Canada West Foundation Blog

By: Michael Holden

“The fiscal restraint that many expected from this budget is more akin to paper cuts than deep wounds.”

The 2012 federal budget was, for all intents and purposes, the first delivered by the Conservative government under majority rule. It was expected to give us our first glimpse at how the Conservatives intend to govern over the next several years. Many assumed that the result would be a fairly dramatic shift toward fiscal conservatism and smaller government. The reality, by contrast, is decidedly middle-of-the-road. The Conservatives have delivered a prudent budget, one that largely fails to live up to the hopes of strong fiscal conservatives, but also largely fails to live up to the fears of their opponents.

To be sure, specific elements of the budget, such as delaying Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits until age 67, are bound to attract controversy and spark debate over the coming weeks and months. There are also deep cuts in some areas, among them foreign aid and the CBC. However, the budget also contains several initiatives that are either welcome or overdue (eliminating the penny leaps to mind). But in the final analysis, while the budget itself is a thick document, filled with a wide range of initiatives, this is, on the whole, a cautious and incremental plan. This is true especially considering initial expectations that the budget would pare back government spending in a big way.

In terms of the priorities outlined in the budget – once again called an “Economic Action Plan” – there is a clear emphasis on measures aimed at promoting economic growth and job creation. In particular there are several programs and initiatives that are recognizable as clear priorities for western Canada. These are discussed further below.

Budget Overview

As expected, the budget established an accelerated timeframe for eliminating the deficit and restoring fiscal balance, primarily focusing on the expenditure side of the equation. In last year’s budget, the deficit for the current year was expected to be $32.2 billion, a figure amended in November to $31 billion. Owing to a combination of resurgent revenue growth at the end of the year, spending restraint and lower-than-expected interest payments on the national debt, the deficit for this year is expected to be $24.9 billion. Moreover, the federal government now plans to balance the books in four years (2015-2016), one year ahead of the schedule laid out in last year’s fiscal plan. In fact, barring an unexpected downturn in economic fortunes, the budget will most likely be balanced within three years.

One of the big items that everyone was waiting for in this budget was news on the extent to which the government would be cutting program spending in the years ahead. This is the part of the budget where, depending on their point of view, people will be either the most disappointed or the most relieved.

Although many of the details still have to be ironed out, the federal government announced that its review of department spending will yield ongoing savings of $5.2 billion per year by 2016-2017. This total represents about 6.9% of the spending that was subject to the review process, but only 2% of overall federal spending. In addition, about 19,200 federal government jobs will be cut, about one third of which will be through attrition.

While these cuts represent real reductions for individual departments and agencies, it’s important to keep in mind that, in the aggregate, they are based on spending levels that have grown dramatically in recent years. Since the first Conservative minority government in 2006, federal spending has increased by 38.7%, while the federal public service expanded by 15.3% (adding more than 60,000 jobs in the process). When viewed in that context, the proposed budget cuts do not exactly suggest a broad-scale withdrawal of the federal government from the public arena.

In addition, other components of federal spending, like transfers to the provinces and to persons, will be rising throughout that period. Old age benefits are the obvious exception, but those changes don’t even begin to kick in until 2023. As a result, the overall effect of the government’s spending restraint will not be a decrease in total program expenditures as much as a slightly lower rate of growth over the forecast period.

Specific Programs and Initiatives

For the most part, the federal government’s fiscal plan delivers on the expectations set out in the Canada West Foundation’s pre-budget commentary. Perhaps most notably, it includes a commitment to modernize the regulatory system for major project reviews with the goal of a “one project, one review” approach. This approach is designed to reduce duplication, the administrative burden on businesses and the timelines for approval. While the specifics are still to be determined, this is a welcome development for western Canada, provided that it does not result in an abdication of government responsibility in the area of environmental stewardship.

The budget also contains measures aimed at job creation and addressing labour shortages in western Canada. These include some modest reforms to the Employment Insurance program, an enhanced youth employment strategy, hiring credits for small businesses and improvements to the Temporary Foreign Worker Program. The budget also mentions improvements to Canada’s immigration system, focusing on economic migrants that meet the labour needs of specific provinces and territories. However, there are few details on what that might mean.

Perhaps most significant for the West is new money for First Nations infrastructure, education and measures to improve training and incentives for the on-reserve Aboriginal population to enter the labour force. In its various consultations and roundtable discussions, the Canada West Foundation has heard repeatedly from western Canadian business and policy leaders that more needs to be done to improve living conditions on reserves as well as to improve Aboriginal participation in the workforce. In contrast with the aging population generally, the Aboriginal population is young and growing quickly. As such, they represent a significant, relatively untapped resource of labour in the West. On this issue, the measures contained in the 2012 budget represent a step in the right direction.

