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An oil lamp in the dark

Gwyn Morgan
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Gwyn Morgan: Encouraging signs from a government that has failed to understand just how economically vital the resource sector has been.

After five years, the half million or so Canadians whose livelihood depends on the oil and gas industry finally got some good news: the oilsands are now part of the government’s green energy agenda!

In an August 12 interview Natural Resources Minister Seamus O’Regan said “there’s no way we are reaching net-zero (Canada’s 2050 emissions target) without Alberta.”

O’Regan went on to express support for new pipelines that would allow output to grow by over a million barrels per day in 2021 – and continue to rise after that. In stark contrast to the Liberal government’s previous vilification of the industry, O’Regan lauded the ingenuity of Albertans in finding ways to “draw oil out of sand.”

This stunning reversal couldn’t have been imagined prior to the COVID-19 crisis. Why now? In the minister’s own words: “our prosperity and our economy are still highly dependent on it.”

How dependent? The industry is by far the largest contributor to both GDP and net export revenue, each at over $100 billion per year. And Alberta has long been the largest net (money sent minus received) contributor to Ottawa’s coffers, averaging $95 billion per year from 2014 to 2018 – considerably more than all other provinces put together.

The $83 billion revenue drop in former Finance Minister Bill Morneau’s July 8 fiscal snapshot illustrates the importance of growing Ottawa’s most important revenue source. The snapshot projected an astonishing $343 billion deficit. Two days later, the government announced employment insurance changes that will cost $37 billion, taking the deficit to $380 billion.

Further spending escalation is a certainty, including help for stretched provincial healthcare budgets, cities unable to fund public transportation, and aid to hard-hit business sectors. It’s now clear that our national debt will exceed $1.2 trillion, twice the amount when Liberals came to power in 2015.

The last time Canada faced such an enormous financial challenge was after the Second World War. Back then, demographics came to the rescue; the post-war baby boom combined with soldiers returning home to help produce desperately-needed consumer goods and transformed the economic picture.

Today, those same boomers are moving from the workforce to care homes – and living longer. This stymies economic growth while driving increased public spending for old age security and eldercare.

Given this alarming picture, it’s incomprehensible to hear our government declare the pandemic has created an “opportunity for public investment in green restructuring of the economy,” which translates into subsidizing windmill and solar power companies.

Will that work? Ask Ontarians, who’ve seen home and business electricity rates skyrocket to produce insufficient amounts of unreliable power. It seems the coronavirus has fostered escape to an ephemeral state where the lessons of the past are unlearned and replaced with a wish.

Moreover, as the saying goes, we ain’t seen nothin’ yet.

COVID-19 portends a massive restructuring of vital business sectors. Retail, which employs millions and occupies vast amounts of real estate from streetside shops to malls, faces profound uncertainty from the pandemic-driven shift to online shopping. Lockdowns facilitated an array of new communication tools that allow many to work remotely, emptying office towers.

The potential impacts are staggering, including mass unemployment and devaluation of commercial real estate values underlying public and private pension funds. The full impact of these and other post-COVID structural shifts are yet to be known, but it’s clear: they will be profound. Government tax revenues will fall, while the need for support and training of displaced workers will increase.

Navigating these shoals would be difficult enough if our economic outlook had been strong before the crisis. But alas, that wasn’t the case.

Statistics Canada data shows that from 2015 though 2019, investment in 10 of the 15 major business sectors dropped by 17% as both Canadian and foreign investors fled. Over $185 billion left the country. This mirrored a precipitous drop in both the World Bank Ease of Doing Business ranking and the World Economic Forum Competitive Index. Canada’s strong employment rate over that period was driven by unsustainable deficit spending, not private sector investment.

Reigniting private sector investment that will yield, rather than consume, government revenues will require a profound and clear reversal. Minister O’Regan’s encouraging comments about Canada’s oil and gas industry must be followed by clear and early federal government action in cooperation with the producing provinces..

So here’s a note to our new Finance Minister Chrystia Freeland: attracting and achieving private sector investment and job creation is the only hope for keeping the good ship Canada from smashing on the post-COVID rocks – and thus sinking a nation with such great potential.

Gwyn Morgan is a retired Canadian business leader and a Member of The Order of Canada

SWIM ON:

  • Gwyn Morgan last looked at the measures BC took to flatten the curve of COVID-19 – and concluded they sadly aren’t sustainable.
  • Young people don’t vote – you’ve heard this, surely, and for good reason. But as Gavin Dew points out, a close look at the numbers suggests that’s changing fast.
  • The Business Council of BC’s David Williams also did some number crunching, in this case to see which industries really and truly pay the bills in BC.
SWIM ON