I have been saying for a number of years the reason New Brunswick needs a solid economic growth rate is to induce organic growth in tax revenues. Over time, GDP growth and tax revenue growth is highly correlated. If you don’t have economic growth and you want to significantly expand public spending, you will need to squeeze out more taxes as a share of the total economy either by raising tax rates or some other means. Or, you can run deficits in perpetuity too.
Now this isn’t just a New Brunswick issue. Canada is facing a long term period of relatively weak economic growth while the federal government is boosting spending and running structural deficits.
IMO, it used to be somewhat of a consensus that governments should balance the budget or even run surpluses in the ‘good’ times so that they could run significant deficits in the ‘bad’ times and prop up the overall economy.
Now, most seem to be of the view that you can run deficits in perpetuity as long as your debt-to-GDP ratio stays about the same (assuming some consideration for debt service costs).
There is a third view creeping in - MMT - which takes the view that government can basically spend whatever it wants.
According to TD Economics, the long term real GDP growth rate in Canada will be below two percent per year through 2028. Other forecasts are even more pessimistic.
If real GDP growth went back to the longer term average of closer to three percent, it would allow for this federal spending expansion without long term deficits or tax rises.
But in these times three percent is challenging. The feds are trying to use a population-based approach to GDP growth (i.e. bring in lots more people and they will fill jobs and spend money - leading to more taxes) but those people also require public services (a cost).
So others are advocating for a much more pronounced focus on productivity - generating higher GDP per capita. However, this is challenging because a lot of the highest productivity sectors are falling out of favour (oil and gas production is the most productive sector in the economy by far as measured by labour productivity, oil refining is near the top).
Mining in general tends to be very productive - i.e. you need relatively few workers per dollar of GDP creation. Presumably this is one reason the feds seem to be interested now in mining but the development timeline is so long for these projects it is hard to see substantial short term impacts.
These are certainly complicated times from a national economic development perspective. I don’t think population growth is the end-all, be-all. We must have high value export sectors and innovative entrepreneurship, among other elements.
The rise of industrial policy in the US and elsewhere is complicating matters even further.
In the end like most things we will need to find a balance. We need at least moderate economic growth and public spending that doesn’t require substantial tax increases or that dramatically increases the future tax burden.
It's difficult to see a single solution for economic disparity and stagnation—perhaps we are approaching a sustainable balance, but I doubt it. The Trump administration placed tariffs on Chinese goods, hailed by world economists as a terrible mistake, but the Biden administration hasn't removed them, opting instead to broaden the policy to the 'America First' cries that preceded WW2. The ideal might be borders open to immigration and trade, no inflation and perfectly distributed wealth, but ideals are not, and likely won't become reality. We must work with what we have, and with change we as a society can accept. That involves immigration, the environment, productivity, and affordability—hopefully all within a reasoned context. Unfortunately, we are confined to taking one step at a time... on the road you have so eloquently described.
Well done. Several pauses for thoughts.