As we looked for in our pre-budget commentary, the 2012 budget also targeted spending cuts to specific areas and avoided cross-the-board measures that might have penalized effective or valuable programs. To be sure, there were few details, as usual, offered in the budget as to which exact programs would be affected by the plan, and as noted earlier, some will be unhappy about the areas that were targeted relatively heavily. But in general, the spending cuts reflected a gradual reshaping of government priorities and not a thoughtless chopping exercise.

The budget also emphasized measures related to innovation and research. This focus was signalled widely in advance of the budget, but the approach taken differed from the norm of recent years. Productivity improvements in Canada have been much sought-after, but elusive as previous government initiatives like lower corporate taxation and tax credits failed to deliver on that promise. With this budget, the government has signalled that it is changing tack. In a “Back to the Future” kind of way, there appears to be a return to more direct government involvement and incentives for high-risk venture capital and business innovation. While this type of direct involvement was (and still is) derided as the government getting into the game of “picking winners and losers,” the initiatives proposed in the budget echo many of the suggestions that we heard from business and policy leaders during our most recent series of Honourable James A. Richardson Roundtables this past autumn.

Another recurrent theme was a continued focus on trade and accessing new markets. In a sense, the budget offered nothing new on the subject; it mostly just restated the government’s recent accomplishments and highlighted the various trade- and investment-related initiatives currently underway. Although there was no new money for trade (in fact, foreign diplomacy and aid received disproportionately heavy cuts in funding), this budget signals that international trade remains a high priority for this government.

There were also some policy issues on which, in our view, the budget was disappointing or disappointingly silent. As noted above, in spite of the fact that trade and market access are stated priorities of this government, financial support for foreign affairs and diplomacy was cut. In addition, the budget includes no significant new measures or financial support relating to environmental protection, conservation, curbing greenhouse gas emissions or renewable energy. There was also disappointing silence on the subject of a Canadian energy strategy. Finally, there were no significant new funds for urban or trade-related infrastructure. While the federal government has made significant investments in this area in recent years, there remains a large infrastructure deficit in many parts of the West.

As a concluding note, it seems appropriate to devote a final thought to bidding adieu to the much-maligned penny which will cease to be minted in April, and stop being distributed later this year. Over the years we’ve all complained about the space pennies take up, we’ve gotten into trouble in school for flicking them at classmates, we’ve thrown them in fountains, used them for ill-advised science experiments and we’ve refused to pick them up when they lie alone and half-forgotten on the street. And now they will be no more.

Goodnight sweet penny. No longer will you fool me into thinking I’m rich based on the thickness of my wallet. May flights of angels sing thee to thy rest.

By: Dr. Roger Gibbins

Throughout 2011, Canadians took comfort in the fact that as the world around them seemed to go to hell in a hand basket, life was pretty good here at home. Although the Canadian economy sagged a bit, it held up well by comparison with our major trading partners. Stock markets rebounded, employment did not plummet, and across western Canada there was real economic growth and widespread prosperity.

Unlike the political deadlock and acrimony that has become increasingly characteristic of political life south of the border, Canadian governments enjoyed reasonably strong electoral support and, for better or for worse, we have been freed from the paralysis of minority governments in Ottawa. All in all, 2011 goes down as a pretty good year for Canada admidst a general international environment of uncertainty and unease.

Nonetheless, it is difficult to look forward to 2012 with anything close to unbridled optimism. Economic and political conditions in the United States, still our major market for virtually anything we produce, are unlikely to improve as Americans lurch toward the November elections. Economic conditions in Europe remain grave. Closer to home, western Canadians face huge challenges in moving resource assets to new international markets while at the same time, American markets are soft and/or overflowing with conventional Canadian products such as natural gas.

So often western Canadians believe that we have the resources the world needs, and assume the world will beat a path to our doors. Quite understandably, resource wealth breeds complacency. Increasingly, however, we realize that we will have to do much of the beating, that our competitors are many and often better positioned geographically, and that the barriers to international market access are challenging in the extreme. Being resource rich in the absence of markets is not a recipe for sustainable prosperity.

