are 4 people born in the province that are now living elsewhere in Canada. By moving to fill jobs required in the rest of Canada, the Newfoundland and Labrador labour force has acted to reduce labour market disruptions caused by labour shortages in other provinces. The current study estimates that a flow of workers to other provinces the amount of which is equal in size to the number of people born in Newfoundland and Labrador but now resident in other provinces would reduce competitiveness and economic
performance leading to a $1.1 billion reduction in the federal government surplus. The latter amount is equal to about 40% of the current federal deficit in the province.

The loss of these people has, however, been at best a mixed blessing to Newfoundland and Labrador. The loss of productive workers and their associated demand depresses economic activity – but it does reduce competition for jobs for those that remain.

Natural Resource Benefits

For the last forty years investment capital has been concentrated in the development of the province’s natural resources. While these projects have brought jobs and income there are lingering questions about whether the province receives an appropriate return on its natural resource wealth.

The impact of the Churchill Falls hydro-electric power contract with Hydro Quebec is significant. The loss in real provincial GDP (1997 dollars) was estimated to be between $1,500 and $3,000 a person each year throughout the 1990s and – even at the lower end of the range – would be enough to pull Newfoundland and Labrador ahead of both Nova Scotia and New Brunswick in terms of per capita GDP. The benefits to Quebec’s economy have been equally large – supporting the development of a powerful manufacturing sector and providing windfall gains on their electricity exports. The situation has, up to now, stalled the development of hydro-electric resources that would reduce Canada’s dependence on fossil fuels and help us meet our greenhouse gas emissions targets.

The Government of Newfoundland and Labrador appears to collect, at best, a modest return on its natural resource assets.

• The high costs of development and exploration mean that the province collects about one eighth the revenue per barrel of oil that Alberta does. This low revenue rate, combined with a comparatively short lifespan for the projects, means that Newfoundland and Labrador will not benefit from this resource to the same extent that the other oil producing provinces have.

• Provincial revenues from other mining activity are similar to those in other provinces. The more critical issue for this sector is to process the minerals locally. The recent agreement on development at Voisey’s Bay should help the province benefi t in a more significant way from this resource.

• Provincial revenues from the forestry sector are the second lowest in the country. The benefit from this resource appears to accrue to the owners of the province’s pulp and paper mills.

Appropriate natural resources policies are extremely hard to define. Ideally, the province should capture a larger share of the economic rent from its natural resources to help ensure a more prosperous future. The analysis in this report, although limited in scope, would appear to support a review of the province’s natural resources policies.

Other Benefits

Confederation brought a host of other benefits to Canada. The new province helped “complete” the country from coast to coast to coast. While politically Confederation prevented Newfoundland and Labrador from slipping into the United States orbit it has not inhibited the province’s strategic importance to continental defence. By adding 406,000 square kilometres of land to the country, Canada gained a wealth of natural resources and dramatically extended its coastline. As a result, the adoption of the 200 nautical mile limit allowed Canada to add 1,826,000 square kilometers of offshore waters to its territory with access to all the riches of the Atlantic Ocean. This physical enlargement also provided a new shipping outlet on the Atlantic sea lanes with St. John’s harbour and Gander airport is an important waypoint for
international flights.

Finally, the people of Newfoundland and Labrador have not only contributed economically to the success of the rest of the country but have also enriched the culture of the nation through the work of its writers, artists, performers and politicians. The province also enriches our history as the site of the first European settlers in North America.

This report has explored some of the dimensions of the Canadian economic union and
Newfoundland and Labrador’s relationship with it. In 1949, a small economy became part of a larger economy. This action entailed the creation of a customs union for the movement of goods, services and capital; the removal of barriers to labour movement; and the reduction of non tariff barriers. The process of adjustment to these changes has defined economic development in the province since Confederation. With the tumultuous decade of the 1990s behind it, Newfoundland and Labrador can now look forward to a period of sustained growth. The process of adjustment and integration is still ongoing and the policy choices made in St. John’s, Ottawa and the other provincial capitals will help determine how the benefits of the economic union affect the people of Newfoundland and Labrador.

Maybe Wally didn't read the report since it doesn't conclusively demonstrate that his preconceptions are valid.

Maybe he is planning on running as a Dan-didate either provincially or federally next time out.