The prosperity gap between Atlantic Canada and the rest of the country could be closed in a generation, according to a new report that calls for “pro-growth policies” including tax cuts and curbed spending.
The report released Tuesday said the four easternmost provinces lag behind the rest of the country on most economic indicators, including household income, unemployment and labour productivity.
But the report said the region’s status as an “economic laggard” could be reversed in the span of a generation through tax and regulatory changes that would spur economic growth.
“There is no inherent, fixed reason why the region must lag the rest of Canada economically,” said John Risley in a foreword to the report, released by the newly merged Atlantic Institute for Market Studies and Fraser Institute.
The right-leaning think tanks focus on free-market economics and public policy.
Ingenuity, industriousness, and entrepreneurship
Risley, board chairman of AIMS and the founder of Clearwater Fine Foods, said the Atlantic provinces have “a long history of ingenuity, industriousness, and entrepreneurship.”
If harnessed, he said these qualities could create the foundation for the region’s prosperity and “enable Atlantic Canada to catch up economically with the rest of the country.”
A scan of key economic markers reveals the Atlantic provinces fall short of the Canadian average in most areas.
For example, household income was about $4,564 lower in Atlantic Canada in 2017 compared to the rest of the country, according to the report.
In addition, the unemployment rate has averaged about 9.2 per cent, compared to 5.6 per cent across Canada.
The report said the East Coast would need a growth rate of 1.6 per cent over 20 years to close the prosperity gap with the rest of Canada – significantly higher than the average growth rate of 0.9 per cent in recent years.
To get there, the report lays out a roadmap of tax cuts and reduced public spending.
Looking to Ireland
“It’s a question of looking for ways to make public spending more cost effective, to get better value for money so we can reduce expenditures without hurting the quality of public services,”
- Ben Eisen, Fraser Institute senior fellow
It points to Ireland and Michigan as success stories, where the report said “pro-growth policy reform” lead to a period of economic growth.
The report said Ireland experienced a prolonged boom of 5.5 per cent annual growth after introducing economic reforms – a “stunning turnaround” for a sluggish economy.
The so-called Celtic Tiger slashed the corporate tax rate to 12.5 per cent, from 40 per cent, and lowered the top marginal personal tax rate to 44 per cent, from 58 per cent, the report said.
The country also reduced health and education spending – cutting 8,000 public sector jobs.
“The spending reductions successfully solved Ireland’s fiscal crisis,” the report said, noting the deficit was eliminated.
“These spending reductions and the balanced budget they produced created the fiscal room that helped propel the pro-growth tax reform described earlier.”
Although cutting public spending may sound controversial, Fraser Institute senior fellow Ben Eisen pointed to two examples of Canadian leaders that made “tough decisions” with public support.
“Roy Romanow’s government in the 1990s in Saskatchewan brought in substantial reductions in expenditures, which set the table for tax relief,” Eisen said in an interview, noting that the former NDP premier was successful in subsequent elections.
He added that the Liberal government of former Prime Minister Jean Chretien launched sweeping fiscal reforms in Ottawa, and still had political success.
“It’s a question of looking for ways to make public spending more cost effective, to get better value for money so we can reduce expenditures without hurting the quality of public services,” he said.
A contrary call
Dalhousie University economics professor Lars Osberg said the idea that taxes and spending can be slashed but public services won’t be impacted is “tooth fairy economics.”
“Everyone is in favour of efficiency and spending better,” he said. “But to pretend you can cut taxes significantly and balance the budget and still deliver the same quality of public services is nonsense.”
Meanwhile, Eisen said the merger of the Atlantic Institute for Market Studies within the Fraser Institute will lead to more high-quality research on public policy issues in the region.
He said the merger creates the largest independent think tank in Canada.
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