We can do better

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   By Guest Blogger Ryan Lewenza

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Canada is a great country! Sure, it has its problems and checkered history, like any nation, but I consider myself lucky to have been born and reside in this country. But, at the same time, I see some major problems that our leaders need to address, or I fear, our economy will continue to lag behind and become less dynamic and relevant.

First, we need to ‘right size’ our current immigration policies and numbers. Historically we’ve welcomed 300-400,000 new immigrants per year to our country. However, in the last two years we’ve added over two million newcomers.

To be clear, immigration is one of the best aspects of our great country. Immigrants add to both our economy and our rich culture, with Canada being one of the most diverse nations in the world. Take a walk down Robson Street in Vancouver or attend a Toronto Raptors game and you’ll see just how diverse and multicultural our cities are. My concern is just the numbers and what is a reasonable amount of new Canadians that we can absorb in any given year.

National Bank economists highlighted some of these issues in a new report titled, ‘Canada is caught in a population trap’. The central thesis is that the population is outstripping the existing capital-labour ratio (an economic measure used to determine the proportion of capital to labour), which in turn, is causing our standard of living to fall.

Canada’s standard of living falling behind the US

Source: NBF Economics and Strategy

Second, our energy policies have been frankly a joke, which, given that the sector represents 12% of GDP is short-sighted and moronic. I’m all for trying to combat climate change but our policies should try to balance both the economy and environment.

Case in point, the Trans Mountain pipeline, the one that the Federal government was forced to purchase due to its owner – US-based Kinder Morgan – finally throwing in the towel on finishing the project, is now near completion with the first tanker of oil set to load in April.

Why is this project so important?

Currently, 99% of all our oil exports go to one country – the USA. As US production hits new all-time highs, their demand for our oil lessens. So, we need more customers to purchase our oil and that’s where the Trans Mountain pipeline comes in.

This project effectively ‘twins’ an existing pipeline, which was built in the 1950s. This new pipeline will triple transported oil from 300,000 barrels/day to 900,000 barrels/day. This will have two huge impacts for Canada. First, it will increase production, supply, and sale of our oil. Second, it will likely help to narrow the large discount in the price of our oil (Western Canada Select) and US oil prices (West Texas Intermediate).

As seen below our oil price trades at a sizable discount to US oil prices, which is in part due to our oil being landlocked. Well, this will no longer be the case once the oil is flowing through the new pipeline, put on large ships and sent overseas. Our energy companies will likely see a big increase in revenues in the coming years as this discount narrows. More profits equal more jobs, a higher standard of living, higher government tax revenues, which can then be used to fund renewable projects across the country.

The problem with this project, just like the massive BC LNG pipeline and terminal project, is that it has taken years to approve and build, going billions of dollars over budget in part due to the onerous regulations.

Canadian oil trades at a large discount to US prices

Source: Bloomberg, Turner Investments

Third, our governments should look to reduce, not add, to the already onerous and byzantine regulatory regime. Whether it’s pipelines, large new infrastructure projects or building new homes, there’s just too much red tape and impediments to getting stuff built.

A policy called the Impact Assessment Act or Bill C-69 requires all large infrastructure projects to be assessed for its environmental impacts and that certain parties and entities (the list is large) be considered before approving any projects.

Since this bill came into effect four years ago, 25 projects have been submitted for review, with almost all of the projects still in phase two of the four-part approval process. According to a report by the Canada West Foundation, it takes on average 3.5 years to approve a project with some taking over 10 years.

Apparently, it took Tesla 168 working days or roughly six months to go from permits to a finished Gigafactory plant in China, and we can’t even build a pipeline in under a decade?!

Additionally, governments need to address all the interprovincial barriers that exist today. These barriers include things like different provincial regulatory and administrative policies, technical regulations such as vehicle weight standards, and different compliance standards.

It’s estimated these provincial barriers add 7% to the costs of goods and services here in Canada and that if we removed some of the barriers could result in an increase in Canadian incomes by 5.5% or $1,800/year.

Finally, our federal and provincial governments need to address the out-of-control spending and deficits. In 2015 the federal government spent $280 billion (in today dollars around $345 billion). For the 2023-24 fiscal year, our government is expected to spend $496 billion, which will rise steadily to $555 billion by 2027-28. As a percentage of our economy (GDP), and we’ve seen this rise from 12% in 2015 to over 16% today.

The problem with the spending is it’s being financed by debt so the interest expense is skyrocketing. Just since the 2021-22 fiscal year, federal debt interest has surged from $25 billion to $47 billion today. That’s roughly the same amount that we spend on health care transfers and is more than we spend on the Canadian Child Benefit and national daycare combined.

Our leaders don’t seem to understand that these ‘investments’ as they call them, are starting to come due and it’s time to pay-up. As Margaret Thatcher famously said, “The problem with socialism is that you eventually run out of other people’s money.”

So, there you have it! We’re a great nation indeed, but with major problems and hurdles that must be  addressed.

Canada total program spending as % of GDP

Source: Government of Canada, CBC

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

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About the picture: “I am one of your many regular readers.,” writes Robin, on Vancouver Island. “I look forward to each and every post.  The content is  not only extremely informative, but has me shaking my head over the crazy antics of people in the world today.  Why can’t we all just get along like these sled dogs do with the polar bear, taken when I was in Churchill?  Life could be so simple if we only let it.”