Productivity needs investment
"Lack of investment is to blame for low productivity"
I hear the above line being touted in many circles around the province (both in the public and private sector), however, the former likes to sweep the issue aside in hopes it will go away. Unfortunately, as the Calgary Herald reminds us, this situation isn't going to go away anytime soon. The editorial begins by explaining the benefits of investment:
"Give someone a shovel, and he can dig a hole. Give him a backhoe, and he can dig a big hole, more quickly.Afford to pay him, indeed. The reality, of course, is that "regulation" and "high taxes" are stalling productivity in its tracks in this province. What was particularly galling was the fact that our current government, here in New Brunswick, were completely unwilling to do what is right for industry, in that, they chose to ignore pledges by the opposition (who obtained a higher popular vote) to lower business taxes and lift regulations [i.e. NB Power and rescinding Lord's small business tax cut]. Simply put, money paid in tax is not available to invest. Let the CD Howe Institute explain:
That's what capital does for productivity. There is also something in it for the worker, too. The more he gets done, the more his employer can afford to pay him."
One place to look is at high taxes on capital formation in Canada. The country has some of the highest rates of capital taxation in the world (Mintz et al.2005). Governments need to continue to reform and rationalize their corporate, capital, and sales tax codes to ensure that investments can receive internationally competitive returns.And when speaking of human capital, as I said in a previous post: "the government of New Brunswick would be better off focusing on policy initiatives that attempt to attract and retain the creative class rather than reintroducing old [failed] policies that do more to drive them out.[...] So it makes no sense to me why governments are willing to nickle and dime these individuals with high taxes whereby they eventually drive them out. Wouldn't it make more sense to attract a larger and more competitive and educated talent base through lower taxes rather than discourage them with regressive ones.
Another place to look is regulation. Some of the sectors likeliest to yield innovations, competitive products, and rising wages in the years ahead — such as telecommunications, financial services, and healthcare — struggle under regulatory regimes shaped by the economic and political imperatives of the past. Other key supports for the economy, such as transportation infrastructure and the production and transmission of fossil fuels and electric power, are not subject to market pricing and/or have restricted access to funds for investment.
Canada is blessed with high amounts of human capital, deep and efficient capital markets, relatively large amounts of infrastructure, and access to the US market that is almost entirely free of trade barriers. In the long run, translating these advantages into higher standards of living in Canada depends on increasing the productivity of Canadian industry. The higher incomes, faster productivity growth, and lower environmental stresses that new capital permits are especially desirable in the face of Canada’s changing demography, which threatens to hold back growth of the workforce while putting fresh demands on public programs. So tax and regulatory reform that would make Canada’s investment climate more favourable, and thus equip Canadian workers with better tools, is an essential task for federal and provincial governments.
14 Comments:
sounds good to me NBTaxpayer...
all your posts are excellent and thought provoking...
Thx NBTL. I'm going to start shortening them up a bit to make them more reader friendly.
a fine arguement. And one that Shawn should definitely take into account if he doesn't want to get throw out halfway through his self-sufficiency mandate.
Don't shorten them if its not necessary, probably the quotes could be shorter, they are used mostly to back up your point.
HOwever, looking at the facts seems to suggest you are a little askew, but don't listen to me, just read david campbells blog. Under Lord taxes were, and still are, among the lowest in the country. Did massive investment arrive?
New Brunswick has lower taxes than any other maritime province, by that reasoning we should see people moving to NB from the other areas, or at least instead of. That's also not the case.
Take the shovel example. The worker analogy doesn't quite pan out. Give six men a shovel and you employ them, invest in a guys company who buys a backhoe and you put five guys out of work. WIth the rapid pace of technology its only a matter of time before industry doesn't need ANYBODY to do its labour...then what do we do? Wait for handouts?
That is true though, that productivity needs investment, however, lower taxes aren't an investment, and it doesn't follow that money saved is reinvested, in fact it is more likely to simply be invested elsewhere.
David Campbell's blog? The same blog that just recently said "Governments - economic development folks - need to put the community's interests ahead of any one company or individual - even if that individual scares the pants off them" when it came to companies looking out for their best interest.
Pretty rich coming from a guy who constantly criticizes the feds for favouring Ontario and Quebec with regional development grants (porkbarrelling). If you take that tact, could you not argue that the feds are just looking out for the country's best interest by keeping its main economic engine (auto sector in Ontario & and aerospace in Quebec) strong so that the country can remain competitive globally?
I digress, if you read my post, you know where I stand in that particular game): I am adamantly opposed to any regional programs (FEDNOR, ACOA), no matter where they pop up.
Thx for the compliment anon. No doubt he should look at it. But I'm pretty confident in saying he won't.
I'm not talking about opinion, David Campbell has an opinion, but he also has the stats. IF it were true that lower taxes means more productivity then NB would be the second most productive province in the country. It's not, in fact its down at the bottom. So something else is at work.
Everybody has an opinion and there is no point in trying to change them, however, looking at the facts makes it a lot more clear.
It very easily can be argued that the feds THINK they are just looking out for the country, in fact, depending who at the fed is being talked about that would go without saying, in fact I think David's even said it. That not everybody thinks so is more to the point.