In 2012, Canadians from across the country will also have to come to grips with growing regional imbalances within the national economy, and how these play out through the frameworks of fiscal federalism and in a period of growing financial constraints for all governments—federal, provincial and municipal. On balance, western Canadians are doing very well, but how do we reconcile regional prosperity here with more disadvantaged regions of the country? How do we ensure that regional economic strength is encouraged as a national asset, and not seen as a target?

None of this means that Canadians should be fearful when looking ahead to 2012. At the same time, we will face some truly intimidating policy and political challenges as we try to re-jig the Canadian federal system and national economy to meet unstable and rapidly changing global conditions. The upcoming year will not be a time for the faint of heart, or a time for complacency. But then, to quote the last words of Australian bushwhacker Ned Kelly as he stood on the scaffold, such is life. Or, in the more current vernacular, bring it on!

On behalf of the Foundation, I would like to wish you all the best for the holidays. Thank you for your engagement over the past year. As 2012 approaches, we look forward to continuing our work as the only think tank dedicated to being the objective, nonpartisan voice for issues of vital concern to western Canadians.

By: Dr. Roslyn Kunin

Over the years, I have spoken with many people who were planning on starting their own business. They told me about the great product or service they would offer. They described how they would set up the business. They all told me how much money they hoped to be making once the business got rolling.

What they never mentioned, until they were prompted, were customers. That basic business need, someone willing and able to pay for the good or service provided was, if not totally missing from the mental image of the new business, certainly not in the foreground.

We should not be too hard on these aspiring entrepreneurs for not thinking about who was going to buy their output. For a very long time, governments, policymakers, planners and others interested in economic development did the same thing. Some still do so.

Take western Canada as an example. When we think about advancing our economy, we think about inputs. These include our resources and how we can access and develop them. They include infrastructure; transportation, communication, etc. They definitely include human capital—a workforce with both hard and soft skills and, ideally, some relevant experience.

We think about what we might produce. In the past, the focus has been around the question of how the West can move up the food chain beyond its traditional, resource-based industries and into manufacturing and the newer technologies.

What we have not been thinking about is customers. Who is going to want whatever it is we are or might be producing? For too long, we have had an “if you build it, they will come” attitude. But that only happens in the movies.

Relative to much of the rest of the world, western Canada is blessed with various essential resources, an educated labour force, decent infrastructure and political stability. But we are seriously limited by our lack of customers. We have been, and still are, far too dependent on one customer—the United States.

If you have only one customer, the US is a good one to have. It is close, big, speaks English and has similar laws and customs. But it exposes you to the risk of having all your eggs in one basket. We learned this to our sorrow in the last downturn.

To advance western Canada, we need more customers, and those potential customers are sitting across the Pacific and beginning to creep into our awareness. They want, need and can afford the resources and high level services that we can provide.

So let us adjust our focus to look west as well as south. Let us develop the pipelines and other infrastructure needed to serve new markets. Let us develop and add to our customer base. That is how businesses and economies grow.

By: Shawna Ritchie

Developing a national vision for energy can seem like a daunting task. After all, there are so many different ideas, opinions, perspectives and factors that come into play. Should Canada continue to develop the oil sands? Should we be trying to sell more oil and gas to Asian countries or to the United States? Or, should we not be selling it at all? Is reducing our emissions profile the most important issue going forward? Or is protecting Canadian jobs?

These were the kinds of questions that Sheila O’Brien (my co-author) and I were exploring during the first few months of 2011 when we set out to interview 50 of the leading experts in western Canada on energy and the environment. We had an incredibly diverse and thoughtful group of interviewees and heard many different visions for Canada’s energy future.

Throughout the course of these interviews, an interesting trend started to emerge. It became clear that a person’s perspective on the potential for renewable energy has a dramatic impact on their vision for the future. It wouldn’t be too much of a stretch to say that what someone believes about the potential of renewable energy shapes their vision for energy in Canada. And, broadly, there are three different groups of people when it comes to the potential of renewable energy: the optimists, the hybrids and the skeptics.

Those who have unbridled optimism for the future of renewable energy have a vision for Canada that we would fuel our energy and economic needs almost entirely with renewable energies.

They would accomplish this vision by stopping the production of conventional energy and therefore eliminating the need to build new pipelines or LNG terminals. They see a future where governments, individuals and companies would all turn their time, creativity and—importantly—money towards fostering and developing renewable energy solutions. This collective commitment toward renewable energies would enable us to overcome the current technical challenges around renewables like the lack of an efficient storage system and the high materials cost.

