By Mark Milke
and Ven Venkatachalam
Canadian Energy Centre
Atlantic Canada struggled to create good-paying jobs long before the COVID-19 pandemic. The multiple reasons include poor policy and high taxes on businesses and individuals.
Poor policy reinforces other lousy policy, leading to a self-reinforcing downward economic spiral.
For instance, previous governments formed policy forbidding fracking during natural gas exploration in New Brunswick and Nova Scotia. Those decisions prevented the development of sizable provincial industries that could pay workers well and provide revenues to governments.
Policy preventing resource extraction puts additional pressure on entrepreneurs, their businesses and taxpayers to pay for provincial government programs. A smaller, stagnant tax base means everyone has to pay more.
In contrast, an economy where everyone from entrepreneurs to larger enterprises flourish and hire extra workers spreads the tax burden around. That allows for a moderation of taxes, which allows other businesses to thrive given lower costs.
The problem is how to move from existing high tax rates to lower rates without incurring higher deficits. We’re assuming non-pandemic years and budget finances, but the point is even more relevant in a year where government finances are all being written in deep red ink.
As of 2016 (the latest year for which detailed Statistics Canada data is available), oil and gas spending in the region had direct impact of over $11 billion and nearly $4 billion in indirect impact, for $15 billion in total.
That money contributed to the creation of more than 10,400 direct and 16,700 indirect jobs in the Maritimes and Newfoundland and Labrador – over 27,000 well-paying jobs. Wages and salaries paid to workers in the region amounted to over $1.6 billion in just 2016 – when oil and gas spending was in a slump year.
Oil and gas spending in Atlantic Canada touches on a variety of local industries. In 2016, the sector purchased $544 million worth of services from Atlantic Canada’s finance and insurance sectors. It also paid $618 million into what Statistics Canada labels the “professional, scientific and technical” sector – think of engineers working on Newfoundland’s offshore rigs or Halifax accountants providing expertise to energy companies.
Manufacturing in Atlantic Canada was the biggest beneficiary in the region. That sector received $5.5 billion in orders from oil and gas spending. Think of a regional company that manufactures kitchen equipment for an offshore oil rig, for example.
But what’s possible beyond what oil and gas companies already spend in Atlantic Canada?
Here, concern about additional carbon emissions is raised and understandably so.
However, carbon emissions are currently created in the countries that supply oil and gas to Eastern Canada. For example, Canadian imports of natural gas from America rose by 1,200 per cent between 2000 and 2019, reaching over 971 billion cubic feet.
That natural gas isn’t carbon-free, it was just extracted in the United States. But American states reaped the jobs and tax revenues, rather than Atlantic provinces.
In 2019, $781 million was collected in oil and gas royalties Atlantic Canada – almost all of it in Newfoundland and Labrador. In the same year, four American states alone – West Virginia, North Dakota, Pennsylvania and Ohio – brought in nearly $2.3 billion in oil and natural gas revenues.
So those states and others saw jobs and tax revenues created locally, in part due to exports to Canada – despite sizable reserves in Atlantic Canada and Quebec.
At over $11 billion in direct spending alone, oil and gas spending in Atlantic Canada is impactful. But it could be even more meaningful if additional reserves – especially onshore natural gas in New Brunswick and Nova Scotia – were tapped.
Mark Milke and Ven Venkatachalam are with the Canadian Energy Centre, an Alberta government corporation funded in part by carbon taxes. They are authors of 27,000 jobs and $15 billion: The impact of oil and gas (and Alberta) on Atlantic Canada’s economy.