Category Archives: Local Government

Examination of public sector in Western Canada remains necessary

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By Marco Navarro-Génie, President and CEO

The paper AIMS published last week with the Frontier Centre for Public Policy looked again at public sector workers in Canadian provinces, excluding the federal public service.  The new work placed an emphasis on Western Provinces;  the first one focused on the Atlantic region.

The type of reaction to the “Western” data paper in the Winnipeg Free Press caught my attention.  David Camfield, an associate professor of labour studies and sociology at the University of Manitoba was quick to dismiss the paper as a kind of fake news.  He charged that the paper was looking for troubles where there are none, and suggested the authors of the study thought the public sector workers are unimportant.  None of those comments had evidentiary bases in the paper.

Camfield did introduce substance to his criticism by addressing the issue of scales, which dictates that smaller provinces (in population) tend to be at a disadvantage.  This is true to some extent, and the observation is valid. But the critique is less effective because the measure we use (number of public servants per one thousand people) goes some distance to account for scale.

The data, in addition, show that other smaller provinces with similar profiles have fewer public sector workers per thousand residents than Manitoba.  The worst case in Atlantic Canada, Newfoundland and Labrador, has half the population of Manitoba. Newfoundland’s population is extended over a very large territory, yet Newfoundland has 101 public sector workers per thousand versus the 111 in Manitoba.

Manitoba is more densely populated (Newfoundland and Labrador has 1.31 inhabitants per square kilometer; Manitoba has 2.03).  Should it take 10 more public servants per thousand paid by provincial residents to deliver services in Manitoba than it does in Newfoundland and Labrador?

Manitobans ought to ask why it is that their provincial and municipal governments need so many public servants. 111 public servants per thousand drawing pay from the provincial taxpayer in Manitoba represent 28 more per thousand than the national average, or 34 per cent more over all.  Manitobans need to ask if the services they receive are 34 per cent better than those of the average Canadian. Are they 34 per cent better than in New Brunswick?

New Brunswick offers an instructive comparison with Manitoba.  While Manitoba has a notable French-speaking population (4 per cent), New Brunswick (and its relatively-high rural population) is officially bilingual (and 32 per cent francophone). It offers many public services in French, significantly increasing their delivery costs and often duplicating them.  Yet, New Brunswick is below the national average with 81 civil servants per thousand.

Our call for a thorough examination of the public sector’s size in Manitoba and Saskatchewan remains necessary.

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Good Policies Brewing in New Brunswick

In June, the New Brunswick Liquor Corporation (NBLC) introduced a regulation requiring craft brewers to sell 10,000 liters of beer through NBLC liquor stores before the government would issue them a Brewery Agency Store (BAS) license. NBLC’s CEO Brian Harriman argued, “The intention of the threshold before being allowed to sell growlers is not to stifle entry into beer or to force product through our system. It is to ensure people entering the category are able to financially support and produce quality products, which have consumer demand, and which are safe for the public.”

The BAS license is an important asset to New Brunswick’s craft beer industry, as it allows brewers to sell beer out of their establishment for offsite consumption. Yet, from the outset, it was unclear how the regulation was to improve New Brunswick’s craft beer industry and several brewers announced their discontent with it. The 10,000 liter threshold seemed arbitrary, and more importantly, the NBLC could not explain why mandating it was necessary for ensuring “quality products.”

Following weeks of debate, however, the NBLC announced it would reverse the new rules. Instead, the NBLC will require craft brewers to submit a sample of their product for quality testing at an independent clinic before obtaining a BAS license.

This development is seriously positive. First and foremost, it unburdens craft brewers in the province and allows them an opportunity to create jobs, generate wealth, and bolster tourism. More broadly, it demonstrates the government’s willingness to unshackle the economy. If elected officials and government agencies in the region wish to “stimulate” economic growth, perhaps they should follow suit and remove the shackles burdening other sectors of the economy: After all, the economic predicament facing Atlantic Canada may have less to do with stimulating the economy than it does getting out of its way.

Curious Cottage Competition

The Chronicle Herald published a report on Nova Scotia’s black-market cottage industry this morning, revealing that unlicensed, untaxed competition is forcing some landlords out of business. Interestingly, there is a subtext to the article: government policy has the potential to suppress otherwise healthy economic activity.

“Steven Hebb, general manager of Prince’s Inlet Retreat in Martin’s Brook, said there is a proliferation of unlicensed tourist accommodations, and the underground economy is driving businesses like his into the red.” According to a provincial Quality Visitor Services inspector, there were 700 unlicensed operators in 2006, a number that same source expects to be “much greater” in 2014. These black-market cottagers do not pay commercial property tax rates or utility rates, and because they’re essentially “underground operations,” they technically do not comply with local building regulations (although there is nothing to suggest they couldn’t or wouldn’t). In Martin’s Brook, located in the Municipality of Lunenburg, where Hebb’s rental units are located, commercial tax rates are nearly 150 per cent high than the residential rate, falling four cents and a half-penny short of $2 per $100 of value at $1.957, compared with $0.81 per $100 for resident property-owners.

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Avoiding these costs is precisely how black-market cottagers outcompete Hebb, and those in a similar predicament. Hebb argues that Nova Scotia’s provincial government, in addition to municipal authorities, could fix this issue by cracking down on the unlicensed operators, charging them licensing fees, and collecting commercial tax revenue from their ventures. His solution, however, seems to ignore the problem: high tax rates, expensive license fees, and burdensome regulations discourage economic activity. Nova Scotia’s provincial government, and several municipalities that rely on the cottage industry to finance public services, are certainly losing tax revenue, but it isn’t because the authorities are failing to levy it; it’s because higher rates have the potential to discourage taxable economic activity. This is the essence of the Laffer Curve, which shows that tax revenue is zero when rates are either 0 or 100 per cent: without taxes, there is no tax revenue, and when the government takes 100 per cent of a business’s revenue, there wouldn’t be anybody willing to operate a business.

In other words, why not reduce commercial tax rates and unburden cottage operators? The very fact that there are at least 700 unlicensed operators, who, in the absence of disproportionately higher tax rates, chose to operate a cottage rental business, suggests lowering taxes would reduce costs and encourage entrepreneurship across the board, thereby generating more taxable economic activity (read: tax revenue, tax revenue, tax revenue). It has the potential to solve Hebb’s problem, and it would generate additional tax revenue for the provincial and municipal governments.

Furthermore, one of Hebb’s competitors charges nearly 40 per cent less per week for a rental unit–$1,200, instead of $2,000. This is a significant difference in cost, and if unlicensed operators can manage to reduce the price of renting a unit by that amount, it could also encourage tourists to visit Nova Scotia, thereby generating additional tax revenue for the provincial and municipal governments.

In light of Economic and Rural Development and Tourism Minister Michel Samson’s announcement last week that government would shift its attitude and “enable business experts to make more decisions and allow government to focus on improving the economic conditions for the private sector, social enterprises, and communities to thrive,” perhaps this is a useful start.

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