These optimists point out that Canada has one of the most expansive renewable energy portfolios in the world with good wind corridors, sunny skies, innumerable rivers, extensive bio feedstock and much, much more. They argue that if we diverted money away from conventional energy subsidies, technologies and investments and into renewables the future would be unrecognizably changed and that would become the bedrock of our economic success.

By contrast, those who believe renewables have potential, but maybe not enough to take the place of conventional energy sources, advocate for a cautious approach. These are the hybrids. Loosely, their vision is that we should continue to develop and sell fossil fuels, but we should strive to sell them around the world while we simultaneously wean ourselves off those carbon-intensive goods by using more renewable energy here at home.

Their vision for the future is one where Canada remains one of the leading suppliers of conventional energy to the world and then uses the wealth generated from that economic export to transform our domestic energy system. The underlying hope of this vision is that in the process of transforming our own system we will develop the skills and expertise in renewable energy technology that with time will become one of our main exports to the world.

At the furthest end of the spectrum are the renewable skeptics who believe that renewable energies have limited use and application in Canada. These skeptics note that if we are going to continue to consume energy in the same way as today, then the only solution is to expand our conventional energy system by building pipelines, developing the oil sands, coordinating government regulations and establishing global energy trade networks and not significantly investing in renewables energies.

For most skeptics, renewable energy may be appropriate for some smaller, remote communities that do not have easy access to the energy grid—such as those on islands—but it is not a viable option for the vast majority of Canadians. They argue that even if we do increase the development of wind and solar energies, for example, they will always have to be backstopped with a conventional energy like natural gas because of the intermittent nature of the sun and wind and our insatiable demand for energy.

This central role of renewables in the energy vision is interesting for two reasons. First, because where a person falls on this renewable energy spectrum can’t be determined by their occupation or their industry. There are environmentalists who are renewable skeptics and oil and gas executives who are renewable optimists. Second, because this trend indicates a possible first step in creating a national vision for energy. If we as a country can come to a fact-based and informed understanding of what the potential for renewable energy is in Canada, it could make the path forward much more visible for us as a country.

Where people stand on the potential for renewables is pivotal in their vision for our energy future. This issue has the ability to cut through many of the other debates and questions that surround our energy future and can restructure the conversation.

So, where do you fall on the spectrum? Are you an optimist, a hybrid or a skeptic? Why?

A vision for Canada’s energy future, based on one-on-one conversations with some of western Canada’s leading energy and environmental experts, is explored in a forthcoming Canada West Foundation publication entitled “Catching a Rising Tide: A Western Energy Vision for Canada,” which will be released on October 12, 2011.

By: Dr. Roger Gibbins

When the federal, provincial and territorial energy ministers met over the last two days in Kananaskis, Alberta, they faced a surprisingly vocal and concerted call by industry associations, environmental groups, think tanks, editorial commentators and even some of their own members for a Canadian energy strategy.

But, when the ink finally dried on the official communiqué, there was no mention of a Canadian energy strategy, only much softer language around a “collaborative approach” to energy.

As one voice in the chorus calling for the creation of a Canadian energy strategy, I was initially disappointed that the energy ministers had pulled up short. However, the documents released by the ministers outlined a shared vision for greater pan-Canadian collaboration, a guiding set of principles, a comprehensive list of key objectives, and action plans.

In short, most of the components of a Canadian energy strategy are there, albeit clothed in the language of “collaboration.” The ministers have set the stage for an expanded national conversation on energy policy, which is precisely what the advocates of a Canadian energy strategy had hoped to achieve.

To adopt the old cliché, if it walks like a duck...it is probably a duck, or in this case, a Canadian energy strategy. The ministers have delivered, and should be forgiven the awkward language that the realities of Canadian federalism impose on any policy debate. The fact is there is a consensus that a collaborative, pan-Canadian approach to energy should be achieved and although the words may be more subdued, it still sounds like a Canadian energy strategy to me. Good progress has been made.

Read the 2011 Energy Communiqué.
Visit the 2011 Energy and Mines Ministers' Conference page.

Dr. Roger Gibbins is President & CEO of the Canada West Foundation and attended the Energy Ministers’ Meeting in Kananaskis.

The latest research released by the Canada West Foundation delves into the world of natural gas, explaining its economic benefits for Canada over the past 50 years, and its value as a foundational fuel for our energy systems going forward. Sound policy decisions will ensure that natural gas continues to be a cost effective and stable energy alternative as we move toward a carbon reduced future. 

