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Saskatchewan can boost prosperity by improving investment and business development climate

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Release Date: February 19, 2009

VANCOUVER, BC-Saskatchewan could bolster its recent economic success and usher in a new era of prosperity by implementing policies that encourage investment and business development, concludes a new report from independent research organization the Fraser Institute.

The report, Saskatchewan Prosperity: Building on Success, examines the province's investment performance over the past 30 years and concludes that its poor economic performance and out-migration of people during this time are largely the result of a lack of investment and opportunity. It recommends fundamental changes to the province's Crown corporations, tax policy, labour market regulation, and barriers to interprovincial trade.

From 1978 to 2007, Saskatchewan ranked ninth among Canadian provinces in terms of the amount of net business investment accumulated per worker, with just 49.4 per cent of the national average, 82.1 per cent of what was achieved in Manitoba and a mere 22.7 per cent of that achieved in Alberta.

"While the province's investment performance has improved and the exodus of working-age people has reversed in recent years, much more is needed to secure ongoing economic success and create a stronger foundation for the future," said Niels Veldhuis, Fraser Institute director of fiscal studies and primary author of the report.

Crown Corporations

Saskatchewan Prosperity: Building on Success details the extensive role of Crown corporations in the Saskatchewan economy. As a percentage of overall economic output, Saskatchewan has more Crown corporation activity than any other province.

But Veldhuis and his co-authors found that Saskatchewan's Crown corporations don't stack up well when compared to the private sector when it comes to investing in new capital such as equipment and machinery. They examined in detail three of Saskatchewan's four largest Crown corporations¬-SaskTel, SaskPower, and SaskEnergy-and found all three were out-performed by their private-sector counterparts in 17 of 20 comparisons, representing an 85 per cent failure rate.

For example, at SaskTel, average capital expenditures per worker between 2003 and 2007 were $36,746 compared to $53,188 at MTS, $53,390 at Telus, and $104,816 at Bell Canada. SaskEnergy had average capital expenditures per worker of $83,376 between 2003 and 2007 while Union Gas spent $113,858 per worker, Terasen Gas spent $138,103 per worker and Enbridge spent $198,160 per worker.

SaskPower had average capital expenditures per worker of $122,930 between 2003 and 2007 while ATCO spent $125,823 per worker and TransAlta spent $163,938 per worker. Only Newfoundland Power's and Emera's capital spending trail that of SaskPower.

"The tendency of Crown corporations to under-invest means their employees don't have access to better tools and technologies. This loss in productivity translates into lower wages and ultimately, a lower standard of living for workers," Veldhuis said.

"The solution for the underinvestment of Crown corporations is privatization. Privatizing the Crown corporations will unleash and promote investment in these specific industries as well as in other areas of the Saskatchewan economy."

Taxation

The report points out that Saskatchewan has made progress in reducing taxes in recent years, but more could be done to harness the potential of the province by improving incentives for hard work, investment, and entrepreneurial risk-taking. It recommends:

  • Implementing a single personal income tax rate of nine per cent;
  • Harmonizing the provincial sales tax (PST) with the federal goods and services tax (GST) in a revenue-neutral manner to end the taxation of business inputs;
  • Reducing the general corporate income tax (CIT) rate to nine per cent; and,
  • Eliminating corporate capital taxes (CCTs) on the financial services sector.

At the same time, the report notes that government needs to rein in spending.

"Getting spending under control will give the province the resources needed to implement the necessary tax relief," Veldhuis said.

Labour Market Regulation

One deterrent to investment is Saskatchewan's long history of labour laws that impede flexibility and are biased in favour of unions.

"If the province truly wants to capitalize on the opportunities it faces today, it must reform its labour policies," Veldhuis said.

The report recommends:

  • Bringing labour relations laws more in line with other provinces and U.S. states to focus more specifically on balance, including:
    o Prohibiting mandatory union membership and dues-payment clauses in collective bargaining agreements; and,
    o Removing successor rights, technological change laws, and forced arbitration from labour relations laws.
  • Freezing the minimum wage; and
  • Addressing labour standards such as overtime requirements which remain too prescriptive and biased.

Interprovincial trade

The report's final key recommendation suggests that Saskatchewan join the Trade, Investment and Labour Mobility Agreement (TILMA), forged between British Columbia and Alberta in 2006, to eliminate restrictions and impediments to trade and investment.

Overall, the report's many recommendations show how Saskatchewan can usher in an era of unprecedented prosperity and wealth creation that would last for decades.

"Creating an improved economic environment for lasting prosperity in Saskatchewan is critical-particularly now given the current economic woes in many parts of Canada and the uncertainty going forward," Veldhuis said.



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