That you don't like regional or any kind of government investment is fine, that's your opinion. However, you do have to explain how lower business taxes would increase productivity when it has never done so in the past. You don't have to explain it, however, typically most people use their opinion to influence others, so if opinion is not based on the facts, then not too many people are going to buy into it.
That's not being negative, I'm just curious. That's the part where everybody's opinion is equal, while some, like David, argue that porkbarrelling, or regional development-they don't call the auto sector porkbarreling in ontario, goes on anyway so each part of the country should get some, whereas others, like yourself and Scott over at sorrycentrist argue that it shouldn't go on anywhere. Both sides have a point.
I understand where you're coming from [even though our views may conflict on the power of the state]. But give it time, Mikel.
The political environment can not change overnight. It takes someone with a clear vision of the future (and a different tact) to slowly guide us to where we want to be. Let's just say, it will be historical because it will not be something that you have seen in the past.
Interesting that you say that, because we're cooking up some stuff just like that over at broadcastnb. However, its not just aimed at issue ideologies, because for everybody its different. For some, Atlantica's 'vision' of the future is ideal, for others its hell. The Saint John Board of Trade has been raving for years about just how wonderful it is, but check out my blog for the stats on the 'chemical soup' that Saint Johners are living in. Take a look at Saint John poverty. Take a look at the lack of citizen participation in decision making.
Again, look at the stats. The private sector pays the lowest contribution of tax to the New Brunswick budget out of any province in the country. New Brunswick has the highest percentage of people earning over 250 K in canada. So again, something FAR different is at work.
I mention this here because this is stuff that most New Brunswickers know without reading. They KNOW what Irving gets away with, that's the 'private market', so while you preach, keep in mind WHY people will turn to the government every single time in this province.
But for historical movements, thats something else. Maybe its time to resurrect the 'maritime rights movement'.
Another point on the low taxes/investment issue is perception. Would a half point tax cut start a flood of investment? In many cases no, but the idea that a government is willing to allow the private sector do its thing is a huge positive for an investor. Raising taxes that half point probably doesn't break the bank either but it sure sends a message that the government is more than willing to reach into corporate pockets to offset their deficits.
In other words, I would wager most companies would prefer an environment where taxes are trending down even if the rate itself is slightly higher than the jurisdiction with a lower rate that is on an upward trend. It all speaks volumes on the government's attitude towards business.
Mikel: I think there is a huge opportunity for the poor in the future. With knowledge quickly shifting from the "provider" to the "consumer", we have an opportunity to empower our citizens with ecomonmic power. The question is, will government sanction this power so as to favour themslves over a budding global "human capital" based economy? Let's hope not.
So true, Eugene. I think most companies know the type of reputation that places like Quebec and the Atlantic provinces have.
In other words, most will only relocate to economically decling societies as long as there are guaranteed subsidies in the mix. The same goes for them remaining in the area. Once the subsidies stop flowing, they usually pick up and leave.
I think you are underestimating the intelligence of business owners, investors. They know full well the budget has to be balanced, and they know full well that every government may only have a shelf life of 4 years.
Moreover, general tax rates have little bearing on companies. Every industry has different ways of accounting, different write offs, different, everything. I know an upper level accountant who told me that corporations essentially pay what they want.
Keep in mind that there is virtually NO overseer of even stock fraud in canada. There is zero auditing of large corporations, the bookwork is essentially for show.
So the idea that rates 'may' be tending down means little. A recent study in Maine showed that tax rates were at the very bottom of the list for companies who invest or relocate. It seems an odd bit of logic to state that a nominal difference in tax rates, say 1 or 2 percent, won't affect the judgement of a CEO, yet if that 1 or 2 happens to be up instead of down WILL.
Even the above notwithstanding, any CEO who looks at NB and NS and says 'OK, NB is cheaper, but this year it went up, but NS is more expensive, but it didn't change this year' is just too dumb for words.
mikel, that may be (and in my opinion is) true for large corporations but many in small business don't have those luxuries and certainly don't have the resources to hire the type of accountants that can substantially reduce the tax bill.
I agree 100% that the tax rate in a province is meaningless for large business. It is small business that pays the prescribed rates nine times out of ten simply because they can't afford the fees for someone to tell them that a certain deduction won't land them in jail (if you keep quiet about it...) Again, a point here or there won't make the decision for anyone but the idea of increasing taxes versus decreasing or stable tax rates is simply a negative that enters the equation and isn't helping matters for the province.
That's fine to have that opinion, I personally don't share it. For small businesses it SEEMS to be true that most small business people start and stay in business in the place where they are from.
Take a look at most small business, they are primarily service oriented, and I doubt that many starting such companies would be thinking "ok, well, I LIVE in Saint John but taxes went up so maybe I'll move my business to Truro because although taxes are higher there they aren't going down".
Thats a bit of a stretch, it MAY be true, but I'd need to see proof of that. Its a huge cost to pack up and leave one area, usually having to hire all new staff.
That people don't like taxes going up is a given, once again, if New Brunswickers were politically active, perhaps with a viable NDP, then middle class taxes wouldn't have risen MORE than the wealthiest New Brunswickers. Again, New Brunswick's wealthy is the wealthiest ten percent in all of caanda, so there is no reason for small business taxes to be raised when taxes on the wealthiest corporations could more than handle it.
So we do agree that there was no need for the tax increase on the middle class, however, I don't think the damage is nearly as extensive as you may think.
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