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A tale of four Western premiers

Appeared in the Calgary Herald
Release Date: October 31, 2010
It’s a given in politics that policies that make long-term sense may not always be appreciated in the short-term. In the 1980s, killing off the old federal manufacturers’ tax to replace it with the Goods and Services Tax was actually smart policy—much as many of us hated seeing the new GST on our receipts. The manufacturers’ tax made Canada’s exports more expensive; thus, the GST replaced a tax that punished business for doing what we want them to do—create and export things, which generates jobs and incomes in the process.

Similarly, the now unpopular premier in British Columbia is also the one, who, on a relative measurement, has managed public finances the best. In a recent analysis by my colleagues on the fiscal record of 10 provincial premiers, BC’s Gordon Campbell came out on top when spending, taxes and budgetary red ink were measured. All of that has long-term benefits. But Campbell, in power since 2001, is in the public doghouse despite that success and for wholly understandable reasons.

The BC premier and his finance minister have repeatedly said their government before and during the last election, did not consider combining BC’s provincial sales tax with the federal GST. Soon after the BC Liberals were re-elected, they began to do just that; the Harmonized Sales Tax (HST) took effect this past July. That decision, along with documents later released that showed the finance minister did at least read the bureaucracy’s memos on the HST in early 2009, gave rise to the possibility that BC’s governing politicians were not straight with voters.

So, despite reductions in taxes elsewhere to make up for the (more widely applied) HST, new cheques for low-income earners, and another 15 per cent cut in personal taxes announced this past week, Campbell’s popularity is inversely related to his policy success. Such is politics.

As for other Western premiers, Alberta’s Ed Stelmach and Saskatchewan’s Brad Wall both made it to the middle of the premier’s pack (fourth and fifth highest respectively) despite spending significantly more than inflation plus population growth would justify. Calculated from the beginning of his service to the end of the most recent fiscal year (this past March), Stelmach presided over average increased program spending of 8.2 per cent; that compares to population growth plus inflation which clocked in at 5.2 per cent on average, annually, over the same period.

In Saskatchewan, Premier Wall increased program spending at the eye-popping rate of 10.1 per cent annually. That was almost triple the growth in population and inflation combined, at 3.6 per cent.

Both increases are unsustainable. They’re also why former Manitoba premier, New Democrat Gary Doer, now Canada’s ambassador to the United States, ranked second-highest on fiscal policy among the premiers surveyed. (Doer scored high on controlling spending and debts and deficits, poorly on reducing taxes).

The performance review of Canada’s premiers didn’t include some policies—for example, Stelmach’s early but now reversed hike on natural resource royalties. Nor did it include the ongoing problem in Manitoba where the provincial government is in business where it need not be (think liquor stores). So the relative rankings should be noted with that in mind, lest any premier or former premier brag too heartily.

A good, recent example of an event not measured but that can have an impact upon Western prosperity is Wall’s opposition to the Australian company BHP’s proposed takeover of Potash Corporation of Saskatchewan, a stance now endorsed by Stelmach.

This is a mistake. First, plenty of Canadian companies invest abroad, more so than “foreigners” who invest here. Canadian direct investment abroad amounted to $593 billion at the end of 2009 according to Statistics Canada; that compares to foreign direct investment in Canada of $549 billion. On a think-ahead basis, it’s not in anyone’s interest to advocate at home what would harm our potential to do the same abroad—invest and take over companies.

Second, if enough Potash shareholders think BHP’s offer is high enough, that’s up to them to decide, not Premiers Wall or Stelmach, especially when national security is not at stake. The same logic applies to Ottawa, which is now reviewing the proposed bid.

Third, foreign investment brings tremendous benefits to countries that welcome it. In a paper released this summer, economists Nathapornpan Piyareekul Uttama and Nicolas Peridy argue foreign investment in East Asia led to significant productivity growth there. In 2009, in a paper published by the Federal Reserve Bank of St. Louis, two authors argued economic growth in American states (if the workforce was sufficiently skilled) was actually helped more by foreign investment than by domestic investment.

Let’s put this another way: long-term, the policies taken by the premiers matter, even if not all their actions can fit into a ratings chart.