Seismic Shifts: The Changing World of Natural Gas by Michael Cleland, Nexen Executive-in-Residence, examines the future of natural gas from the perspective of both consumers and producers. Natural Gas accounts for about one-quarter of Canadian energy end use as well as a growing share of fuel for power generation. Seismic Shifts concludes that natural gas is not a “bridging” fuel, but rather a stable foundational fuel that will remain a part of the energy mix in the future.

“Although the energy landscape in Canada is shifting with new technologies and resources, the future of natural gas is extremely positive for consumers. Lower costs underpin the competiveness of the Canadian economy, and in addition to being affordable, natural gas is abundant and reliable and can significantly reduce the environmental impact of the energy system,” author Michael Cleland explains. “While the producer’s perspective is less optimistic, Canada needs to look at both internal policies and Asian export opportunities to remain in the game.”

The Seismic Shifts paper outlines several policy directions that need to be discussed when outlining future policies that deal with this resource.

“Natural gas is abundant, has relatively low emissions and may be the only part of the energy system not facing increasing commodity costs in the coming decade,” said Cleland. “It is a natural foundation fuel in an increasingly carbon constrained world.”

Since the policy foundations for natural gas were laid in the mid-1980s, supply sources, markets, environmental imperatives and technologies have changed. Up to this point, Canada has benefited from a successful natural gas industry, and with some refining and additions to existing policies, has the ability to succeed in the future.

This report is part of the Canada West Foundation’s Powering Up for the Future Project, which focuses on public policy challenges at the interface of the economy, the environment and energy.

To download Seismic Shifts: The Changing World of Natural Gas, click here.

On June 29th, 2011, the Calgary Chamber of Commerce and Canada West Foundation released the research report Changing the Climate: A Policy Framework for Canada’s New Energy Environment. The report is the product of a series of high-profile events by the same name, focused on energy, the environment and the way forward for Canada.

Changing the Climate emphasized three main priorities for a robust Canadian energy strategy:

• Strengthening Canada’s energy relationship with the United States and with Asia Pacific markets;
• Driving continuous improvement on environmental performance across the energy system without adversely impacting the economy; and
• Building cooperation across the Canadian federation on energy issues.

“A Canadian energy strategy must respect the constitutional division of powers and responsibilities for energy development between the federal government and the provinces and territories,” said Dr. Roger Gibbins, President & CEO of the Canada West Foundation. “Canada’s regions have unique energy circumstances; however, there is potential for shared action.”

Critical action areas that a Canadian energy framework needs to address include intergovernmental collaboration; regulatory enhancement; environmental performance; national carbon management; energy efficiency; energy market diversification; energy sector innovation; and workforce issues in the energy sector.

The greater series brought together thought leaders from business, government and the broader community in the United States and Canada to discuss and analyze energy and environmental policy issues critical to Canada’s future.

Changing the Climate was released in anticipation of the 2011 Energy and Mines Ministers’ Conference, hosted by Alberta from July 16 – 19, 2011, where the topic of a Canadian energy strategy will be discussed.

To download Changing the Climate: A Policy Framework for Canada’s New Energy Environment, click here.

Latest research conducted by Canada West Foundation has identified broad agreement that a well designed Canadian energy strategy would contribute to a secure and prosperous future for Canada.

Finding Common Ground: The Next Step in Developing a Canadian Energy Strategy by authors William Kimber, Vice President, Research and Dr. Roger Gibbins, President & CEO, was released today as part of the Canada West Foundation’s Powering Up Project.

Between 2009 and now, a wide range of stakeholder groups including: the energy industry, environmental organizations, leaders of Canada’s top enterprises and policy experts in academia and think tanks have released papers and statements calling for reform of Canada’s energy policy framework.

The Common Ground paper is the first to provide a synthesis of these various initiatives and points of view, and identifies eight interconnected themes from this impressive body of work. These common themes are:

• embrace Canada’s energy diversity as a strength;
• ensure robust environmental stewardship;
• set a price for carbon;
• transform the demand side of the energy system;
• strengthen Canada’s position in the world;
• promote energy security in the North American context;
• drive innovation and technological development; and
• understand that strategy is a dialogue.

“The research shows that there is much that diverse stakeholders across Canada can agree on.” Co-author Will Kimber commented. “The common view is that we need an energy strategy for Canada, and we need it now.”

While impressive progress has already been made, there is much more work to be done. The report therefore proposes three next steps to ensure that momentum for policy reform is not lost.

To download Finding Common Ground: The Next Step in Developing a Canadian Energy Strategy, click here.